Week 6 - US faces massive deficit

Original context:

President Barack Obama forecast the biggest US deficit since World War II in a budget yesterday that urges a costly overhaul of the health-care system and spending billions to arrest the economy's .
An eye-popping US$1.75 trillion (HK$13.65 trillion) deficit for the 2009 fiscal year is projected in Obama's first budget. That is equal to 12.3 percent of US gross domestic product - the largest share since 1945. In 2010, the deficit would dip to a still-huge, but Obama promised to get the red ink under control within a few years through tax increases and spending cuts.
"While we must add to our deficits in the short term to provide immediate relief to families ... we can produce sustained growth and shared prosperity," Obama said at the White House.
The proposed US$3.55 trillion spending plan for the 2010 fiscal year that begins on October 1 provides the broad outlines of a more detailed one to be released in April.
The soaring deficit figure sent US Treasury bond prices lower and yields up to three-week highs.
Gold prices slid to their lowest level in more than a week while stock prices rose. The budget requires passage by Congress to take effect. While Obama, a Democrat, has broad support with both chambers in Congress controlled by his party, he could face a fight as the shock of huge deficits leads to wariness about more spending.
A senior administration official meanwhile, told the Associated Press that the budget includes a provision of US$250 billion - if needed - to prop up troubled banks and other businesses.
That would be on top of the US$700 billion Congress has already approved for dealing with the nation's worst financial crisis in seven decades. AGENCIES

Group commentary:

Background and facts:

President Barack Obama predicts US faces enormous deficit US$1.75 trillion .(HK$13.65 trillion) due to costly implementing health-care system and the economic policy, which will dip to US$1.17 trillion in 2010 in his prediction. He will solve this by spending cuts and tax increases. In April, the spending plan for 2010 fiscal year will be released, which will begin on October, 2009. The budget plan needs to be passed by Congress to take effect. One of the budget (about US$250 billion) may be used to save banks and businesses in economic crisis.

Issues:

1.The huge fiscal deficit in US
2.The main focus of 2009 fiscal plan, like health-care system and economic policy. (The beneficiary in this plan)
3.Whether the plan is passed in Congress in April
4.Whether the plan can fix the economic crisis in US


Analysis and Opinion:

In our group’s opinion, Obama is doing the right thing which stabilizes the country by spending cuts and tax increases. It not only can reduce the country’s deficit in followings year, but also it makes the citizens in US change their over-spending consuming habits (that is one of the reasons casing the financial crisis). In the past, due to this habit, US people buy luxurious things and house by borrowing money from bank. So, The fact that Obama encourage people to cut their spending is right.

Also, from the prediction of Obama, the huge deficit cannot avoid in following years. He knows that the budget plan should help the most fragile industry, like bank and businesses, which make the economy stabilize as a result. He knows that bank’s industry is the most important to the country’s economy because many businesses need the loan from the bank to maintain their operate, especially in financial crisis.

Finally, He also make some plans to benefit the people’s livelihood, like improving the medical system. By doing that, he can get support from the US’s citizens and increase the bond for the US’s government and Obama, thus leading to the effective corporation among the citizens to fix the crisis.

Question for readers:

1.Do you think that the fiscal plan can improve the economy in US? If not, what suggestions can make to improve the plan?

2.How the government plan the policy to balance the income and expense? (e.g. Increasing tax for income ; improving education and medical policy that belong to non-economic policy with expense)

3.Do you think the beneficiary can get the huge support by the government? Are any others fragile people ignored by the government in this plan?

Week 5 - President Obama $787 Billion Economic Stimulus Plan

February 22, 2009

Original Text :

Even before the $787 billion Economic Stimulus Plan was approved, the country's deficit was approaching 1.2 trillion or 8.3 per cent of the overall economy. President Barack Obama's Economic Stimulus Plan along with other expenses have some analyst saying the annual gap between federal spending and income could approach $2 trillion when the fiscal year ends in September. President Barack Obama plans to cut spending and raise taxes to offset the economic deficit. The withdrawal of troops in Iraq would save about $90 billion a year.

President Barack Obama also proposes to tax the investment income of hedge fund and private equity partners. President Barack Obama also proposes "a fairly aggressive effort on tax enforcement" that would target tax havens and corporate loopholes among other provisions.

