Author Topic: The Bernanke Brief  (Read 188344 times)

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Offline winthorp

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Re: Bernanke warning:This year, US public debt could reach end game
« Reply #640 on: September 05, 2010, 11:04:47 am »


  A laughable article about an incompetent Fed Chairman.  Bernanke needs to be fired.

Good luck firing him.  he doesn't work for us. 
My people are destroyed for lack of knowledge - Hosea 4:6

Offline larsonstdoc

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Re: Bernanke warning:This year, US public debt could reach end game
« Reply #641 on: September 05, 2010, 11:39:26 am »
Good luck firing him.  he doesn't work for us. 

  Like we don't know that fact.
I'M A DEPLORABLE KNUCKLEHEAD THAT SUPPORTS PRESIDENT TRUMP.  MAY GOD BLESS HIM AND KEEP HIM SAFE.

Offline citizenx

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Re: Bernanke warning:This year, US public debt could reach end game
« Reply #642 on: September 05, 2010, 04:25:35 pm »
He's saying it's over for the US economy and it's just a matter of time. The article says this year.
I got that, I just though this was all juicily ironic, coming from his mouth.

Offline Joe(WI)

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Re: Bernanke warning:This year, US public debt could reach end game
« Reply #643 on: September 05, 2010, 06:11:05 pm »
Ian Punnet(of all people!) interviewd someone Saturday about the FED ball of wax! Woodrow Wilson being blackmailed about a mistress to get it passed, and not having a lick of business sense, gets a lucrative (Stanford?) ivy league presidency, oh my my!

Can someone post archive(youtube, etc.) links? This guy was a real deal DESPITE Ian being weaselwonk.
The number, 666, has been changed. The new number is, 999.

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Bernanke: "Get ready to get raped hard, long and dry with pumice stone powder"
« Reply #644 on: October 09, 2010, 07:40:59 am »
http://www.economicpolicyjournal.com/2010/10/bernanke-tells-truth-united-states-is.html

Tuesday, October 5, 2010

Bernanke Tells the Truth: The United States is on the Brink of Financial Disaster

Yesterday, Federal Reserve Chairman Ben Bernanke delivered a speech before the the Annual Meeting of the Rhode Island Public Expenditure Council in Providence, Rhode Island. In the speech, he warned about the current state of the government finances. His conclusion, the situation is dire and "unsustainable".

It is remarkable that mainstream media has given this speech no coverage. I repeat, the central banker of the United States says in his own words:

    Let me return to the issue of longer-term fiscal sustainability. As I have discussed, projections by the CBO and others show future budget deficits and debts rising indefinitely, and at increasing rates. To be sure, projections are to some degree only hypothetical exercises. Almost by definition, unsustainable trajectories of deficits and debts will never actually transpire, because creditors would never be willing to lend to a country in which the fiscal debt relative to the national income is rising without limit. Herbert Stein, a wise economist, once said, "If something cannot go on forever, it will stop."9 One way or the other, fiscal adjustments sufficient to stabilize the federal budget will certainly occur at some point. The only real question is whether these adjustments will take place through a careful and deliberative process that weighs priorities and gives people plenty of time to adjust to changes in government programs or tax policies, or whether the needed fiscal adjustments will be a rapid and painful response to a looming or actual fiscal crisis.

This is as close as you are ever going to see a central banker admit that his country's financial situation is so dire that it could breakup at any time.

Here's more from Bernanke's remarkable speech:

    The recent deep recession and the subsequent slow recovery have created severe budgetary pressures not only for many households and businesses, but for governments as well. Indeed, in the United States, governments at all levels are grappling not only with the near-term effects of economic weakness, but also with the longer-run pressures that will be generated by the need to provide health care and retirement security to an aging population. There is no way around it--meeting these challenges will require policymakers and the public to make some very difficult decisions and to accept some sacrifices. But history makes clear that countries that continually spend beyond their means suffer slower growth in incomes and living standards and are prone to greater economic and financial instability.

Now, get this, he warns that it is not only the Federal government that has financial problems, but also states and local governments:

    Although state and local governments face significant fiscal challenges, my primary focus today will be the federal budget situation and its economic implications.

Does Bernanke see the tsunami hitting or what?

