US austerity? US 'fiscal cliff' would trigger cuts of up to 5.1% GDP

 

US debt clock (Alex Wong/Getty Images/AFP)

Source: Russia Today

http://rt.com/business/news/usa-debt-ceiling-opinion-798/

As US public debt is about to rise over the limit of $16.39 trillion, analysts warn of the drastic damage it could create. Should the debt limit remain unchanged, the US economy will have to suffer austerity measures worth around $804.5 billion.

The debt held by the public skyrocketed to about 102% of the US GDP in 3Q 2012. The ratio was higher only once in the US economic history – in 1945 when it reached 113% of GDP.Meanwhile, a new so-called “debt ceiling”, that was last raised by Congress in January 2012 to $16.394trln, seems to be not high enough, as the figures show that the room for further borrowing is becoming increasingly narrower.

Earlier this week the US Treasury said the country was set to hit the debt limit by the end of the year. Meanwhile the Treasury has continued to unveil borrowing plans that include massive bond issues, which will inevitably drive the US economy deeper into debt.

If the US Congress does not raise the debt ceiling in the next few months, it would result in an “onset of austerity measures worth 5.1% of American GDP,” or $804.5bn, Margaret Bogenrief from ACM Partners told Business RT.

“The world currently sits on the precipice of a debt cliff – the rate of debt growth for the United States is, economically, unsustainable and must be curbed within the next 5 years,” added Bogenrief. A combination of increased taxes and limited spending would pave the way out of the debt hole for the US, the ACM Partners expert added.

While the need to curb the extravagance of the US – a nation of debt lovers – is clear, a collision of the economic and political reasoning is now one of the main stumbling blocks, according to Bogenrief. Economically, continued growth of US debt will keep on weighing down and destabilizing the American economy. But politically, lower Government spending and higher taxes would not be popular among US citizens.

Also, there’s “a collision between what Americans say they want versus what they prefer in reality – it’s easy to say we need to cut spending and raise taxes – as long as we cut spending allocated to other people while raising other people’s taxes,” Bogenrief concluded.

While allowing a broader opportunity for increased consumption, excessive borrowing can pose a real economic threat long term, Max Wolff, a NYC-based economist, added to Business RT.

“Consistent US debt growth is a short term boom to the US and global economies. It allows greater growth and demand now in exchange for increased financial fragility and lowered growth and demand in the future. This is the essenece of debt. Debt moves purchasing power through time. It is sustainable when it pays for greater growth in incomes in the future. If this fails, it is very dangerous,” the economist explained.

“Some amount of borrowing is necessary for any industrialized economy. For the past four years, however, the United States has averaged $1trln +in annual deficits – the growth in debt is unprecedented in American history, unsustainable, and has no easy answer in sight,” Bogenrief concluded.

 

Riot rage: Athens protesters throw firebombs, police shoot tear gas (VIDEO)

Source: Russia Today

A rally in the Greek capital turned violent when protesters in Syntagma Square lobbed Molotov cocktails at police, who retaliated by firing tear gas at the demonstrators.

It's as thousands gathered in front of parliament for the country’s biggest anti-austerity protest since the new government came to power.

Clashes erupted in different parts of Athens Syntagma Square, with demonstrators throwing fire bombs at police.

Witnesses reported smoke rising over the square as security forces dispersed most of the protesters. Some remained, and continued the demonstration.

The general strike halted transit and other industries nationwide.

Thousands of demonstrators also marched through the city of Thessaloniki. Greeks wrote on Twitter that large numbers of protesters are rallying peacefully in the streets.

Watch our live feed of the protest here.

The protest came after calls by the country’s two largest trade unions, representing half of Greece’s workers, for a 24-hour general strike. In Athens, over 50,000 people took to streets chanting: "EU, IMF Out!". Flights and trains were suspended, shops were shuttered and the hospitals were forced to rely on emergency staffing.

Some 3,000 police officers – double the usual number – were deployed in the capital of Athens to counter the protesters.

Greece recently enacted a new round of spending cuts, totaling €11.5 billion ($15 billion). The austerity measures are a precondition for another rescue loan from the European Central Bank; without the bailout, Greece could face bankruptcy in a matter of weeks.

"The new measures are unbearable, unfair and only worsen the crisis. We are determined to fight until we win," Costas Tsikrikas, head of the ADEDY public sector union told Reuters. "We call on all workers to join us in the march against the policies that the troika is imposing."

Greece is currently grappling with record unemployment levels, with over 30 percent of the country living below the poverty line.