The nation's governors welcomed money from President Barack Obama's Economic Stimulus Plan but said that the plight of the economic condition of their states outweighs any federal monies received. The governors at the three-day National Governors Association in Washington focused on President Barack Obama's Economic Stimulus Plan downplaying Republicans criticism. Most of the governors stated that the recovery plan was a "handout" and that their states government is doing the heavy lifting with their state's economy. President Barack Obama's Economic Stimulus Plan will send billions to states for education, health care and transportation.

One governor, Gov. Bobby Jindal, a likely 2010 presidential contender, said that he will reject a portion of the money aimed at expanding state unemployment insurance. Another governor of Mississippi, Gov. Haley Barbour has said that he may reject money from President Barack Obama's Economic Stimulus's Plan as well.

Sarah Palin, the Republican party 2008 presidential nominee criticized the recovery plan as too big and wasteful. Florida's Republican govennor Charlie Crist, also a potential 2012 presidential contender, said that Republican's criticism of the recovery plan was not rooted in politics but that governors just have different perspective on how the law will impact their state.

Group Commentary:

Background and facts:

The President Barack Obama plans to cut spending and raise taxes to offset the economic deficit so as to stimulate the plight condition of the USA’s economic. These plans include withdrawal of troops in Iraq, taxing the investment income of hedge fund and private equity partners and targeting tax havens and corporate loopholes among other provisions. Besides, he will send billions to states for education, health care and transportation these details will be announced later.

Issues:
1. Obama’s Economic Package Aids towards USA Economic.
2. The influence of global economic crisis to USA.
3. Different opinion from the governor.

Analysis and Opinion:
As the serious influence of the economic crisis in USA, the Obama’s government is trying their best to save the country. In our opinion, many people will welcome the withdrawal of troops in Iraq. For the USA citizen, they will not spend any tax that they pay to ‘waste’ money on the war. For the troops and their families, the troops can back to their home very soon and be with their families. Besides, the troops will not need to worry about their lift and safety. Stopping the wars can also bring peace to the world.

Taxing the investment income of hedge fund can stop the people from buying and investing on the fund. This is one of the most efficient ways to stop the continuous plight of the economic. As people want to avoid from the tax, they may stop investing the fund. If they stop investing the fund, the effects of the shock market onto them will be minimized.

Question for readers:
1. Do you think that the proposed plans can give a hand to all American?

2. What plans and proposals will Obama’s government announce? Can you give a brief prediction on them?

US Congress passes stimulus plan

(Source from: http://news.bbc.co.uk/2/hi/business/7889897.stm, Saturday, 14 February 2009)

Original text:

The US Senate has voted in favour of Barack Obama's $787bn (£548bn) economic stimulus plan - clearing the way for it to be signed into law.

The vote came hours after the House of Representatives passed the measure without Republican backing.

Mr Obama has said the plan - a package of tax cuts and spending - will "save or create more than 3.5 million jobs".

Republicans argue the tax cuts are insufficient, and that the economy will be saddled with debt for years to come.

Members of both houses of Congress reached a deal over the content of the stimulus package on Wednesday.

The BBC's Kevin Connolly in Washington says the first set-piece drama of the Obama era ended in a comfortable but not entirely unqualified victory for the president, who had hoped for more bipartisan support.

All 176 Republicans and seven Democrats voted against the revised package in the House. It was backed by 246 House Democrats.

In the Senate just three Republicans voted for the package.
The rebel votes were however enough under Congress rules to stop the Republican Party using blocking tactics to delay the stimulus plan, and it passed 60-38.

'Shot in the arm'

The approved version of the plan is split into 36% for tax cuts and 64% percent in spending and money for social programmes.

Running to more than 1,000 pages, it includes new road building, cash to pay police in hard-up cities, and tax breaks for consumers buying houses and cars.

The package also imposes new limits on cash bonuses and other incentive compensation for executives on Wall Street, which are much tougher than those proposed by the Obama administration last week.

The provision, inserted by Senate Democrats, targets senior executives at financial institutions receiving government bail-out funds.

The colossal package is all to be funded with borrowed money.

Republicans had insisted on larger tax cuts instead of big spending programmes.

Republican Senate minority leader Mitch McConnell said: "This isn't Monopoly money. It's real. It adds up, and it has to be paid back, by our children and by their children."

The Democratic leader of the Senate, Harry Reid, praised the three Republicans who had voted for the bill and said it was the most important piece of legislation he had worked on.

