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Making Unique Observations in a Very Cluttered World

Friday 5 March 2010

If O's 2011 budget were put into effect as proposed, the U.S. would add $9.8 T to debt - $5.6 T in interest alone -

Reading - If O's 2011 budget were put into effect as proposed, the U.S. would add $9.8 T to debt - $5.6 T in interest alone -


If President Obama's 2011 budget were put into effect as proposed, the U.S. federal government would add an estimated $9.8 trillion to the country's accrued debt over the next decade, according to a preliminary analysis from the Congressional Budget Office.

Of that amount, an estimated $5.6 trillion will be in interest alone.

By 2020, the agency estimates debt held by the public would reach $20.3 trillion, or 90% of GDP. That's up from 53% of GDP in 2009.

Research done by economists Kenneth Rogoff and Carmen Reinhart has shown that such high levels of debt can cause a drag on economic growth.

The CBO cited two big contributors to the jump in debt.

One is the president's proposal to extend the 2001 and 2003 tax cuts for the majority of Americans. The other is the proposal to protect middle- and upper-middle-income families from having to pay the Alternative Minimum Tax (AMT).

Together those proposals would cost $3 trillion between 2011 and 2020.

"It points out the unwillingness of the administration to raise the revenues to pay for the size of government being proposed," said Robert Bixby, executive director of the Concord Coalition, a deficit watchdog group.

If Congress doesn't act, all of the Bush tax cuts are slated to expire at the end of this year and there will be no protection from the AMT.

But current law is not politically realistic, many say. That's why the administration prefers to compare the cost of its proposals to what lawmakers are likely to do -- namely, extend tax cuts and fix the AMT.

Hence, the White House Budget Office estimates that under the president's proposals, $8.5 trillion would be added to the country's accrued debt over the next decade, or $1.3 trillion less than the CBO estimate.

Either scenario is unsustainable, Bixby said.

The administration has also called the budget trajectory unsustainable and the president has created a fiscal advisory commission to recommend ways lawmakers can get annual deficits down to 3% of GDP by 2015.

That's well below where it would be under the president's budget, according to estimates from both the CBO and the White House. And while his proposals would chip away at deficits in the next few years, they start to climb again thereafter. By 2020, the annual deficit as a percentage of GDP will be 5.6%, according to the CBO. The White House estimates it will be 4.2%.

But there is no guarantee the fiscal commission's recommendations will be adopted by lawmakers.

The CBO notes that its estimates incorporate the Administration's revenue and spending assumptions for policies such as health reform and climate change, because the agency didn't have sufficient details from the White House about those policies to do its own analysis.

A full analysis of the president's budget will be published later in the month, the CBO said.

Reading more -http://money.cnn.com/2010/03/05/news/economy/cbo_obama_budget/index.htm?hpt=T2

GM to Reinstate 661 Dealers out of the 1,100 who sought arbitration seeking to stay with GM -

Reading - GM to Reinstate 661 Dealers out of the 1,100 who sought arbitration seeking to stay with GM -

General Motors executives said Friday that 661 dealerships out of the 1,100 seeking to stay with GM will receive letters giving them the option to remain with the company.

GM last year told 2,000 dealerships it would revoke their franchise agreements in October 2010 as part of its restructuring. The company has said it needs to make the cuts to keep the remaining showrooms healthy.

Roughly 1,000 dealers sought arbitration.

The U.S. automaker will begin sending letters notifying some of the dealers who appealed closure that they now have the option remain with GM.

GM now has 5,500 dealerships; prior to bankruptcy it had 6,200.

The U.S. Treasury owns 60 percent of GM after the 2009 bankruptcy restructuring.

The dealerships have said they were treated unfairly and have been appealing the decision to shut them for months.

Read more -http://www.cnbc.com/id/35727441