The Greek government is planning to reduce pensions and increase the retirement age to 67 to cope with the country’s budget crisis.

Two weeks ago, anger over Greece’s new austerity measures spilled into the streets, with thousands protesting the drastic proposed budget cuts.

In Thessaloniki, Greece’s second-largest city, youths set fire to debris and burned an EU flag, and then clashed with riot police. Some 2,000 pensioners also marched through Athens to protest the newly introduced pension cuts.

Last February, the country witnessed days of violent clashes in several cities, with police using tear gas and protesters throwing petrol bombs and stones.

Spanish students hold massive protest rallies against cut plans

Spanish students protesting in Valencia on February 29 against education cuts

Source: Press TV
http://www.presstv.ir/detail/240605.html

Thousands of Spanish students have taken to the streets across the country to protest against the government’s new education cut plans.

University students, high school pupils and teachers joined the protests organized by the national Student’s Union in more than 50 towns across the country on Thursday, AFP reported.

"We have called this demonstration as an initial response to this attack on public education, which is without precedent in the past 35 years," said the union leader, Tohil Delgado.

Several hundred university students took to the central streets of the capital, Madrid, marching behind a banner that read, "Everyone together against the cutbacks".

A large group of high school students also held a demonstration outside the education ministry over the recent reforms that the protesters believed were ruining their education.

Schools and universities all over Spain have staged a series of demonstrations against the harsh austerity measures against education system by the government of Prime Minister Mariano Rajoy.

Right after the last student protests on February 29, the government announced an additional three billion euros in cost-cutting reforms and increasing the tuition fees to an average 1,500 euros from 1,000 euros.

Education Minister Jose Ignacio Wert reiterated that the cut plans were needed to improve the quality of education and reduce the country’s public deficit.

"These are decisions that we are imposing because of the demands for fiscal consolidation, which the country has agreed too and which it must fulfill," he said.

The Spanish government has planned to shrink its public deficit to 5.3 percent of gross domestic product in 2012 from 8.5 percent in 2011.

Spain’s major teaching unions planned to hold a larger strike on May 22, which is expected to attract widespread support from anti-spending cuts protesters.

UK must stand by spending cuts: UK PM

David Cameron, British Prime Minister

Source: Press TV
http://www.presstv.ir/detail/240234.html

British Prime Minister David Cameron has said Britain must stick to its tough austerity measures while election results in Europe show people do not think austerity is the only way out of financial woes.

While the results of local elections in Britain last week showed British voters were angry with the coalition government’s economic policies, Cameron said he would not waver from Britain’s spending cuts.

According to excerpts of his speech, Cameron is later to say repairing Britain’s dire economy “was and remains our guiding task and in these perilous times it's more important than ever for Britain that we stick to it”.

British Chancellor George Osborne has announced 23 billion of additional spending cuts through 2016, extending a planned four-year program of about £81 billion of cuts to government spending

Analysts have warned that the most severe elements of the British government’s four-year budget trimming program are just emerging, meaning public dissent is expected to grow with living standards declining.

Cameron’s commitment to his austerity regime comes as the results of the French presidential election and the Greek parliamentary elections indicate people believe in French President-elect Francios Hollande’s idea that “austerity can no longer be the only option”

Former US Fed chief warns of recession

Alan Greenspan, former chairman of the US
Federal Reserve, warns that ‎the US economy
may be heading for a double-dip recession.



Source: Press TV
http://www.presstv.ir/detail.aspx?id=137238§ionid=3510213


Former chairman of the US Federal Reserve Alan Greenspan has added his weight to warnings about a pause in the economic recovery and a double-dip recession.

"We're in a pause in a recovery, a modest recovery but a pause in the modest recovery feels like a quasi-recession," he told NBC on Monday, amid worries about a slowdown in economic recovery.

When asked about the chances of another US economic recession, Greenspan said, "It is possible if home prices go down. Home prices as best we can judge have really flattened out in the last year."

He also predicted that unemployment will remain at its current high level of 9.5% for some time.

"The financial system is broke and I see we just stay where we are," he said. "There's nothing out there that I can see which will alter the level of unemployment."

Meanwhile, Greenspan's successor Ben Bernanke said America has a long way to go to achieve full economic recovery, warning that Americans may still face economic hardships in the coming months.

Figures released on Friday showed that US growth had slowed from an annual rate of 3.7 percent in the first quarter to 2.4 percent in the second.

