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The new fiscal 2012 budget proposed by the Obama administration projects this years deficit will reach $1.6 trillion. This includes the renewal of the Bush tax cuts and the temporary cut to the payroll tax that was part of the tax deal reached in December 2010. This is up from the $1.3 trillion deficit in 2010. At this time both the Democrats and Republicans are choosing to leave Medicare and Social Security out of the picture as they deal with the 15% of total spending that is discretionary and unrelated to defense and security. Both parties are hesitant to propose changes to the popular Medicare and Social Security programs without getting the other party to join in the proposed changes. As this could affect voters perceptions. Social Security, Medicare and other entitlement programs will take up 60% of all federal spending or $2 trillion next year, not counting the interest on the federal debt, according to the Congressional Budget Office.

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France's finance minister says the government will focus on growth and set deficit targets that will support growth. There is a feeling in the business community that France has reached the limit for tax increases. The government has given up the goal of reducing the deficit to 3% of GDP in 2013. The government says the deficit will be about 4.1% in 2013 and 3.6% in 2014. Economic growth is expected to be only about 0.1% for 2013, and 0.9% for 2014, lower than earlier forecasts. Muscovici has said the French are fed up with higher taxes, and he is looking for savings in spending. About 15 billion euros of savings are planned in the 2014 budget from ministry expenses and healthcare spending. Extra taxes of 6 billion euros planned for the 2014 budget will now be cut to 3 billion euros. To increase growth it is necessary to stabilize taxation and give business a clear picture for 2014-2015.

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The lower house of the French parliament approved the EU budget discipline treaty that limits deficits to 3% of GDP. It passed with a large majority of 477 votes to 70. About 284 members of the left parties voted for the bill. Sarkozy had pushed for passage of this treaty and Hollande agreed to it in his talks with chancellor Merkel of Germany. At the same time Germany and France agreed on promoting growth measures. The new French budget for 2013 reflects this committment to reducing the deficit to 3%. France's deficit declines from 4.5% in 2012 to 3% in 2013 under the new budget. It does this with shared sacrifices and higher corporate taxes and without sharp cuts in government spending that could hurt the economy.

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The Rousseff administration announces plans to cut $30 billion in 2011 spending. Inflation is up by about 6% in January. Most of the cuts says Finance Minister Mantega, will be achieved by cutting earmarks added to the budget, and by slowing hiring in the public sector. But analysts say this will not be sufficient to control inflationary pressures, as 2011 spending will still be above 2010. Higher inflation puts pressure on the central bank to raise interest rates at an high of 11.25%, which in turn brings in speculative money and creates a highly overvalued currency.

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The chief economist for the Conference Board says the economy faces serious headwinds as about half of the growth or +2.44 % came from inventory changes in the latest BEA numbers. These numbers, adds Gordon of Northwestern University, are likely to wind down and only consumer spending is serving as a factor holding things up. Exports are playing less of a role than needed and the state and local governments will continue to play a negative role as their budgets are being cut.

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In a forceful speech at George Washington University, on April 14, 2011, President Obama outlined his proposal for addressing the U.S. budget deficit. His plan includes a mix of tax increases and spending cuts. His plan is for a $4 trillion deficit reduction over 12 years, with $1 trillion coming from revenue increases, $2 trillion from spending cuts, and $1 trillion from savings in interest because the U.S. would borrow less. Obama's plan would end the Bush-era tax cuts for people earning more than $250,000 a year and eliminate a number of tax breaks. Spending cuts would include cuts in Medicare costs, discretionary spending, and defense. Obama's plan would commit to automatic, across the board spending cuts and tax increases if an initial target is not reached by 2014. Obama said the Republican plan proposed by Paul Ryan presented " a vision that was less about reducing the deficit than it is about changing the basic social compact in America....The's nothing courageous about asking for sacrifice from those who can least afford it and don't have any clout on Capitol Hill."...

