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Bernanke to Fight 'Greenspan Recession' MoneyNews
(Headlines - scroll down for full stories)
President Bush has announced his newly minted $2.77 trillion budget request for 2007, and according to the numbers rolling in from the White House, the U.S. budget would rise 3.3% next year, just less than the 3.4% increase Americans saw in the '06 budget. For the seventh consecutive year, President Bush has sent Congress a budget that includes increases for major expenditures like military funding and oil and energy exploration. While other budget-busters such as Medicare will experience cuts in their rate of growth, they'll still see more money than they did last year.
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"President George W. Bush sent Congress a $2.77 trillion budget request for next year that would shrink Medicare and other entitlement spending by $65 billion over five years as defense and homeland security funds surge," according to Bloomberg News. "This year's deficit forecast is a record $423 billion." The Bush administration does say that after a spike upward in 2006, the deficit should fall back to $354 billion in 2007. Military spending receives the largest increase in the proposed budget. For the fiscal year beginning Oct. 1, 2006, the budget for the U.S. Department of Defense (DOD) would rise 6.9%. And that figure doesn't include the $120 billion that the Bush White House has just requested for the war effort in Iraq. Of course, approval of the proposal as it is currently being presented by the White House is hardly a given. Many lawmakers are running for re-election in November and will not want to explain to voters why they are slashing budgets on pet programs and the like. So getting support from Congress could be tough for President Bush. "For example, funding for departments such as Commerce, Education and the Interior won't keep up with inflation or would be pared," says Bloomberg. "Bush also asks Congress to end 141 federal programs for a savings of almost $15 billion." It's a delicate, high-wire act that few Presidents have mastered, say some economic observers. "Budgets are political documents, and this budget will likely have the goal of trying to show a declining deficit without endangering anyone's re-election prospects," Brian Riedl, a budget analyst at the Heritage Foundation, tells the news service. The fiercest skirmish could be over costly entitlement programs like Medicare. Congress just concluded a month in which it cut federal programs by $40 billion so who knows how many lawmakers will want to tackle programs favored by constituents? For example, Congress will not be easily sold on cutting Medicare by $36 billion. "Under Bush's proposal, payments to health-care providers, such as hospitals and nursing homes, would be reduced 0.4% when revenue exceeds Medicare's total expenses," says Bloomberg. "Bush also called for higher premiums to be imposed on high-income individuals. Medicare changes 'will promote competition and the delivery of efficient, high-quality care to beneficiaries,' the budget said." According to the U.S. Treasury Department, the costliest entitlement programs are Medicare, Medicaid and Social Security. Combined, they will force taxpayers to shell out $1.132 trillion this year. The trio accounts for over 42% of the federal budget, and as Bloomberg points out, the DOD budget at 15% is almost one-third the cost.
"We do not need to cut these programs, but we do need to slow their growth," Bush says in his budget message. White House number-crunchers project that by 2009, they will be able to meet the President's goal of paring the deficit back to 2.25% of the overall economy. This year's deficit represents about 3.2% of the gross domestic product, up from 2.6% in 2004. The high was 5.9% in 1983. The White House says that due to the incredible cost of hurricane relief along the Gulf Coast in 2005 estimated at $100 billion the federal budget will indeed take a hit. But that should fade away to a more manageable 2.6% level in 2007. Editor's Note:
2. Wireless License Sales to Rise by $25B There is one area that could provide the U.S. government with a revenue spike: wireless auctions. According to Reuters, the sale of U.S. wireless communications licenses will climb by approximately $25 billion between 2007 and 2009. That's a $7.8 billion hike over license revenues in 2005, according to the U.S. Treasury Department. Reuters says that the Federal Communications Commission will be selling 90 megahertz of wireless airwaves on June 29, 2006. That auction could raise as much as $15 billion, financial analysts say. "Those airwaves are expected to be used for advanced mobile communications like high-speed Internet and video services. Major U.S. wireless carriers like T-Mobile and Verizon Wireless are expected to bid in the sale," reports Reuters. In its budget proposal to Congress this week, the White House estimates that $9.95 billion from wireless auctions would pour in during the 2007 fiscal year, which starts Oct. 1, 2006. The Bush administration anticipates an influx of $12.24 billion in the 2008 fiscal year that starts Oct. 1, 2007. Editor's Note:
3. Bernanke to Fight 'Greenspan Recession' Ben Bernanke reassured both Wall Street and Main Street yesterday when he spoke at the Federal Reserve's Washington headquarters, saying that he would focus on keeping prices stable and making job growth a priority for Americans. As President Bush looked on (he is only the third U.S. president in history to visit the Fed), Bernanke said he is set to take over as the new Fed chairman. "Our mission, as set forth by the Congress, is a critical one: to preserve price stability, to foster maximum sustainable growth in output and employment, and to promote a stable and efficient financial system that serves all Americans well and fairly," he said. Bernanke was sworn in last Wednesday, after former chairman Alan Greenspan ended his 18-year run. The 79-year-old Greenspan is off to write books, consult and make speeches. But he may want to avoid crossing paths with the National Review's Jerry Bowyer, author of "The Bush Boom" and an economic adviser with Independence Portfolio Providers. For Monday's National Review Online, Bowyers wrote: "Alan Greenspan retired last Tuesday after serving more than 18 years as chairman of the Federal Reserve. While many credit Greenspan for the booming economy of the late 1990s, his term should be evaluated on how well he fulfilled his core duty: maintaining the value of the dollar. When judged against that goal, the Maestro's record is mixed." Pointing out that other Fed chiefs, like Paul Volcker and G. William Miller, also had their problems, Bowyers says that Greenspan's legacy will be one of "overreaction." "After countering the so-called 'irrational exuberance' of the late 1990s with several interest-rate hikes in late 1999 and early 2000 (which helped lead the economy into recession), Greenspan underrated the power of President Bush's tax cuts and overly decreased interest rates in an attempt to loosen the money supply and stimulate the economy further," says Bowyers. "This led to inflation, which has since been countered with 14 interest-rate hikes and counting." Editor's Note:
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