Wednesday, January 7, 2009

What Can President-Elect Obama Really Do?

As January 20th approaches, it seems appropriate to take stock of the situation in which the new President will find himself.  Efficacy aside (I for one never thought that Roosevelt's New Deal ended the Great Depression, WWII was the tide changer), fiscal policy will be pegged to the right side of the speedometer.  No one wants to raise taxes or decrease spending, so that leaves borrowing money to pay for the new policies.  The problem is, by virtually any benchmark, the USA is already levered to the hilt.  In addition, other developed nations are facing similar budget shortfalls (I will focus on the U.K.), providing competition for global funds.  

This pseudo command economy approach to solving market economy woes will not work.  The U.S. economy need wholesale restructuring, the type of which will no doubt be painful. However, delaying the inevitable by propping up zombie companies and dead-beat borrowers jeopardizes the ENTIRE monetary structure.

Let's take a look at the federal government's debt tally:

Total Public Debt Outstanding: $10.65 trillion
(Treasury Bills, Notes & Bonds outstanding)

Total GSE Debt & Mortgage Guarantees Outstanding: $6.19 trillion
(after the U.S. Government acquired 80% of Fannie Mae & Freddie Mac, the "implied" backing of the debt and guarantees was strengthened, just falling short of an explicit backing)

Total TLGP Guarantees Outstanding: $119 billion
(The Temporary Guarantee Liquidity Program provides backing for financial company debt via the FDIC)

2009 Budget Deficit: $750 billion (my estimate)
(The Congressional Budget Office will release their best guess at 10:00 am EST today.  The Office of Management and Budget's most recent guess is $482 billion.)

Total: $17.71 trillion

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