Then, he put things in historical perspective:

    The budgetary position of the federal government has deteriorated substantially during the past two fiscal years, with the budget deficit averaging 9-1/2 percent of national income during that time. For comparison, the deficit averaged 2 percent of national income for the fiscal years 2005 to 2007, prior to the onset of the recession and financial crisis. The recent deterioration was largely the result of a sharp decline in tax revenues brought about by the recession and the subsequent slow recovery, as well as by increases in federal spending needed to alleviate the recession and stabilize the financial system. As a result of these deficits, the accumulated federal debt measured relative to national income has increased to a level not seen since the aftermath of World War II.

Then, he explains the deterioration and the problems it will create for the entire economy:

    For now, the budget deficit has stabilized and, so long as the economy and financial markets continue to recover, it should narrow relative to national income over the next few years. Economic conditions provide little scope for reducing deficits significantly further over the next year or two; indeed, premature fiscal tightening could put the recovery at risk. Over the medium- and long-term, however, the story is quite different. If current policy settings are maintained, and under reasonable assumptions about economic growth, the federal budget will be on an unsustainable path in coming years, with the ratio of federal debt held by the public to national income rising at an increasing pace.2 Moreover, as the national debt grows, so will the associated interest payments, which in turn will lead to further increases in projected deficits. Expectations of large and increasing deficits in the future could inhibit current household and business spending--for example, by reducing confidence in the longer-term prospects for the economy or by increasing uncertainty about future tax burdens and government spending--and thus restrain the recovery. Concerns about the government's long-run fiscal position may also constrain the flexibility of fiscal policy to respond to current economic conditions.

Then, he tells us how powerful the negative trends are and how the aging population and Obamacare are going to make things worse:

    Our fiscal challenges are especially daunting because they are mostly the product of powerful underlying trends, not short-term or temporary factors. Two of the most important driving forces are the aging of the U.S. population, the pace of which will intensify over the next couple of decades as the baby-boom generation retires, and rapidly rising health-care costs. As the health-care needs of the aging population increase, federal health-care programs are on track to be by far the biggest single source of fiscal imbalances over the longer term. Indeed, the Congressional Budget Office (CBO) projects that the ratio of federal spending for health-care programs (principally Medicare and Medicaid) to national income will double over the next 25 years, and continue to rise significantly further after that...he aging of the U.S. population will also strain Social Security, as the number of workers paying taxes into the system rises more slowly than the number of people receiving benefits. This year, there are about five individuals between the ages of 20 and 64 for each person aged 65 and older. By 2030, when most of the baby boomers will have retired, this ratio is projected to decline to around 3, and it may subsequently fall yet further as life expectancies continue to increase. Overall, the projected fiscal pressures associated with Social Security are considerably smaller than the pressures associated with federal health programs, but they still present a significant challenge to policymakers.

Then he goes back to warn that the financial mess also exists at the state and local level:

    The same underlying trends affecting federal finances will also put substantial pressures on state and local budgets, as organizations like yours have helped to highlight. In Rhode Island, as in other states, the retirement of state employees, together with continuing increases in health-care costs, will cause public pension and retiree health-care obligations to become increasingly difficult to meet. Estimates of unfunded pension liabilities for the states as whole span a wide range, but some researchers put the figure as high as $2 trillion at the end of 2009.5 Estimates of states' liabilities for retiree health benefits are even more uncertain because of the difficulty of projecting medical costs decades into the future. However, one recent estimate suggests that state governments have a collective liability of almost $600 billion for retiree health benefits. These health benefits have usually been handled on a pay-as-you-go basis and therefore could impose a substantial fiscal burden in coming years as large numbers of state workers retire.

Bernanke then breaks the news that the problem is global:

    It may be scant comfort, but the United States is not alone in facing fiscal challenges. The global recession has dealt a blow to the fiscal positions of most other advanced economies, and, as in the United States, their expenditures for public health care and pensions are expected to rise substantially in the coming decades as their populations age. Indeed, the population of the United States overall is younger than those of a number of European countries as well as Japan.