"The country is in trouble and we're so fortunate we were able to get it passed," he said.

"It's going to give this country a shot in the arm."

Earlier, Mr Obama had said that in the longer term the government needed to rein in spending, and that "we are going to have to once again live within our means".

The president told members of the Business Council in Washington that the package was "only the beginning of what I think all of you understand is going to be a long and difficult process of turning our economy around."

Presidential pressure

"We have a once-in-a-generation chance to act boldly, and turn adversity into opportunity, and to use this crisis as a chance to transform our economy for the twenty-first century," Mr Obama said.

Among the measures in the approved package is a "Buy American" clause that had caused alarm among US trading partners.

The EU and Canada said that provisions favouring American-produced materials for government projects risked provoking retaliatory protectionist measures.

In the face of this reaction, the clause was softened to a version requiring the government not to violate trade agreements.

Last week, the House had approved an earlier $825bn version of the package without any Republican support.

The Senate voted to approve a different $838bn version on Tuesday, with few Republicans opting to back it.

The two versions had to be reconciled in a joint House-Senate committee before facing final votes in the two chambers.

President Obama increased the pressure on Congress this week, saying he wanted the bill on his desk ready to sign by the weekend.

Group Commentary:

Background and Fact

Last Friday night (13th February of 2009), the $787bn economic stimulus plan proposed by President Obama had been approved by the both houses of Congress. It passed 60-38 and 246-183 in the Senate and the House respectively.

The stimulus package approved last Friday includes four main aspects: $240bn in tax breaks for individuals and businesses like buying houses and cars for consumers, $140bn for health care , $1000bn for education and $48bn transportation projects. The passed version of the plan is divided into 36% for tax cuts and 64% percent in spending and money for social programmes. Apart from those four majorities, the plan also imposes new limits on cash bonuses and other much tougher incentive compensation for executives on Wall Street. It also includes cash to pay police in hard up cities.

Summary of the story

Finally, members of both houses of Congress got a consensus of the stimulus package on Wednesday. In the House, 246 Democrats voted for package with ALL 176 Republicans and seven Democrats against the revised package. Only three Republicans voted for the plan in the Senate, however, under the Congress rules, the rebel votes were sufficient to stop the Republican Part using blocking strategy to postpone the plan.

The reasons why Republicans did not voted for the revised version were that firstly, there should be larger tax cuts instead of large spending programmes and secondly, they concerned about next few generations had to suffer from the effect of the package by paying back the borrowed money in this package.

Analysis

The issues raised from this news that we want to concern are:

1. The level of bipartisan support to President Obama, especially the Republican Party

2. Influence and consequence of provoking retaliatory protectionist measures due to the “American Buy”

In my point of view, although this package has passed and ended in a relatively comfortable way but the President Obama did not have fully support from both parties, especially the figure “ALL” -- aLL the Republican in the House voted against the package. Is it the revenge from the opposite party to the President Obama or the revised version of the package had a lot of fault that lead the Republican to vote against the plan? Whatever the reasons are, the President Obama really has a hard time to get through while he is still a freshman of being a president. Supporting from both parties, his people and even other countries are necessary for him.

Obama poised to unveil financial rescue package

Sources: South China Morning Post dated on 2nd February 2009

Websites: http://www.scmp.com/portal/site/SCMP/menuitem.2af62ecb329d3d7733492d9253a0a0a0/?vgnextoid=bbd294f6cb13f110VgnVCM100000360a0a0aRCRD&ss=Asia+%26+World&s=News



Original Text:



US President Barack Obama has promised to lower mortgage costs, offer job-creating loans for small businesses, get credit flowing and rein in free-spending executives as he prepared to unveil a new strategy for spending billions from the second instalment of the financial rescue plan.


The strategy will be devoted to deciding how to spend the remaining half of the US$700 billion bailout that Congress approved last year to save financial institutions and lenders.


An announcement is possible this week on an approach that would unfreeze credit, helping families and businesses. The strategy is separate from those contained in Mr Obama's US$825 billion economic stimulus bill that is going before the Senate today after it passed in the House of Representatives without a single Republican vote.


At the end of a week that saw hundreds of thousands of people lose their jobs, Mr Obama also used his Saturday radio and internet address to tell Americans that "no one bill, no matter how comprehensive, can cure what ails our economy".


Mr Obama has seized on the grim economic news to push his stimulus bill, urging lawmakers to act boldly and overcome partisan divisions to counter a "devastating" crisis for Americans.


