Federal deficit on track for a record this fiscal year

Last year, the Obama Administration and the CBO projected the budget deficit to decline.  Instead, it increased to a record amount (which I predicted).  They again are forecasting lower deficits going forward.  Anybody want to take that bet?

http://www.washingtontimes.com/news/2011/feb/14/debt-now-equals-total-us-economy/

Why our government leaders and central bankers have any credibility left is one of life's greatest mysteries.

Federal budget deficit soaring

http://usawatchdog.com/two-stories-that-should-scare-the-heck-out-of-you/

Deficit Reduction Commission

Obama is forming a "deficit reduction commission"--with the charter of trying to reduce our exploding federal budget deficit. We all know how this is going to end up.

Recall the formation of the Department of Energy (DOE) by the Carter Administration back in the 1970's, in the midst of the Arab oil embargoes. It was created to reduce America's dependence on foreign crude oil. More than thirty years later, imports from oil-producing countries has more than doubled percentage-wise--from both friendly and not-so-friendly exporters. The DOE has obviously failed, as America is more vulnerable than ever to geopolitical supply shocks. Yet, the DOE has now grown into a multi-billion dollar cost center. It is a penultimate example of bureaucratic largesse.

In the same breath, Congress is planning to boost the national debt limit another $1.9 trillion, after raising the limit on December 28 (see zerohedge blog) to barely keep our country above water. The irony is deafening.

http://www.zerohedge.com/article/democrats-seek-stunning-19-trillion-increase-debt-ceiling-143-trillion

US could lose AAA credit rating

This threat has been articulated by this blogger a few times, despite the possibility being "unthinkable" by the mainstream financial press--at least until now. Fitch, one of the major credit ratings agencies, just issued a warning on the possibility of the US losing its AAA credit rating.

http://www.telegraph.co.uk/finance/economics/6969163/US-must-cut-spending-to-save-AAA-rating-warns-Fitch.html

Fitch Ratings has issued the starkest warning to date that the US will lose its AAA credit rating unless acts to bring the budget deficit under control, citing a spiral in debt service costs and dependence on foreign lenders.

Bank bailout fatigue

Tired of bank bailouts? The House has a 1,279 page financial reform bill which includes a clause allocating $4 trillion more for emergency funding in case banks collapse.

Treasury Secretary Tim Geithner also raised an additional $400 billion to backstop Freddie Mac and Fannie Mae, without Congressional appproval, conveniently implemented on Christmas Eve.

And with the federal budget deficit running out of control, and no investors willing to fund those deficits (except the Fed itself), they are now coming up with a new instrument in addition to overnight bank reserves, dubbed benignly as "term deposit facility." In essence, they are creating Federal Reserve CD's for member banks.

Many rightfully believe creating money out of thin air is inflationary, due to the printing of more USDollars. Another more dire scenario is hyperinflation, due to the more expansive creation of electronic currency via a computer keystroke.

In other words, the US Treasury can only print so many USDollars, as there are not enough trees. But it can certainly create more virtual currency through the miracle of computer technology. Turbo Tax Timmy's forefinger is developing carpal tunnel syndrome from all the keystrokes. Either way, the paper currency in your wallet is being devalued--on a much bigger scale. Protect yourself accordingly.

Federal budget savings

In an effort to curb federal spending, departments and agencies came up with $102 million in proposed savings. The problem is that this year's budget deficit approaches $2 trillion. It does indicate our government is bloated and highly inefficient.

http://online.wsj.com/article/SB124882436513388423.html