The US economy is very much rattled with the new Republicans policy planning’s. White house is busy in extending the tax proposal followed with a host of new regulations to be extended and implemented. After deploying trillion dollar of funds now the US economy have went for cut backs in its budget for the coming few years. It simply points out that US economic policy of pumping and printing funds will not increase the GDP growth of US. This year in 2010 the US economy is already running with budget deficit of 1.3 trillion dollars totaling up the figure to 13.3 trillion dollars.
The recent tug of war between policy frame work between Democrats and Republican have propelled up new set of dilemma for the world economy.
he President has decided to propose a freeze in civilian pay for federal employees for two years, 2011 and 2012.
• This two-year pay freeze will save $2 billion for the remainder of FY 2011, $28 billion over the next five years, and more than $60 billion over the next 10 years.
• It will apply to all civilian federal employees, including those in various alternative pay plans and those working at the Department of Defense – but not military personnel.
This move also is another step in what the Administration has done as part of its Accountable Government Initiative to cut costs, save taxpayer dollars and do more with less in the federal government: These steps were taken when the New President of US took his chair:
• The President froze salaries for all senior White House officials; in last year’s budget, he proposed to extend this freeze to other top political appointees; and he eliminated bonuses for all political appointees.
• The President directed agencies to dispose of excess real estate to save $8 billion over the next two years.
• The President set an aggressive goal of reducing improper payments by $50 billion by the end of 2012.
• In each of his budgets, the President put forward approximately $20 billion in terminations and reductions, encompassing more than 120 programs all of which have strong supporters.
• The President put forward more than $1 trillion in deficit reduction in his 2011 budget, including a three-year freeze in non-security spending – which will bring non-security discretionary spending to its lowest level as a share of the economy in 50 years.
What is proposed?
The Republican made different set of policies. Under this they framed these policies:
o Stop job-killing tax hikes
o Allow small businesses to take a tax deduction equal to 20 percent of their income
o Require congressional approval for any new federal regulation that would add to the deficit
o Repeal small business mandates in the new health care law.
• Cutting Spending:
o Repeal and Replace health care
o Roll back non-discretionary spending to 2008 levels before TARP and stimulus (will save $100 billion in first year alone)
o Establish strict budget caps to limit federal spending going forward
o Cancel all future TARP payments and reform Fannie Mae and Freddie Mac
• Reforming Congress:
o Will require that every bill have a citation of constitutional authority
o Give members at least 3 days to read bills before a vote
o Provide resources to troops
o Fund missile defense
o Enforce sanctions in Iran.
• The above testimony was given
Above are the main parts of the Republican pledge received by CBS news and on all news stations throughout the United States.
So one is now clear that if TARP comes to a sudden end or the Health Care Bill is replaced with a Medical Bill, the world economy is just poised for sudden tremors in fund pull outs from world economies. There is no point of dreaming easy liquid flow of liquidity in to the markets. Flow will remain but restrictions and measures. This is not for the holiday season which will begin at the end of December. Its call for the upcoming new year.
One of the biggest expenses comes for the US is the US military and over their we will witness in the month of February when the US will present its budget, a huge set of cut backs. The U.S. armed forces comprise 23% of the overall national budget and account for the largest chunk of the world’s military spending. Obama’s commission has already tagged a number of big-ticket items for 100 billion U.S. dollars of military cutbacks in a draft of its budget recommendations. Most surprising part is that education of US is going to face cut backs in budgets when an economy needs to breed quality manpower.
2011 BUDGET WAR
In other words in the coming year of 2011 we will find Europe and US going for massive budget cuts and imposition of higher rate of taxes. This will create burden and slower growth opportunities to the tune of 100% .Since budget cuts will lead to slower growth and imposition of higher taxes will result to less savings for the consumer. These economies will be able to reduce and bring down the fiscal deficit to little comfort zone but that might result to prolonged slow growth of these economies. The chairmen of President Obama debt-reduction commission have been unable to win support from any of the panel’s elected officials for their proposed spending cuts and tax increases. The chairmen released their final package of proposals for trimming nearly $4 trillion from projected deficits through 2020.
Mr. Obama and senior Democratic Congressional leaders want to let the tax cuts expire on annual income above $250,000 for couples and $200,000 for individuals, while continuing the lower rates on income below those amounts. The Democrats’ plan would add roughly $3 trillion to the deficit over the next 10 years. The Republicans want to extend all of the lower rates, which would add about $4 trillion to the deficit over the next decade. This is just the begging of policy war. By the time the Budget of US gets finalized we will find new host of surprises which might attack the world market as “Tremors of Earthquake”.
The coming days will be very important to watch out the strategies of growth as well reduction is being adopted by US and Europe. For the Asian economies we find huge investment opportunities but with restriction of creation of any bubble. India alone has huge expansion and internal demand of expansion. The entire focus is now being built on rural India. We find new projects coming in Cement, Steel, Power, Infrastructure and New Banks.
In china we find already measures of control of funds. These have been designed to control asset bubble formation. China’s 12th Five-Year Plan signifies a new phase in growth. China is now focusing on balanced economy and not on export oriented economy. The next phase in economic growth in china will be by storing wealth among its people and allowing the public share the fruits of reform and development. One of the biggest focusing areas of China is to reduce the income gap between urban and rural Chinese.
This will be made by shifting resources out of the metropolitans and creating opportunities in rural. For example, large universities and research centers can be moved out of those big cities, so that not everything is concentrated in these areas. As a result, the migrant population will not always flow to big cities. So we find another huge opportunity of investments and growth coming from domestic China. Hence we may not be complaining about forced export of goods from China.
Budget war is on and we need to wait and identify the hidden opportunities of growth and investments in the various economies.
Indraneel Sen Gupta
Financial, Economic Writer and Research Analyst.