Greenspan served as chief of the US Fed from 1987 until his retirement in 2006 when he was replaced by Ben Bernanke.

Greenspan also expressed concern about the limited impact of stimulus measures.

"Our problem is that we have a very distorted economy," he said. Recovery had been limited to "large banks, large businesses and high income individuals."

Dollar index hits 3-month low

Source: Press TV
http://www.presstv.ir/detail.aspx?id=137125§ionid=3510203


The value of the dollar has fallen to its lowest level against a basket of six major currencies since late April over concerns about sluggish recovery of the US economy.

The greenback's DXY index on Monday plunged as low as 81.433 to mark a three-month low against the currencies.

The falling came after the markets were worried by a series of US economic data that have not met expectations.

Market traders also predicted a further drop in the value of the American currency.

"For now, I think the overall trend of Dollar weakness still remains in place," a trader for a European bank told Reuters.

The US Commerce Department released data showing the growth of the world's biggest economy slowed between April and June.

The new figures found that the country's gross domestic product (GDP) grew by a disappointing 2.4 percent in the second quarter, compared with an annual rate of 3.7 percent in the previous three months.

The country's high unemployment rate of 9.5 percent also fueled concern about US economy's slowing recovery

A Slap on the Wrist for Goldman Sachs

By: Abid Ali

Source: Al Jazeera
http://blogs.aljazeera.net/business/2010/07/16/slap-wrist-goldman-sachs

It may have been a record fine for a financial institution but it appears investment bank Goldman Sachs got off lightly. The whole affair brings in to question the strength of the Securities and Exchange Commission’s case.

The “great vampire squid wrapped around the face of humanity” agreed to pay $550 million to settle fraud charges. But crucially it did not admit guilt for misleading clients over subprime mortgage products.

Even the SEC appears to have decided no fraud was committed and accepts the Goldman made a “mistake” in its marketing material. It has failed to hold Goldman’s feet to the fire, even if no one can question the size of the fine.

What is $550 million to Goldman Sachs? Well, two weeks earnings or the total compensation for about 1000 of its 32,000 employees.

“They pay $550 million and they get an $800 million pop in their share price,” Kevin Caron, market strategist at Stifel, Nicolaus & Co. told Reuters.

“The implication of the math is that the market had discounted a more harsh treatment and relative to what the market was looking for they got a pass - they got of easy.”

So the market was expecting worse - by the end of Thursday Goldman’s market value had soared $6.6 billion.

The victims of this “mistake” do get compensated.

Germany’s IKB and the Royal Bank of Scotland get $150 million and $100 million respectively.

Others will be forming a orderly queue, but Goldman and its Wall Street brethren will be heaving a sigh of relief that the penalty won’t be larger.

US regulators shut 8 more banks

Source: Press TV
http://www.presstv.ir/detail.aspx?id=135115§ionid=3510203



The number of bank failures in the US continues to climb as regulators have shut down eight more banks in the states of Florida, South Carolina and Michigan.

The closed banks were holding $2 billion in combined assets. The latest closures bring the number of US bank closures so far this year to 96.

US regulators closed a total of 140 banks in 2009. Now, experts say that figure will be surpassed this year.

The Federal Deposit Insurance Corporation (FDIC) predicts that bank closures through 2014 will cost it 60 billion dollars.

FDIC Chairman Sheila Bair told Bloomberg in a recent interview that 2010 is going to be the peak year for bank failures in the US.

Georgia, Illinois and Florida are among the states hit hardest by the banking crisis.

US housing foreclosures at 'record high'

US foreclosure rate will hit a record one million by the end of 2010


Source: Press TV
http://www.presstv.ir/detail.aspx?id=134979§ionid=3510203


More Americans will lose their homes by the end of this year than at any other time, with the foreclosure rate hitting a record high of 1 million.

In a new all-time high, nearly one million houses are expected to go into foreclosure in the United States by the end of 2010. According to RealtyTrac, the record is ten times as many that go into foreclosure in normal economic circumstances.

RealtyTrac also reports that while month-over-month and year-over-year foreclosure filings are decreasing, the nation is heading to a record 3.2 million this year including default notices, auction sales and bank repossessions.

Last year, lenders foreclosed on more than 900,000 homes while the historic average is 100,000 annually, CBS news reported.

Economy expert Rollin Amore says part of this year's sky-high foreclosure rate is due to delay, as some banks have postponed foreclosures in hope of help to originate from the White House.

Some experts say that delayed foreclosures have created a glut in the housing market; there are too many houses for sale and not enough buyers.