Bernanke then re-emphasises, the damage this will do to the overall economy:

    Failing to address our unsustainable fiscal situation exposes our country to serious economic costs and risks. In the short run, as I have noted, concerns and uncertainty about exploding future deficits could make households, businesses, and investors more cautious about spending, capital investment, and hiring. In the longer term, a rising level of government debt relative to national income is likely to put upward pressure on interest rates and thus inhibit capital formation, productivity, and economic growth. Larger government deficits increase our reliance on foreign lenders, all else being equal, implying that the share of U.S. national income devoted to paying interest to foreign investors will increase over time. Income paid to foreign investors is not available for domestic consumption or investment. And an increasingly large cost of servicing a growing national debt means that the adjustments, when they come, could be sharp and disruptive. For example, large tax increases that might be imposed to cover the rising interest on the debt would slow potential growth by reducing incentives to work, save, hire, and invest.

He then states that we do not know how much time is left before all hell breaks loose:

    It would be difficult to identify a specific threshold at which federal debt begins to pose more substantial costs and risks to the nation's economy. Perhaps no bright line exists; the costs and risks may grow more or less continuously as the federal debt rises. What we do know, however, is that the threat to our economy is real and growing, which should be sufficient reason for fiscal policymakers to put in place a credible plan for bringing deficits down to sustainable levels over the medium term.

From there,Bernanke goes into a bit of wishful thinking by identifying ways Congress can rein in spending and make the tax system more efficient. Good luck with all of that.

The real important part of Bernanke's speech is the first half where he warns of the financial crisis just ahead.

Offline larsonstdoc

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  Just my opinion but I think this will happen before the election so that the saviors (the banks and the Fed) can promise to get the economy on track---BY STEALING TRILLIONS MORE TO SAVE THEIR OWN BUTTS AGAIN---the derivatives are still out there (1.5 quadrillion).  And we the people, will be left holding the empty bag again.  You gotta love those saviors (sarcasm).
I'M A DEPLORABLE KNUCKLEHEAD THAT SUPPORTS PRESIDENT TRUMP.  MAY GOD BLESS HIM AND KEEP HIM SAFE.

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http://www.nato-pa.int/Default.asp?SHORTCUT=2079

217 ESCEW 10 E - THE IMPACT OF THE FINANCIAL CRISIS ON CENTRAL AND EASTERN EUROPE

ATTILA MESTERHAZY (HUNGARY)
RAPPORTEUR

I.  INTRODUCTION

    A.  HOW THE CRISIS SWEPT THE REGION

II.  ECONOMIC CONDITIONS

    A.  DOMESTIC ECONOMIC STRUCTURES 
    B.  INTERNATIONAL TRADE 
    C.  MACROECONOMIC (IM)BALANCES: CURRENT ACCOUNTS AND CAPITAL FLOWS 
    D.  INTERNATIONAL ECONOMIC RELATIONS 
    E.  LABOUR, MIGRATION AND REMITTANCES

III.  IMPLICATIONS FOR FISCAL AND MONETARY POLICY

    A.  FISCAL POSITIONS BEFORE THE CRISIS
    B.  MEASURES IN THE MIDST OF CRISIS

IV.  THE LATVIAN AND BULGARIAN EXPERIENCES 

    A.  LATVIA 
    B.  BULGARIA

V.  IMPACT ON MILITARY EXPENDITURE

VI.  RECOMMENDATIONS AND CONCLUSION

BIBLIOGRAPHY

 

I. INTRODUCTION

1.  Economic conditions in the 20 countries comprising Central and Eastern Europe1 (CEE) underwent an exceptional deterioration during the recent global financial and economic crisis.  While largely spared from the initial credit-tightening that stemmed from the sub-prime mortgage market collapse in the United States during the first half of 2008, none of these transition economies were able to avoid financial and commercial contraction following the September 2008 implosion of Lehman Brothers.  Indeed, the latest estimates of real gross domestic product for 2009 indicate that only Albania, Belarus and Poland avoided economy-wide contractions, while the region’s GDP as a whole shrank by 6.2% year-on-year (IMF, 2010c) These contractions occurred after nearly a decade of economic progress which in several cases, was characterized by spectacular growth. This vertiginous reversal of fortunes quickly generated concerns about the region’s fundamental economic vitality, raised the spectre of social unrest and has posed questions about the future direction of political and economic reform in many of these countries (World Bank, 2010).  Fortunately, by early 2010, a modicum of stability had returned to the region, although serious problems persist.  Indeed, the region as a whole remains vulnerable to yet another global downturn should such a scenario unfold.