At the same time, he faces a problem over protectionist provisions in the bill that many fear could set off a trade war. Opposing the "buy America" measures, however, could set off a backlash from his supporters, particularly among labour unions.


During the final three months of last year, US gross domestic product recorded its worst downhill slide in a quarter-century, stumbling backwards at a 3.8 per cent pace, the government reported on Friday; that rate could accelerate to 5 per cent or more this quarter.


Treasury Secretary Timothy Geithner is trying to finish a plan to overhaul the bailouts begun in the George W. Bush administration. Mr Geithner has said the Obama administration was considering using a government-run "bad bank" to buy up financial institutions' bad assets. But some officials now say that option is gone because of the potential costs.


Many ideas under consideration could end up costing hundreds of billions beyond the original price tag. Aides would not rule out the possibility that the administration would seek more than the US$350 billion.


Mr Obama said Mr Geithner would soon announce a plan "for reviving our financial system that gets credit flowing to businesses and families. We'll help lower mortgage costs and extend loans to small businesses so they can create jobs. We'll ensure that CEOs are not draining funds that should be advancing our recovery".


The Bush administration's spending of the first US$350 billion of the package drew criticism because it went overwhelmingly to bankers.


Mr Obama's weekly message - largely repackaged from a week of White House statements - was as much for the country as it was for lawmakers: pass the separate American Recovery and Reinvestment Plan or things are going to get worse.


The Democratic president does not need Republicans for his economic plan and other initiatives to clear the Democratic-controlled Congress, but he has said he wants to introduce an era of bipartisanship.


Jon Kyl, the Republicans' second-ranking Senate member, said yesterday the party would flex its muscles by stalling the stimulus package without a fundamental rethink of the bill's mix of spending and tax cuts.


"I think that we would all agree there will be a 60-vote requirement for the bill. That's the end result of a filibuster," he said on Fox News Sunday, referring to a parliamentary tactic to drag out debate indefinitely. To overcome that, the Democrats would need to amass 60 votes to shut down debate and bring the bill to a vote. Mr Obama's party can now count on 58 votes to the Republicans' 41, with one seat still unresolved.

Group Commentary:

Background

This new is about Barack Obama is the first black president in United States of America. During the election campaign of the US president, the economic downturn had started. Barack Obama promised if he become the 44th US president, he will save the current economic situation by introducing his financial rescue plan such as lower mortgage costs, offer job-creating loans for small businesses and using a government-run to buy the bad assets from the "bad banks" etc. As we all know that he is the US president now. It is the time for him to show his ability how he can save not only the economy in USA, but also the wholewide economy as well.

The Summary of the story

The US president, Barack Obama proposed to spend around US$ 800 billions helping families and businesses. The Economic Aid packages including lower mortgage costs, extending loans for small businesses and creating job opportunities etc. This financial rescue plan was waited the Senate for approval. In order to make the bill approved in the Congress, the Democratic Party must reach 60 votes that is the minimumm requirement. Unfortunately, the Obama's Party now counts 58 votes, that is the financial rescue plan cannot run smoothly. If the Congress cannot get a consensus, the economic situation in USA get worse. The consequences may be vey serious.

Analysis

The issues raised from this news that we want to concern are:

1. The depression of the worldwide economy

2. Obama's Economic Aid Package can rescue the economic downturn.

3. What are the roles of different countries to solve this financial crisis?

In my opinion, everyone is unwilling to have economic depression. The most important way to solve the economic tsunami is to enhance international cooperation. The economic downturn is not only one country's problem, but also the whole world as well. Good foreign relationships can slove the problems easily. For example, China purchase the US bond so that the US government increase its mobile liquidity for development. Although the financial crisis cannot solve in a short period, the government should adopt some of the appropriate policies as soon as possible. Otherwise, other social problems or other consequences may come out. For example, bad economic mood may lead to crimes because people loss their jobs, the suicide rate may increase, people who are suffering psychological problems and also the mental health of people etc. As a result, we hope the Senate can get a consensus so that these policies can help people within a shorter period.

Questions

1. Comment on Obama's Economic Aid Package based on this new?

2. Besides the solutions which mentioned on this news, can you suggest other ways to improve the Economic downturn now?

3. From Obama's Economic Aid Package, which solution(s) do you think is(are) the best to rescue the economic downturn? Why?