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The Wall Street Journal in a recent editorial called the European Union's June 2011 plan for Greece "the French Deception," because it favored French and German banks but made Greece's debt burden even less manageable. The Economist views the European Union actions with disdain and says they are sure to fail. It is skeptical whether the spending cuts will work because Greece's politicians are not likely to address the problems of poor tax and other payments collection, and is too interconnected with favored groups and lobbies to be able to take the needed actions. And spending cuts will fall hard on ordinary Greeks. Even with job cuts the sense is that it will fall not on full time civil servants with permanent contracts but people with temporary contracts. The Economist cites the example of items such as the overgenerous markup allowed for pharmacists that adds another 1.5 billion euros to the budget which will remain untouched as an example of many such items where the cuts will not fall because of strong lobbies and favored interests. The privatization scheme is deemed unrealistic because it expects to raise 51 billion euros in a crash sale of assets, which only makes it more likely that assets could fall into the hands of cronies with the right connections. The current efforts only make ordinary Greeks worse off with spending cuts and new taxes. The negative impact on economic growth of the austerity cuts creates the prospect for a deeper recession, political turmoil, and a debt default....

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Vegetable prices in China went up by 22% in July 2010, from a year earlier, and grain prices went up by 12%, eggs by 8%. About a third of household budgets go to food in the budgets of people in India and China. Wheat prices are climbing on world markets after the ban on Russian exports, and rice prices are also climbing with the floods in Pakistan ruining the rice crop- Pakistan being the No.3 world's rice exporter. Personal spending accounts for 36% of overall GDP in China and 57% in India. Food prices in China were up 6.8% in July, 2010. Industrialization in China, and agricultural land freely taken over for factory sites with the consent of local authorites, may be a complicating factor. See the link to BYD's acquisition of agricultural land for factory site.

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Italy will get 6 billion euros in savings from lower interest rate charges on its debt as a result of lower borrowing costs in capital markets. Italy's borrowing costs were at record low of 2.08% for debt issued in 2013. The new budget fails to provide relief in payroll taxes that would help reduce high youth unemployment. A payroll tax cut will increase take home pay of lower income workers by about 15 euros a month. Carlo Cottarelli, IMF expert, has the task of doing a spending review to cut 32 billion euros in public spending within 3 years. The Letta administration is looking at which tax credits to eliminate. These tax breaks range from aftershool sports programs and veterinary costs and amount to 130 billion euros a year. Automatic measures to reduce spending are part of recent Italian legislation and act to keep spending down. limits in the event the political system fails to produce agreement.

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Mark Carney's program for Canada is based on 5 Actions-

1. Double the rate of home building to get 500,000 additional homes a year.

2. Ease Cost of living pressures. Reduce the lowest tax bracket rate to 14% from 15%. Scrap the sales tax on buying the first home for homes less than C$ 1 million about $720,000. Make dental care available for low income Canadians adding 4.5 million Canadioans to the national insurance program.

3. Build a national electricity grid east to west, reducing dependence on the US.  Invest in both clean energy and fossil energy.

4. Increase defense spending to 2% of the budget with $18 billion in additional spending over 4 years.

5. Invest $5 billion in ports, rail, and infrastructure to create new trade corridors.

 

 

 

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The New York Times editorial says the constitutional option looks better than the recession option, now that huge cuts in spending including Medicare and Social Security are planned in the budget talks between the Republicans and the Obama White House. The Times points to $4 trillion in defict reduction in 10 years, that is being discussed as part of a grand agreement in White House talks. It reminds the Obama White House that it is not likely to win independent voters if unemployment increases as a result. The constitutional option is for the President to to point to the 14th Amendment that the public debt cannot be questioned, in effect saying the debt limit cannot be controlled by Congress as it is today. See the piece by Krugman on the same subject in today's New York Times. Krugman asks why Obama's economic advisors have not cautioned him about the size of the cuts and the potential impact on unemployment in a fragile economy. And he points out that most of the senior economic advisors have left and it may be Obama's political team that is looking for a way to win points with independent voters for next years election....

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Former Louisiana fovernor Bobby Jindal comes under severe criticism from the Washington Post for policies it says hurt the poor by turning down federal Medicaid funds under Obamacare, for using rainy day funds, and cutting spending on education and other needed programs in the state. It says Jindal pursued Grover Norquist's no tax pledge leading to spending cuts in the state and budget gaps, merely to appeal to voters in the GOP presidential primaries. Jindal's appeal to Republican voters actually fell sharply because of unpopular policies and he did not qualify for participation in the presidential televised Republican debates. Republican voters turned to outside candidates such as Trump, Carson and others.

