Saved by the Deficit?
By ROBERT B. REICH
NYT
Berkeley, Calif.
BOTH presidential candidates have been criticized for failing — at Tuesday’s debate and previously — to name any promises or plans they’re going to have to scrap because of the bailout and the failing economy. That criticism is unwarranted. The assumption that we are about to have a rerun of 1993 — when Bill Clinton, newly installed as president, was forced to jettison much of his agenda because of a surging budget deficit — may well be mistaken.
At first glance, January 2009 is starting to look a lot like January 1993. Then, the federal deficit was running at roughly $300 billion a year, or about 5 percent of gross domestic product, way too high for comfort. By contrast, the deficit for the 2009 fiscal year is now projected to be $410 billion, or about 3.3 percent of gross domestic product. That’s not too worrying. But if the Treasury shovels out the full $700 billion of bailout money next year, the deficit could balloon to more than 6 percent of gross domestic product, the highest since 1983. And if the nation plunges into a deeper recession, with tax revenues dropping and domestic product shrinking, the deficit will be even larger as a proportion of the economy.
Yet all is not what it seems. First, the $700 billion bailout is less like an additional government expense than a temporary loan or investment. The Treasury will take on Wall Street’s bad debts — mostly mortgage-backed securities for which there’s no market right now — and will raise the $700 billion by issuing additional government debt, much of it to global lenders and foreign governments. As America’s housing stock regains value, as we all hope it will, bad debts become better debts, and the Treasury will be able to resell the securities for at least as much as it paid, if not for a profit. And if there is a shortfall, the bailout bill allows the president to impose a fee on Wall Street to fill it.
(Continued here.)
NYT
Berkeley, Calif.
BOTH presidential candidates have been criticized for failing — at Tuesday’s debate and previously — to name any promises or plans they’re going to have to scrap because of the bailout and the failing economy. That criticism is unwarranted. The assumption that we are about to have a rerun of 1993 — when Bill Clinton, newly installed as president, was forced to jettison much of his agenda because of a surging budget deficit — may well be mistaken.
At first glance, January 2009 is starting to look a lot like January 1993. Then, the federal deficit was running at roughly $300 billion a year, or about 5 percent of gross domestic product, way too high for comfort. By contrast, the deficit for the 2009 fiscal year is now projected to be $410 billion, or about 3.3 percent of gross domestic product. That’s not too worrying. But if the Treasury shovels out the full $700 billion of bailout money next year, the deficit could balloon to more than 6 percent of gross domestic product, the highest since 1983. And if the nation plunges into a deeper recession, with tax revenues dropping and domestic product shrinking, the deficit will be even larger as a proportion of the economy.
Yet all is not what it seems. First, the $700 billion bailout is less like an additional government expense than a temporary loan or investment. The Treasury will take on Wall Street’s bad debts — mostly mortgage-backed securities for which there’s no market right now — and will raise the $700 billion by issuing additional government debt, much of it to global lenders and foreign governments. As America’s housing stock regains value, as we all hope it will, bad debts become better debts, and the Treasury will be able to resell the securities for at least as much as it paid, if not for a profit. And if there is a shortfall, the bailout bill allows the president to impose a fee on Wall Street to fill it.
(Continued here.)
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