2.  The late but dramatic onset of crisis in the CEE can be attributed respectively, to the crisis’s origin in Western capital markets, as well as the region’s heavy dependence on external markets and foreign capital. The distant epicentre of the crisis initially allowed foreign investors to keep capital committed to CEE markets.  With the exception of the Baltic States, the region enjoyed positive returns through the first three quarters of 2008.  The CEE, however, did not go unscathed during the first phase of the crisis: from July 2007 to September 2008 credit creation and foreign capital flows to the region, predictably, began to slow, but initially without a serious impact on economic growth.  According to the European Bank for Reconstruction and Development (EBRD), “the main reason why these signs did not manifest themselves in declining output in most countries before the second half of 2008 was the continued expansion of exports” (EBRD, 2009).  Quarterly data from the Economist Intelligence Unit (EIU) bears this out.  Although lending rates in the region slowed markedly during the first three quarters of 2008, exports as well as imports only began to contract in the fourth quarter.  Unfortunately, when the full force of the financial crisis finally struck Central and Eastern Europe, it struck the region’s financial and real economies in a devastating fashion as well as foreign capital and demand in tandem.  Thus, from late 2008 onward, “economic activity contracted rapidly, with almost no lag” (EBRD, 2009: 11).

3.  The financial and economic crisis has also affected Central and Eastern Europe to a greater degree than most other developing and emerging regions (World Bank, 2010).  This is largely due to the CEE’s unique economic structures, history and geo-political position. Indeed, the Communist legacy of these countries puts them in a special analytical category, although with the passage of time, that Communist legacy has become less burdensome.  Following the collapse of the Communist bloc, the CEE countries operated below 1992 output levels for between five and ten years, and in many cases their transitions were marked by sustained economic recession. This was virtually inevitable as central planners had so profoundly misallocated capital and labour. Turning around decades of poor policy was inevitably going to be a painful process.  By the turn of the century, however, the prospect of joining the European Union (EU) had both hastened economic integration with advanced Western markets and served as a catalyst for critical structural reforms.  While liberal reforms assumed different forms in each of the new EU members (Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia), all experienced substantial growth from 2000/01 onwards as barriers to intra-regional trade and finance were lowered and domestic economic structures were rationalized and rendered more internally logical and internationally competitive.

4.  The transition narrative for the other ten CEE countries, however, has been less consistent.  In the 1990s, most of South Eastern Europe continued to operate with relatively under-developed economies, which were further weakened by wars linked to the break-up of Yugoslavia and all the attendant problems that violence precipitated - corruption, closed borders and command economies.  Yet, with the return of stability to the Balkans, the region’s governments embarked upon substantial reforms designed to pave the way to eventual EU accession.   Meanwhile, the four Commonwealth of Independent States (CIS) countries in the CEE region – Belarus, Moldova, Russia and Ukraine2 – adopted rather different approaches to economic reform and external economic relations.  Within the CIS, the State has assumed a much larger role in national economic life than has been the case in other CEE countries. Here the vestiges of the command economy are more apparent; autonomous economic actors enjoy less space in which to operate and these markets are generally less open to global economic opportunities.

5.  This readily apparent diversity of economic experiences, cultures and structures has meant that the impacts of the global economic crisis and the policy responses have varied widely throughout the CEE.

A. HOW THE CRISIS SWEPT THE REGION

6.  It has been well documented that the initial credit crunch began in the United States’ subprime mortgage market in the summer of 2007. As liquidity plunged and the cost of short-term borrowing surged, investors in highly leveraged positions were compelled to ‘deleverage’. They did so by withdrawing capital from higher-risk investments either to pay off other obligations or to place it in safe havens like the US dollar or commodities markets.  This generated enormous price volatility across a broad range of assets and financial markets.  Volatility quickly spread to European capital markets as many major European banks were holding assets in US securities markets.  Although Western banks with a strong presence in Central and Eastern Europe withdrew capital from the region in order to shore up their balance sheets at home, capital outflows initially remained relatively minor through the first half of 2008. The Baltic States, however, were exceptions in this regard. Their stellar growth rates had been largely financed by large inflows of foreign capital, which generated a financial bubble that had already begun to deflate by late 2007.  In any case, with the collapse of several major US firms in September 2008 (Lehman Brothers, AIG and Bank of America) the initial credit crunch turned into a full-blown global financial and economic crisis throughout much of the region.