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Dionne cites comments by Bowles and Simpson saying the Paul Ryan U.S. budget proposal falls short of a serious bipartisan effort for deficit reduction for a number of reasons. The reasons cited by Bowles and Simpson are: The proposal exempts defense spending from reductions, does not apply savings from tax expenditures to deficit reduction, relies on much larger reductions in domestic discretionary spending than the Bowles-Simpson deficit reduction plan, and at the same time making reductions in safety-net programs that could in their words "place a disproportionately adverse effect on certain disadvantaged populations." This should give moderates in this debate time for pause and reflection says Dionne.

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The U.S. Congressional Budget Office (CBO) revised estimates in May 2013 show the U.S. debt to GDP ratio in 2013 at about 75.1%, coming down slightly in the next couple of years and then rising to about 73.6% by 2023. The U.S. deficit for fiscal 2013 is estimated to be about 4% of GDP, down from 7% in 2012 and 10.1% in 2009. The deficit is estimated at 3.4% of GDP in fiscal 2014 and 2.1% of GDP in 2015. Spending levels increase closer to the 2020s as more people reach retirement age. Lower projections on Medicare, Medicaid and Social Security spending have reduced the cumulative deficits over the next decade.

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The Economist cites the Dartmouth Atlas Project which shows differences in cost across the country for health outcomes and spending involving Medicare. It cost $5000 per person in Salem, Oregon in 2006, $8000 in San Francisco, and more than $16,000 in Miami, with outcomes for health tending to be better in places where the costs were lower. This is one of the statistics that Peter Orszag of the Congressional Budget Office uses to come up with his estimate of 30% waste in health care spending in the United States. Prof. Skinner at Dartmouth and Prof. Garber at Stanford point out that of most health systems around the world the American system is "uniquely inefficient" and wasteful. The Economist cites information that the American system is twice as costly per person for healthcare than the Swedish system, and that it costs twice as much in Minnesota as in Miami. A poll done for the Economist shows 52% of the people in the UA are dissatified with the quality of care, 40% think the system needs fundamental change, and 29% think that it should be fundamentally rebuilt. The lack of uniform coverage is also causing turmoil in the system. About 49 million are uninsured, and a quarter or more are able to buy insurance and do not buy it because it is so costly, has exclusions and coverage is inadequate. But these people also end up in the emergency rooms along with the indigent costing the whole system tens of billion of dollars for costly late interventions that could have been avoided with preventive care early on. With the economic crisis and rise in joblessness, the dire condition of state and local budgets, the situation has probably drastically worsened, and the system near breakdown. ...

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Interview with Bill Gates on the Gates foundation's educational activities and his thoughts on the budget cuts in education. The Gates Foundation launches an effort to improve education in selected school districts- Memphis, Tennessee, Hillsborough, Florida, Pittsburgh, and a charter consortium in California. The foundation has awarded $290 million for this effort to improve teacher effectiveness and set up new personnel systems. The idea is to raise the average level of quality in these schools through teacher effectiveness using a system designed by the foundation. Gates sees the need for more targeted investment in schools and close cooperation with teachers, principals, superintendents and administrative people. For this reason he sees the current budget atmosphere as counterproductive, as it will cut spending on education and act as a distraction from the hard work that needs to get done. On education spending Gates points out that one has to be careful as a society not to neglect the young as one uses resources to support the elderly. He points out that the only way to get this whole thing to work is for some increases in taxes and putting a lid on increases in medical costs, so that education in America does not get shortchanged. Recent polls show preference for some increase in taxes when it comes to supporting education spending....

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The Congressional Budget Office's Elmendorf says without spending cuts in payments to doctors and hospitals and other providers, providing coverage to the unisured will put the nation deeper into debt. Popular measures such as increasing preventative care, expanding medical records and rewarding doctors for choosing treatments that improve cost and quality have potential but its not proven how much the savings from this would be. The administration and the White House Budget Director, Peter Orszag, say they are in agreement with the CBO that something needs to be done to seriously reduce costs, reducing payments for Medicare and Medicaid to doctors and hospitals, and making other changes.

