[Skip to the end]
You own a house with a mtg on it.
You sell your house and give the money to the bank at the closing.
The bank officers have a meeting and decide to use that money to pay off the mtg.
By Deborah Solomon and Jonathan Weisman
Nov. 12 (Bloomberg) — The Obama administration, under pressure to show it is serious about tackling the budget deficit, is seizing on an unusual target to showcase fiscal
responsibility: the $700 billion financial rescue.
The administration wants to keep some of the unspent funds available for emergencies, but is considering setting aside a chunk for debt reduction, according to people familiar with the matter.
The funds do not add to the deficit until after they are spent
This is total accounting nonsense.
A remake of the Clinton plan to have a trust fund for the deficit, which never made it past the empty rhetoric stage.
It is also expected to lower the projected long-term cost of the program — the amount it expects to lose — to as little as $200 billion from $341 billion estimated in August.
A $210 billion surplus in TARP funding could be used to reduced the U.S.’s towering national deficit. WSJ’s Deborah Solomon says the move follows criticism of the Obama administration’s approach to debt. The idea is still a matter of debate within the administration and it is unclear how much impact it would have on the nation’s mounting deficit levels. Still, the potential move illustrates how the Obama administration is trying to find any way it can to bring down the deficit, which is turning into a political as well as an economic liability.
The White House is in the early stages of considering what bigger moves it might make for next year’s budget. The Office of Management and Budget has asked all cabinet agencies, except defense and veterans affairs, to prepare two budget proposals for fiscal 2011, which begins Oct 1, 2010. One would freeze spending at current levels. The other would cut spending by 5%.
OMB is also reviewing a host of tax changes. The President’s Economic Recovery Advisory Board will submit tax-policy options by Dec. 5, including simplifying the tax code and revamping the corporate tax code.
White House Chief of Staff Rahm Emanuel is pressing for substantial spending cuts to go with any tax increases to try to avoid the “tax and spend” label that has bedeviled Democrats, according to administration and congressional officials.
The possibility of announcing an exit from Afghanistan with the funds saved to pay down the deficit would be extremely popular short term and contribute to lower GDP and higher levels of unemployment over the medium term.
The administration is constrained in tackling the mounting deficit, since raising taxes or slashing spending could stunt economic growth. Administration officials say the Obama economic team is especially concerned that rapid deficit reduction could hurt the economy.
On the $700 billion Troubled Asset Relief Program, the administration is considering a change that may appear to improve the fiscal situation. Agreeing not to spend a certain amount of TARP money will enable the White House, in its budget projections, to assume less money out the door and, therefore, less debt issued.
This is true, but TARP ‘spending’ on bank capital is regulatory forbearance and not ‘spending’ so it shouldn’t be ‘counted’ as deficit spending in any case.
The move would also reduce the deficit by an unknown amount since a certain level of spending and borrowing is already factored into estimated future deficits.
The Treasury Department said about $210 billion in TARP funds remains unspent, including about $70 billion returned from financial institutions. A further $50 billion is expected to be repaid in the next 12 to 18 months.
Budget experts said committing some TARP funds toward debt reduction could help calm concerns about the size and intent of the program. “I don’t necessarily want them to pull back in a huge way, because there’s a lot of uncertainty, but right now what we’ve got could turn into a $700 billion slush fund” for Congress, said Douglas Elliott, a fellow with the Brookings Institution, a liberal think tank.
The move could buy the Treasury Department time before it hits the so-called debt ceiling, which limits the amount of money the U.S. can borrow. Already, some members of Congress have said they won’t approve an increase in the $12.1 trillion debt cap unless efforts to reduce the deficit are included.
Senate Budget Committee Chairman Kent Conrad, the North Dakota Democrat who is proposing a bipartisan commission, along with Sen. Judd Gregg(R., N.H.), to examine taxes, said he won’t vote for raising the debt limit unless Congress and the administration start talking about cutting spending and increasing taxes.