The real-estate market makes up an estimated 10 percent of the US economy.

Restoring US balance to be 'painful'

Erskine Bowles, the co-chairman of US administration's deficit commission

Source: Press TV
http://www.presstv.ir/detail.aspx?id=134888§ionid=3510203


Leaders of US administration's deficit commission say restoring US fiscal balance will be a painful process that requires not only spending cuts but also some tax increases.

Erskine Bowles and Alan Simpson said at a U.S. Chamber of Commerce event on Thursday that the bipartisan panel is eying tax breaks which include the deduction of popular mortgage interest and cutting government spending in its effort to recommend ways to cut the estimated $1.4 trillion federal deficit.

"It is all going to be very painful," Reuters quoted Bowles as saying.

He also made it clear that he believed about 75 percent of the deficit reduction effort should come from spending cuts and 25 percent from revenue increases.

"I just want to see the vast majority of it come out of spending," added Bowles.

He warned that the US federal debt would probably hit more than 14 trillion dollars in 2011.

Bowles earlier said the deficit was like a cancer that would destroy the country from within unless tough action was taken by Washington.

His comments come as the US Federal Reserve says US unemployment will reach 9.2 to 9.5 percent by the end of this year. It has also noted that the economic recovery continues but with a moderate pace.

US Federal Reserve released a report Wednesday that depicted a gloomier picture of US growth outlook than what was expected.

According to the report the retail numbers are lower, mortgage applications fell and the country is not growing as fast as expected.

US Fed sees more tough times ahead

Source: Press TV
http://www.presstv.ir/detail.aspx?id=134839§ionid=3510203


The US Federal Reserve says the American economy is facing an outlook worse than expected because of faltering growth and rising unemployment.

The US central bank has warned that growth will slow to 3.0 to 3.5 percent this year, down from the 3.2 to 3.7 predicted just months ago, AFP reported on Wednesday.

It has also noted that the economic recovery continues, but at a moderate pace.

Meanwhile, the forecast for unemployment at the end of this year is 9.2 to 9.5 percent, meaning that the troubled labor market will recover more slowly than expected.

The US jobless figure is not expected to go below seven percent before 2013, leaving millions of Americans out of work. The Fed might consider whether further policy stimulus is necessary as it gauges growth.

But with interest rates at all-time lows, analysts say the central bank has few tools to help fix the US economy.

In US, four more banks collapse

Source: Press TV
http://www.presstv.ir/detail.aspx?id=134176§ionid=3510203


Four more banks in the United States have been shut down, bringing the number of banks fallen prey to an economic downturn to 90 so far this year.

The Federal Deposit Insurance Corporation (FDIC) on Friday seized Bay National Bank and Ideal Federal Savings Bank, both based in Baltimore, Maryland.

The FDIC regulators also closed USA Bank in Port Chester, New York and Home National Bank in Blackwell, Oklahoma.

The closed banks were holding USD 1.13 billion in combined assets. The closures cost the FDIC deposit-insurance fund USD 159.9 million.

FDIC Chairman Sheila Bair told Bloomberg in an interview that 2010 is going to be the peak year for bank failures in the US.

Since 2009, the US has seen the fall of 230 banks.

“The remaining shakeout will be geographically concentrated and much more restricted to smaller institutions,” said Steve Reider, president of Bancography, a consulting firm based in Birmingham, Alabama, according to Bloomberg.

“I continue to think that geography is destiny.”

Georgia, Illinois and Florida are among the states hit hardest by the banking crisis

US consumer spending drops again

Source: Press TV
http://www.presstv.ir/detail.aspx?id=134030§ionid=3510203



The Federal Reserve says US consumer credit has plunged in May, suggesting that Americans are still doubtful over taking on new debt.

The US Federal Reserve said on Thursday that the consumer credit fell by USD 9.15 billion in May, for the fourth consecutive month, much sharper than forecasts of a 2-billion-dollar decrease, AFP reported.

Revolving credit, mainly credit card accounts, was down USD 7.32 billion, while non-revolving loans for things like cars, boats and college education fell by USD 1.82 billion.

The financial crisis of 2007 contributed to the failure of key businesses, substantial financial commitments incurred by governments, and a significant decline in economic activity.

Although, the US economy is recovering from a severe recession that struck in December 2007-- which is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s -- a full economic recovery still seems far ahead.

The recovery however, seems to be slowing based on a number of recent economic data release by the Federal Reserve and the Treasury Department.