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Institute of Fiscal Studies, IFS, shows where the money is going in Labour's first Budget. See graphs of the household income over the 75 years under Conservative and Labour governments, which shows slower growth in household income over the next 5 years. Healthcsare and Education are growing at 4%. The growth of 6-10% is for local government spending, housing, communities and local government, work and pensions, Justice, HM Revenue. The slow rise in household incomes to 2030 is the result of trickle down economics which is sold vigorously by some groups as economic orthodoxy including the largest corporations paying little in taxes. This is true also of the US. FDR called it Tory policies and policies that say trickle down economics works when it doesn't. FDR said at DNC in 1932- "And we thought the Tories left in 1776." Today this is why UK household incomes show slight growth to 2030, and even this Labour Government is hesitant to boldly question this economic orthodoxy.  For Britain the debacle of Brexit turning some legitimate questions of immigration into isolation from economies of mainland Europe adds to the problem.     ...

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Six cities have rejected the Olympics, with Calgary in Canada being the last one. The problem with hosting the Olympics is how much it costs. Cost overruns are common. 20141 Sochi WInter Olympics estimated budget was $10 billion, in the end it cost $51 billion. 

Brazil is the latest example of the problem. With huge needs in sanitation, epidemic prevention, infrastructure and public services, the country did badly by spending money on new soccer stadiums in the northeast which were not used after the World Cup soccer championship, and in the summer Olympics. 

Learning from these lessons voters in Calgary, Canada, rejected hosting  the Winter Olympics. Voters or local councils in Innsbruck, Austria, Rome, Italy, Bern, Switzerland, Hamburg, Germany, Oslo and Stockholm have rejected the idea of hosting the Olympics. Other problems are the environmental impact with deforestation to create Olympic sites.

 

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In Brazil's 2018 elections most candidates talk about shoring up crumbling infrastructure, and law and order. Yet no one talks about the budget crisis as there is no money left for doing this.  Shocking as this may sound after years of overspending and a recession, Brazil now uses borrowed money to pay pensions and salaries, and keep schools and hospitals open. Brazil's public spending exceeds revenue by about 7% of annual economic output. Taxes are already 40% of economic output, according to CIA's World Factbook website, making it hard to raise taxes.  This WSJ analysis says you cannot overstate the problem in Brazil as about two thirds of the budget goes to paying old age pensions, payroll of public sector and public healthcare. By 2020 these liablilities will grow to the point there is nothing left for discretionary spending such as roads, infrastructure, new hospitals, police equipment. Trimming pensions and freezing wages are likely options to tackle the problem. Still this leaves Brazil with the prospect of a lost decade.   Neighboring Argentina is experiencing a contracting economy and had to turn to the IMF for assistance.  The decline in GDP comes as a new conservative administration took over promising an improvement in the economy. The peso declined by 18% in 2018 so far leaving Argentina's public and private debt of $166 billion which is 80% denominated in U.S. dollars much harder to pay off. The stronger dollar has hurt Argentina leading to a $50 billion support agreement with the IMF.  Much of Latin America is now in an economic crisis. ...

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Michigan's budget director, John Nixon, says the state is better positioned to handle deficit reduction because expenditures rose only 16% from 2001 to 2008, compared with a national average of 50%. Michigan's economy suffered from the decline of the auto industry during this period and careful spending had to take place. Michigan faces a projected $1.8 billion deficit next year. Republican governor Snyder plans to eliminate the state's business tax and impose a flat 6% corporate profits tax that woud reduce revenues by $1 billion, and impose a new tax on pensions to raise $900 million. Also planned are broad spending cuts, including cuts to the earned income tax credit and restructuring public employee benefits.

