Fourth Quarter GDP Released
On Friday, the Department of Commerce announced that the U.S. economy grew at a 3.2% rate in the fourth quarter, an improvement from the 2.6% pace in the prior period. For all of 2010, GDP grew by 2.9% after contracting by 2.6% in 2009. The report showed that fourth quarter numbers were boosted by strong personal spending, reflected in the best holiday retail sales since 2006. The report also showed U.S. exports accelerated while the rate of import growth slowed. Company investments also helped the economy, although business spending for equipment and software slowed.
IMF Report Criticizes US Debt
On Thursday, the International Monetary Fund issued a report criticizing the U.S. response to its rising public debt. The IMF report focused on criticism that the United States is falling behind on a promise it made to other top economic countries to halve its budget deficit by 2013. At a gathering of the world’s top economic leaders in Canada last summer, U.S. officials promised to reduce the deficit to roughly 6 percent of gross domestic product. However, according to data released this week by the Congressional Budget Office (CBO), recent tax cuts and expected spending will keep the annual deficit this year at about 10 percent of GDP.
Financial Crisis Inquiry Commission Releases Final Report
On Tuesday, the Financial Crisis Inquiry Commission (FCIC) releases its final majority and dissent reports. The majority report concluded that the 2008 financial crisis was caused by the Fed’s ” pivotal failure to stem the flow of toxic mortgages,” the SEC ” [not] requiring more capital and halted risky practices,” and banks ” recklessly taking on too much risk, with too little capital, and with too much dependence on short-term funding.” The dissent report signed by FCIC Vice Chair Bill Thomas and Commissioners Douglas Holtz-Eakin and Keith Hennessey criticized the majority’s report for being ” more an account of bad events than a focused explanation of what happened and why.” The dissent also focused it blame for the crisis on policymakers who “poorly designed government housing policies that distorted market outcomes and contributed to the creation of unsound mortgages.”
CBO Releases Bleak Deficit Projections
On Wednesday, the Congressional Budget Office (CBO) announced that in the current 2011 fiscal year ending Sept. 30 it projects a deficit of $1.48 trillion, or $414 billion more than it assumed last August prior to the December deal. In fiscal year 2012, CBO’s baseline now assumes a deficit of $1.1 trillion compared to $665 billion in August. The nearly $1.5 trillion deficit for 2011 will equal 9.8 percent of GDP, almost matching the 10 percent of GDP at the height of the economic downturn in 2009. CBO also said that the government’s annual spending on net interest on the accumulating debt will more than double over the next decade from 1.5 percent of GDP this year to 3.3 percent in 2021. CBO is also projecting that the economy will add roughly 2.5 million jobs over the next five years, but the unemployment rate will still be near 8.2 percent in the fourth quarter of 2012 and only by 2016 does it reach 5.3 percent or close to the agency’s estimate of the natural rate of joblessness.
Republicans Draft Debt Ceiling Reform Bills
The Treasury Department has said that the federal government’s “debt ceiling,” which is the amount of debt the country is legally allowed to issue, could be breached as early as March 31, and as late as mid-May, and Treasury is pressuring Congress to raise the debt limit through a vote in Congress. In advance of the vote, Representative Tom McClintock (R-CA) and Senator Pat Toomey (R-PA) are putting the final touches on similar pieces of legislation that would require the government to prioritize payments on U.S. debt before the federal government’s other obligations in the event the debt ceiling is reached. However, the Treasury Department has already rejected the concept of prioritizing payments and has said it would not prevent the country from defaulting on its debt because it would only protect principal and interest payments and not other legal obligations of the United States.
If you have any questions regarding any of these issues, please contact:
Matt Jessee, Policy Advisor
1 314 259 2463