Good News Coming On The Deficit. Well, Sort Of.

Syriza party leader Alexis  Tsipras hopes to prevail in today's Greek elections, which could mark a turning point in his nation's struggle against a crushing load of debt. Meanwhile, U.S. government deficits are improving. Sort of.

Syriza party leader Alexis Tsipras hopes to prevail in today’s Greek elections, which could provoke a showdown between European leaders and Greece, which struggles under a crushing load of debt. Meanwhile, U.S. government deficits are improving. Sort of. [Credit: BBC]

On Tuesday morning, the Congressional Budget Office will announce that the federal deficit continued to decline last year.

The announcement will trigger an orgy of self-congratulation in Washington.  The Administration will claim that its policies have been vindicated.  Republicans also will take a bow, touting spending constraints they’ve imposed since winning the House majority.

But you’ll hear nothing from the Washingtonians who most deserve credit for reduced deficits: the Federal Reserve Board of Governors.  By holding interest rates near zero and lending trillions in free money to the Treasury, the Fed has allowed the government to reduce deficits even as it gorged on debt. Continue reading

Debt And The New American Exceptionalism

Federal Reserve Chairman Janet Yellen plans to increase interest rates.  Can government and households survive the shock? [Credit: Huffington Post]

Federal Reserve Chairman Janet Yellen plans to increase interest rates. Can government and households survive the shock? [Credit: Huffington Post]

The American economy is back.  After years of tepid growth and a first quarter contraction, GDP grew by a robust 4.6 percent in the third quarter of last year.  The unemployment rate remained at 5.8 percent in November, and analysts expect the Labor Department to announce tomorrow that the economy added substantially more than 200,000 jobs in December.  Inflation is low, the dollar is strong, oil prices have tumbled, and federal deficits are lower.  Nearly six years after the recession ended, the long-awaited recovery appears at last to have arrived.

That recovery has in part been driven by a force that could be its undoing: debt.  Nearly $46 trillion of it, or more than 2-1/2 times our annual economic output. Continue reading

Could A Wealth Tax Solve the Problem of Government Debt?

A recent IMF report suggests that this man's enormous wealth might help resolve the government's debt problem. [Credit: NY Post]

A recent IMF report suggests that this man’s enormous wealth might help resolve the government’s debt problem. [Credit: NY Post]

The International Monetary Fund (IMF) recently reported that European governments could reduce their debt back to pre-Great Recession levels by confiscating 10 percent of the wealth held by their richest citizens. IMF isn’t recommending that, of course.

They’re just sayin’. Continue reading

How’s That Cyprus “Bail-In” Working Out?

The Cyprus "bail-in" is no more popular today than when it was hatched last spring. [Credit: CNNMoney.com]

The Cyprus “bail-in” is no more popular today than when it was hatched last spring. [Credit: CNNMoney.com]

You may remember Cyprus, the Mediterranean island that grabbed international headlines last March when its government was compelled by European authorities to seize money that individuals and businesses had deposited in the country’s two largest banks.

The “bail-in” of Cypriot banks, so called because it requires people who have deposited their money in failing banks to help save those banks by forfeiting some of their deposits, is a portent of bank rescues to come.  Continue reading

The Fed, the ECB and La Dolce Vita

Fellini celebrated "La Dolce Vita" in his film classic.  Today, Italians may feel as though they're living in a Fellini flick. [Credit: theworld.org]

Fellini celebrated “La Dolce Vita” in his film classic.  But a struggling economy, wobbly banks and fractious politics threaten to take the “dolce” out of their vita. [Credit: theworld.org]

Strangozzi is the characteristic pasta of Umbria, Tuscany’s hot sister.

Continue reading