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White House: " U.s. Economy Is Now In Much Worse Shape Than Expected "

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Economy In Much Worse Shape Than Expected: White House

Published: Tuesday, 25 Aug 2009 | 11:22 AM ET Text Size By: CNBC.com with AP

The US economy will shrink far more than expected this year and will rebound much more slowly than forecast after that, according to a bleak new assessment by the White House Budget Office.

The federal government also faces exploding deficits and mounting debt over the next decade, far worse than what the Obama administration had estimated just a few months ago.

The revised estimates project that the economy will contract by 2.8 percent this year, more than twice what the White House predicted earlier this year.

Obama economic adviser Christina Romer projected that the economy would expand in 2010, but by 2 percent instead of the 3.2 percent growth the White House predicted in May. By 2011, Romer estimated, the economy would be humming at 3.6 percent growth.

Figures released by the White House budget office foresee a cumulative $9 trillion deficit from 2010-2019, $2 trillion more than the administration estimated in May.

Moreover, the figures show the public debt doubling by 2019 and reaching three-quarters the size of the entire national economy. Romer predicted unemployment could reach 10 percent this year and begin a slow decline next year.

Still, she said, the average unemployment will be 9.3 in 2009 and 9.8 percent in 2010.

"This recession was simply worse than the information that we and other forecasters had back in last fall and early this winter," Romer said.

The grim administration projections came on a day of competing economic news.

The Congressional Budget Office, which has predicted less economic growth than the White House in the past, was also scheduled to announce revised budget projections on Tuesday.

Obama himself may have drowned out the rising deficit news with the announcement Tuesday that he will nominate Ben Bernanke to a second term as chairman of the Federal Reserve.

The Bernanke news could neutralize any disturbance in the financial markets caused by the high deficit projections.

The deeper red ink and the gloomy unemployment forecast present President Barack Obama with an enormous challenge.

The new numbers come as he prods Congress to enact a major overhaul of the health care system—one that could cost $1 trillion or more over 10 years.

Obama has said he doesn't want the measure to add to the deficit, but lawmakers have been unable to agree on revenues that cover the cost.

What's more, the high unemployment could last well into the congressional election campaign next year, turning the contests into a referendum on Obama's economic policies.

Republicans were ready to pounce.

"The alarm bells on our nation's fiscal condition have now become a siren," Senate Minority Leader Mitch McConnell, R-Ky., said. "If anyone had any doubts that this burden on future generations is unsustainable, they're gone—spending, borrowing and debt are out of control."

Both Romer and budget director Peter Orszag said this year's contraction would have been far worse without money from the $787 billion economic stimulus package that Obama pushed through Congress as one of his first major acts as president.

At the same time, the continuing stresses on the economy have, in effect, increased the size of the stimulus package because the government will have to spend more in unemployment insurance and food stamps, Orszag said.

He said the cost of the stimulus package—which spends most of its money in fiscal year 2010—will grow by tens of billions of dollars above the original $787 billion.

For now, while the country tries to come out of a recession, neither spending cuts nor broad tax increases would be prudent deficit-fighting measures.

But Obama is likely to face those choices once the economy shows signs of a steady recovery, and it could test his vow to only raise taxes on individuals making more than $200,000.

Still, 10-year budget projections can be "wildly inaccurate," said Stan Collender, a partner at Qorvis Communications and a former congressional budget official.

Collender notes that there will be five congressional elections over the next 10 years and any number of foreign and domestic challenges that will make actual deficit figures very different from the estimates.

The Obama administration did tout one number in its budget review: The 2009 deficit was expected to be $1.58 trillion, $263 billion less than projected in May.

That's largely because the White House removed a $250 billion item that it had inserted as a "place holder" in case banks needed another bailout.

Orszag, anticipating backlash over the deficit numbers, conceded that the long-term deficits are "higher than desirable." The annual negative balances amount to about 4 percent of the gross domestic product, a number that many economists say is unsustainable.

But Orszag also argued that overhauling the health system would reduce health care costs and address the biggest contributor to higher deficits.

"I know there are going to be some who say that this report proves that we can't afford health reform," he said. "I think that has it backwards."

http://www.cnbc.com/id/32551478

OOPS!

:lol::lol::lol:

Edited by MOP

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That's not the impression anyone would get from the re-appointment of Ben B by Pres O - of course to chop him off now would shout "Dissatisfaction" to the keen observer, so they have kept him and have presented in a way to maintain that all is on track. But CNBC seems to interpret it all a little differently to that.

Quite worrying, really, the more bouncy we are now here and there then the more potential for downside later if things don't work out for the best. After all, the bunch of brains from 2005 in place to date didn't do very well before, why would they be the ones to promote a recovery now? Is it he who break it later learn how to make it? Hmm, not sure I agree that the best team to lead forward are those that oversaw this mess so far.

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That's not the impression anyone would get from the re-appointment of Ben B by Pres O - of course to chop him off now would shout "Dissatisfaction" to the keen observer, so they have kept him and have presented in a way to maintain that all is on track. But CNBC seems to interpret it all a little differently to that.