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As stimulus money reaches factories making products like hybrid buses, another trend is working to undo the positive effects. States are cutting back on their orders as they face budget shortfalls. See link to states budget shortfalls. The New Flyer hybrid bus fatory in St Cloud, Minnesota, is one such factory. The Chicago Transit Authority used some of the stimulus money to buy 58 hybrid electric buses. At the same time Chicago had to put aside plans to order 140 more buses using state money which now has disappeared. According to the Center on Budget and Policy Priorities these effects of undoing, with one hand giving and another taking away are acting out across the economy. While the stiluus law cut federal taxes to put more money into the economy, about 30 states have raised taxes according to the Center. The Stimulus provides $27.5 billion in federal money on highway projects, but according to the American Road and Transport Builders Association, 19 states are planning to cut their highway spending in 2009. Even as the Stimulus provides $8.4 billion for mass tranisit, tranist systems are facing cutbacks in service and capital spending. Says Dean Baker, co-director of the Center for Economic and Policy Research, and author of a paper called "The State and Local Drag on the Stimulus," these cutbacks and the tax increases at the state and local levels are heading in the direction of offsetting much of the Stimulus impact....

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Ruchir Sharma, head of emerging markets at Morgan Stanley Investment Management, provides insights into the economc problems facing Brazil in 2016. He points out that 41% of Brazil's GDP goes into public spending by local, regional and national government, crowding out private investment. The tax burden is high at 35% of GDP. And under the Rousseff administration budget discipline has been lacking. Compared to the Lula government running consistent surplus Ms. Rousseff ran a deficit of 10% of GDP. With a large welfare state, the budget has rigidities, says Sharma, with public pensions increasing since 2000 from 3% to 7% of GDP, and heavy state spending tending to push interest rates up and increase borrowing costs. Retirement age is 54 and 52 for men and women respectively, and pensioners get 90% of salary, compared to 60% in advanced countries. The decline in commodity prices has hit Brazil hard because 67% of exports are from commodities such as soyabeans in 2016 compared to 46% in 2000. Manufacturing accounts for only 11% of the economy. As long as high commodity prices supported the lavish welfare and public spending Rousseff's popularity remained high at 60% as recently as 2013. The collapse of commodity prices has hurt the economy leading to growth of negative 3.5% in GDP. Rousseff's popularity hit a low of 11% as public protests over poor public services, were followed by a series of corruption scandals. Even if impeachment led to new leadership the problems are deep rooted, with neglect of education, healthcare, public services, and manufacturing industries, and heavy public spending no longer supported by high commodity prices. Some of the problems existed in the boom years of the Lula administration, only covered up by the commodities boom cycle, and becoming evident in the down cycle of the Rousseff years. ...

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Spain's prime minister Mariano Rajoy, says his government's 2012 budget will reduce its deficit to 5.8% of GDP. This is higher than the 4.4% target that the previous government of Jose Luis Zapatero had committed to. Rajoy took into account the deteriorating economic situation in Spain in setting the new target, especially how this will affect Spain's local economy. Part of the problem is also that the actual 2011 budget deficit was 8.51% of GDP compared to a target of 6%. Rajoy said Spain is still committing to the 3% of GDP target set for 2013 by the EU. In making this decision Rajoy said at a press conference: " This is a sovereign decsion made by Spain, that I am announcing now, to you." Rajoy is basing the new budget on a 4.7% reduction in spending in 2012. The assumptions in the new budget will be for a 1.7% contraction in the Spanish economy, down from the overly optimistic 2.3% forecast for growth of the previous Zapatero government. Spanish Feb. 2012 jobless claims went up to 4.7 million, and unemployment in Spain was at an high of 23.3% in Jan 2012. The 4th quarter contraction for Spain was 0.3%....

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The joint statement after the G-8 summit stated that "our imperative is to promote growth and jobs." It stated the budget deficits need to be addressed but said "spending cuts must "take into account countries' evolving economic conditions and underpin confidence and economy recovery." Germany's Merkel in her remarks said growth and deficit reduction supported each other, that "we have to work on both paths, and the participants have made clear, and I think this is great progress." Opposition Social Democrats in Germany say Ms. Merkel is adept at changing as the situation changes, and it appears Merkel is making the transition away from strict austerity policies she had championed earlier. Especially now with fresh elections in France, Netherlands and Greece, and the election of Francois Hollande on a pro-growth platform, the German position of strict austerity is being increasingly questioned on all sides. French president Hollande met U.S. president Obama at a pre-arranged meeting prior to the summit. Obama and Hollande see the need to reduce high unemployment in the U.S. and Europe by encouraging growth, creating a common interest....