Krugman 2003

A Fiscal Train Wreck

By Paul Krugman

March 11, 2003 (NYT) — With war looming, it’s time to be prepared. So last week I switched to a fixed-rate mortgage. It means higher monthly payments, but I’m terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits.

From a fiscal point of view the impending war is a lose-lose proposition. If it goes badly, the resulting mess will be a disaster for the budget. If it goes well, administration officials have made it clear that they will use any bump in the polls to ram through more big tax cuts, which will also be a disaster for the budget. Either way, the tide of red ink will keep on rising.

Last week the Congressional Budget Office marked down its estimates yet again. Just two years ago, you may remember, the C.B.O. was projecting a 10-year surplus of $5.6 trillion. Now it projects a 10-year deficit of $1.8 trillion.

And that’s way too optimistic. The Congressional Budget Office operates under ground rules that force it to wear rose-colored lenses. If you take into account — as the C.B.O. cannot — the effects of likely changes in the alternative minimum tax, include realistic estimates of future spending and allow for the cost of war and reconstruction, it’s clear that the 10-year deficit will be at least $3 trillion.

Thanks, Bill…

CLINTON SLAMS OBAMA: ‘I’M THE ONLY GUY WHO GAVE YOU FOUR SURPLUS BUDGETS’

Last night in New York City Obama and Clinton held a joint fundraiser. Bill Clinton had to reminded everyone of the difference between his presidency and Obama’s

“And, I care about the long term debt of the country a lot. Remember me, I’m the only guy that gave you four surplus budgets out of the eight I sent.”

China Services Industry Expands at Faster Pace

Seems to be some credence to the notion that China is working to expand its service sector vs manufacturing and construction:

China Services Industry Expands at Faster Pace

June 4 (Bloomberg) — China’s services industry expanded at a faster pace in May, according to a survey of purchasing managers released by HSBC Holdings Plc and Markit Economics.

The PMI rose to a 19-month high of 54.7 in May from 54.1 in April, HSBC and Markit said today. The result contradicted a government-backed survey of services businesses released June 3 and signs from other data that a slowdown in the world’s second- biggest economy is deepening.

China’s stocks rebounded today from the biggest drop in six months on speculation the government will accelerate measures to spur consumer spending. The Ministry of Finance said yesterday it will offer consumers subsidies for purchases of energy-saving home appliances including washing machines, water heaters and refrigerators.

“This should reduce the fears of a sharp growth slowdown,” Qu Hongbin, a Hong Kong-based economist for HSBC, said of the PMI reading.

The Shanghai Composite Index rose 0.4 percent as of 10:47 a.m. local time after sliding 2.7 percent yesterday.