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Politics and Media Headlines 2/26/09

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Zombie Bank Monster Mash, by Mark Fiore (click here to play the animation)

All the President’s zombies (by Paul Krugman)
Ben Bernanke’s testimony over the past two days gives us our best clue yet about where the administration and the Fed are going with bank rescue. And the answer seems to be … nowhere… As long as capital injections are seen as a way to bail out the people who got us into this mess (which they are as long as the banks haven’t been put into receivership), the political system won’t, repeat, won’t be willing to come up with enough money to make the system healthy again.

Now, the details: Treasury to give banks unlimited refills (McClatchy)
Taking the wraps off its much anticipated bank-rescue plan, the Obama administration on Wednesday announced that it will provide a virtually unlimited solvency guarantee to the nation's 19 largest banks.

The Banks's Rigged Stress Test (by Dean Baker)
Read it and weep. The NYT tells us that the baseline scenario for the stress tests is that the unemployment rates rises to 8.4 percent and home prices fall 14 percent. The worst case scenario is that unemployment rises to 8.9 percent and house prices fall 22 percent. Okay, unemployment will almost certainly reach 8.0 percent and possibly 8.1 percent in February. It might cross 8.5 percent in March. The worst case scenario is that it hits 8.9 percent by the rest of the year? Remember, this is the same crew that told us that there was no housing bubble…

These stress tests indicate that our economic policy makers are still in a serious state of denial. Why isn't the media ridiculing them and telling the public that the folks making economic policy still don't understand the economy.
Well, Dean, it’s because the media don’t understand the economy, either.—Caro

Nobel Prize-Winning Economist Joseph Stiglitz: Obama Has Confused Saving the Banks with Saving the Bankers (Democracy Now)
We get reaction to President Obama’s speech from Nobel economics laureate and former World Bank chief economist, Joseph Stiglitz. Stiglitz says the Obama administration has failed to address the structural and regulatory flaws at the heart of the financial crisis that stand in the way of economic recovery. Stiglitz also talks about why he thinks Obama’s strategy on Afghanistan is wrong and that Obama’s plan to keep a “residual force” in Iraq will be “very expensive.” On health care, Stiglitz says a single-payer system is “the only alternative.”

Pres[i]dent Obama puts astronomical $4 trillion price tag on new budget (New York Daily News)
President Obama unveiled a staggeringly huge budget this morning, telling the country it will take almost $4 trillion to run the U.S. next year. That will be a whopping $1.75 trillion more than the President expects the government to raise in revenue, creating the largest federal deficit in real dollars since the country was fighting World War II. The giant numbers are due in part to Obama administration's decision to print all of the red ink, including the wars in Iraq and Afghanistan and national emergencies, which the Bush administration left out. "This budget is an honest accounting of where we are and where we intend to go," Obama said in releasing the outline of his massive spending plan. "For too long our budget has not told the whole truth about how precious tax dollars are spent." In spite of the gusher of spending, Obama insisted he's being tight-fisted. He said he's scouring the budget for waste and targeting popular but unnecessary programs for elimination.

Policy shift will avert $9 trillion deficit-Orszag (Reuters)
President Barack Obama's budget director said on Thursday that without a shift in policies the U.S. deficit would reach $9 trillion over the next decade. White House budget chief Peter Orszag said the Obama administration's budget outline reflects costs for the war in Iraq and other items that were previously not included in the budget. "All told we are showing $2.7 trillion in costs in this budget that were excluded from previous budgets and I think that is a mark of the honesty and responsibility contained in this document," he said.
Excellent. This is the kind of explaining that needs to be done, but that Democrats have avoided for so long. The only way to fight the right’s mighty propaganda machine is to explain, educate, and debunk. Then do it again. And again. And again. And never, ever stop. The Clintons are the absolute best at doing this.—Caro

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Carolyn Kay

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Submitted by Paul_Lukasiak on

...its nice that Obama is including the war costs in the budget -- but what I want to know is whether he's being honest about Social Security. Is he continuing to do what previous presidents have done (starting with Lyndon Johnson, who used the trust fund surplus to hide the budgetary impact of the Vietnam War), and hide a chunk of the deficit by claiming that the money borrowed from the fund doesn't represent part of the annual deficit?

**This year (FY2010), he can hide 96.7 billion from taxes paid to the fund, but from here on out that number declines, as the difference between taxes and benefits gets smaller starting next year (FY 2011 will be 93.1 billion) and by 2017 it will be 0.

IMHO, this is the year to start reporting the deficit honestly. Considering the size of the FY 2010 deficit, another .096 trillion isn't going to make much of a difference in terms of how the deficit is perceived. And because from now on less and less of the deficit will be able to be hidden by treating social security taxes like general revenue when making budget projection, meeting deficit reduction targets will be easier if we're honest about the deficit now.

Not to mention the most important fact -- being honest about the fact that the money borrowed from the trust represents a federal liability no different from money borrowed from China or Wall Street is important to preserving Social Security.

So does anyone know if Obama is doing the right AND smart thing here?

**these are the most recent projections -- but they were made well before the recent collapse of the economy. One can expect the surplus realized from Social Security taxes to be well below the 96.7 billion in FY 2010, and consequently -- not only because fewer people will be paying into the trust, but workers who planned to work until they were 67 (when the would be fully vested) and find themselves out of a job are likely to begin collecting benefits once unemployment compensation runs out.