Quite worrying, really, the more bouncy we are now here and there then the more potential for downside later if things don't work out for the best. After all, the bunch of brains from 2005 in place to date didn't do very well before, why would they be the ones to promote a recovery now? Is it he who break it later learn how to make it? Hmm, not sure I agree that the best team to lead forward are those that oversaw this mess so far.

Bernanke is back in because the market wants him back in. Obama wanted Summers in.

This Bernanke announcement has been made today in order to fool the market and bury the bad news. It won't bury it for long though.

Next leg down starting very soon when this "buried" news feeds through to the markets and the message sinks in.

Edited by MOP

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Bernanke is back in because the market wants him back in. Obama wanted Summers in.

And now we have this announcement.

Bag carrying Ben?

This Bernanke announcement has been made today in order to fool the market and bury the bad news. It won't bury it for long though.

Next leg down starting very soon when this "buried" news sinks in over the next few weeks.

Surely "sustained recovereh based on sound fundamentals"?

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Bernanke is back in because the market wants him back in. Obama wanted Summers in.

This Bernanke announcement has been made today in order to fool the market and bury the bad news. It won't bury it for long though.

Next leg down starting very soon when this "buried" news sinks in over the next few weeks.

The news is hardly buried if we're ranting about it

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The news is hardly buried if we're ranting about it

It's buried because I had trouble finding it, it's in small type half way down the bloody homepage!

The Bernanke news is headlining all over the economic sites at the moment and there is hardly any mention of this. So far.

Edited by MOP

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nonsense.

Im watching Bloomberg.

2 articles ago, some teenager saying property is up everywhere except Las Vegas and Detroit. Housing has bottomed.

1 article ago...review of retail shares....up up up....compared with sales results...down down down...commented that investors see strength and opportunity.....BLOO LOO saw that the shares had risen with all the others that went up in the current rally....looks to me that banks are throwing money (QE) at ALL shares, pushing up prices...nothing to do with earnings, potential, type of market sector and risk.

just on...Investor saying he is investing in strength, no cash , all in to shares where hed rather be an owner of strength rather than a creditor.

All is booming.

and now? who saw the crisis coming.....the Queen apparently...6 months ago.

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I wonder what the US GDP figure for Q3 is shaping up to be then?

I reckon they will "magically" produce a +0.1% figure just so they can shout "recession over".

Place your bets..........

Edited by MOP

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I wonder what the US GDP figure for Q3 is shaping up to be then?

I reckon they will "magically" produce a +0.1% figure just so they can shout "recession over".

Place your bets..........

I'm expecting somewhere between 0.1% and 0.5%

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BBC News just covered it, but the newsreader looked edgy, as if he was betraying his masters by even reading out anything that went against The Message... ;):lol:

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No, sorry,you must be mistaken...the BBC ( or Brain Bending C**nts as I know them ) have told me, via their web portal, that the recession is over and everything will be okay...and oh it would appear...they've released a mad airline bomber back to his homeland, sends out all the right messages...i'll be getting the ferry on holiday this year :lol: It's probably okay as he's not al kiheda...just a memeber off al-blow-ur-heed-aff.

(p.s. shouldnt they have let the mad airline bomber die in prison, after a sever beating, then let everyone p**s on his grave ?....justice for none, except the crims...new labour...new stupidity ).

Edited by TheCountOfNowhere

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No, sorry,you must be mistaken...the BBC ( or Brain Bending C**nts as I know them ) have told me, via their web portal, that the recession is over and everything will be okay...and oh it would appear...they've released a mad airline bomber back to his homeland, sends out all the right messages...i'll be getting the ferry on holiday this year :lol: It's probably okay as he's not al kiheda...just a memeber off al-blow-ur-heed-aff.

(p.s. shouldnt they have let the mad airline bomber die in prison, after a sever beating, then let everyone p**s on his grave ?....justice for none, except the crims...new labour...new stupidity ).

Yep. Hardly got a mention on the Blatant ******** Corporation today. They found plenty of time to suck Bernanke's **** though.

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The dead cat bounce couldn't just have been engineered all along just to time with getting their mate Mr B back in.

No it's not possible :blink:

Edited by billybong

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I get an uneasy feeling that news results and public announcements are being managed to influence sentiment hour by hour to steer financial markets in the direction desired.

Yesterday was a classic example. News of Bernanke and the US consumer confidence/ housing market was a recipe for another speculative boost in equities and commodities. HOWEVER, within minutes of the consumer confidence data release comes this bearish position form the white house. There are no coincidences here and markets/punters are being taken for a ride. The same thing has been happening with fresh gas/oil reserves being discovered in the last 48 hours just as oil prices start pushing worrying highs.

This is all a bit consipiracy theory but when you see wht lengths the government /media go through to prevent undue pessimism I am starting to feel like its all an elaborate computer game.

Edited by desertorchid

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