Bankrupting America’s Spending Daily

| January 30 2013

Spending Daily | January 30, 2013

Bankrupting America Releases Debt Ceiling Briefing Book
Bankrupting America, a project of Public Notice, today released its Debt Ceiling Briefing Book, which will act as an introduction to the 113th Congress and explain the fiscal challenges that Washington will debate and the consequences of governing from crisis to crisis. The book focuses on the upcoming policy debates in Washington surrounding the debt ceiling, sequester spending cuts and funding the federal government. Click here to read more and view the Debt Ceiling Briefing Book.

U.S. Economy Contracted by 0.1 Percent in Fourth Quarter
MarketWatch reports, “Growth in the U.S. economy turned negative in the fourth quarter for the first time since the last recession, dragged down by a reversal in military spending, lower inventories and falling exports. The U.S. contracted by a 0.1% annual rate in the final three months of 2012, based on the first of three readings by the Commerce Department. Economists surveyed by MarketWatch had forecast a 1.0% increase.”

Fed Bond Buying Scheme May Prove Unprofitable
The Wall Street Journal reports, “The Federal Reserve could be charting a course that leaves the highly profitable central bank with no extra income to hand over to the U.S. Treasury for several years. That is the conclusion of five Fed staff economists who examined how the central bank’s bond-buying programs will affect its profitability over the long run. Right now the Fed is earning large returns on its bond portfolio and sending most of its profits to the Treasury. Several years from now, when the economy is stronger, the Fed is expected to sell bonds and raise short-term interest rates to tighten credit and restrain inflation. The group found the Fed might have to sell bonds at a loss and incur higher expenses on interest it pays to banks on the reserves they hold at the Fed.”

U.S. Credit Rating In Jeopardy Despite Short-Term Debt Ceiling Deal
Reuters reports, “The retreat by Republicans from threats to push the United States into a debt crisis has stayed the hand of at least one credit ratings agency, but that does not mean the United States is suddenly safe. The country has retained its top triple-A rating from Moody’s Investors Service and Fitch Ratings, despite rising debt levels. It was downgraded by one notch in 2011 by Standard & Poor’s after a chaotic debt ceiling battle. On Monday, Fitch said the recent debt ceiling extension eliminates the immediate risk to the rating. But going forward, the emerging signs of lawmakers working together are not likely to be enough to head off more downgrades of U.S. government debt, which is used as a benchmark for borrowing costs and considered the safest of safe havens. There is no exact formula for what will trigger a downgrade, but statements and reports released by the agencies give some clues. Specifically, the U.S. debt-to-GDP ratio, currently at about 68 percent, is better than triple-A rated nations such as Canada, but far worse than Australia or Norway.”

“Democrats to Look at Further Sequester Deferrals”
The Wall Street Journal reports, “Senate Democrats are considering further short-term deferrals of spending cuts set to be implemented from March 1, but only through a combination of increased tax revenue and cuts elsewhere to the federal budget, Majority Leader Harry Reid (D., Nev.) said. The idea would essentially be a continuation of the current strategy to shift the burden of $1.2 trillion in cuts to defense and spending on other domestic programs by increasing tax revenue and finding spending cuts both parties could agree to.”

Defense Department Sequester Cuts Grow Closer, No Solution In Sight 
The Hill reports, “Two leading Republican defense hawks say they’re worried about the lack of urgency over the sequestration deadline, now just weeks away. Sens. Lindsey Graham (R-S.C.) and John McCain (R-Ariz.) said they aren’t happy with the lack of action in Washington — from both parties — amid a growing sense among lawmakers that the across-the-board cuts are going to take effect on March 1. ‘Here we are, a month away, and if you believe the Defense Department … They’re going to tell us we’re destroying the finest military in the history of the world at a time we need it most, and everybody is saying, “Well, whatever” — I can’t explain it,’ Graham said. House Budget Committee Chairman Paul Ryan (R-Wis.) was the latest lawmaker to weigh in pessimistically on the cuts. He predicted on Sunday that sequestration “is going to happen,” and blamed Democrats for rejecting GOP efforts to avert the cuts.”

Can Congress Save Money by Lowering Contractor Salaries?
The Washington Post reports, “As policymakers prepare for the across-the-board budget cuts known as sequestration, the largest federal employee union is taking the opportunity to press a pet peeve — large payments to federal contractors. Labor  leaders, including those with the American Federation of Government Employees (AFGE), have long pushed Congress to lower payments for contractor salaries. The cap on Defense Department contractor pay now stands at $763,000, which is much more than President Obama makes. AFGE said billions of dollars could be saved each year if the cap were set at $200,000, as the Obama administration has proposed. A cap would not prevent contractors from paying their employees more, but it would limit the amount the government provides for contractor salaries.”

Orszag: “It’s Too Soon to Celebrate a Recovery”
Peter Orszag editorializes in Bloomberg, “As the economy begins to show signs of strength, people naturally want to know, how long will the damage from the financial crisis linger? … Why would financial crises have long-lasting effects? One reason is that workers’ skills often atrophy during the downturn that follows such a crisis, and some people never get jobs again. A second reason for the lasting hangover is that after a financial crisis capital spending (for example, on new factories and equipment) tends to decline, and the lower level of capital may then be perpetuated, reducing output permanently. … Policy makers in Washington should couple substantial upfront stimulus spending with even bigger, but delayed, deficit reduction. Both ends of this barbell are crucial: The stimulus can help to reduce the lasting effects of the crisis,and, given that the official deficit projections may be too sunny, the austerity will help prevent a future fiscal crisis. Furthermore, the combination is more politically feasible than either component alone.”

Consumer Confidence Lowest Since November 2011
The Wall Street Journal reports, “The Conference Board, a private research group, said its index of consumer confidence fell further to 58.6 in January from a revised 66.7 in December, first reported as 65.1. The January decline was the third consecutive fall and brought confidence to its lowest reading since November 2011. … ‘The increase in the payroll tax has undoubtedly dampened consumers’ spirits and it may take a while for confidence to rebound and consumers to recover from their initial paycheck shock,’ said Lynn Franco, director of economic indicators at the board. Smaller paychecks and a darker view of labor markets brought U.S. consumer confidence this month to its lowest reading since November 2011, according to a report released Tuesday.”

BankruptingAmerica.org is an educational project of Public Notice, an independent, nonpartisan, non-profit, 501(c)(4) organization dedicated to providing facts and insight on the effects public policy has on Americans’ financial well-being.