7.  As financial markets around the world roiled with uncertainty during Q4 2008, the CEE region underwent a so-called ‘sudden stop’ of bank lending (EBRD, 2009).  To make matters worse, this occurred as import demand in the West struck production schedules for CEE goods.  The scarcity of existing capital and rising risk premia for new capital had also triggered a sharp rise in borrowing costs for the region’s governments and private sector.  From 2007 to 2009 net investment in the CEE declined precipitously from a record US$255 billion to roughly US$20 billion – a drop of over 90% (UNECE, 2010).3  Goods and services exports declined rapidly in late 2008 and early 2009.  The UNECE (United Nations Economic Commission for Europe) reports that the CEE region’s value of exports contracted by 27.5% in 2009, while the total value of regional imports declined by an even greater 30% (UNECE, 2010).

8.  In a region highly dependent on foreign markets, it did not take long for these contractions to translate into severe hardship.  Unemployment soared with job losses greatest in the higher valueadded sectors.  For the 15 countries with available statistics, the unweighted average of official unemployment rose from 9.5% to 12.6% from the first quarter (Q1) of 2009 to Q1 2010 (EIU, 2010). These numbers, however, masked important regional differences.  For example, the three Baltic States saw their unemployment rates more than double from 6.3% in 2008 to 16.8% in Q1 2010 (unweighted average).  While there are now signs of recovery throughout the CEE region, unemployment has increased across the region, a development which generates both fiscal and political tensions.

9.  It is important to note where these job losses occurred.  Across the region industrial production and construction fell faster than any other sector and, accordingly, these sectors have shed the greatest number of workers.  While this follows logically from tightening export markets and credit availability, it means many skilled workers were among the most severely affected by the crisis.

10.  Indeed, the economic fallout leapt almost seamlessly from financial to export markets to industrial production.  Eventually no sector of the labour market was spared. National governments scrambled to cope with the crisis and to reignite the economic dynamism that defined the region over the past decade. Some began to correct the deficiencies that had left them so vulnerable in the recent global downturn.  The optimal policy responses throughout the European continent and in North America, however, were not always obvious and remain the subject of some dispute.  On the one hand, the collapse in private consumption and investment has fuelled calls for Keynesianstyle fiscal expansion to fill the gap in aggregate demand.  On the other hand, soaring debts have pointed to the need for fiscal austerity in order to reinvigorate the supply side of national economies, bolster foreign investor confidence, and to put national budgets on a sustainable foundation.  In fact, a mix of these policy goals has generally been adopted. The policy responses have been strongly conditioned by the particular economic frameworks in place as these countries entered the crisis and by the fiscal resources that were available to national governments at the onset of the crisis.


II. ECONOMIC CONDITIONS

A. DOMESTIC ECONOMIC STRUCTURES

11.  Over the past two decades various Central and Eastern European countries have variously undergone ‘shock therapy’ reforms, backlashes against liberalisation, war and strife in the Balkans, political and economic integration with the EU, WTO and NATO, the introduction of or tightening links to the euro, revivals of State control, and ‘colour revolutions’. No two national experiences have been identical and the past two decades have perhaps only exacerbated the heterogeneity in the CEE.  It was inevitable that the global crisis would strike countries operating in such variegated landscapes in very different ways. It was also inevitable that the policy responses to that crisis would diverge markedly.

12.  While the entire region has suffered as a result of the financial crisis and the precipitous decline in foreign demand, the Baltic States, Ukraine, Moldova and Russia underwent the steepest contractions in real GDP in 2009, ranging from a 7.9% decline in Russia to a staggering 18.0% fall in Latvia.  At the other end of the spectrum, Poland and Albania avoided contractions, growing by 1.8 and 3.0% respectively, while the Belarusian economy remained almost stagnant with a real increase of 0.2% (EIU, 2010).  Interestingly, the capacity of these economies to weather the financial storm hardly correlates with the EBRD’s transition scores - a rating system designed to gage the overall degree of transition toward free-market liberal systems.  The three Baltic States, for example, fare quite well in each transition category with average scores ranging from 3.7 to 3.93 of a possible 4; Poland received a lower score of 3.78.  These measures of economic modernisation and policy liberalisation are second only to Hungary (3.96) and Slovakia (3.78).4  In contrast, Albania, Moldova, Russia and Ukraine score at or slightly above the 3-point mark (from 3.0 to 3.07).5  These disparities roughly correlate with the 2009 rankings of political liberalisation that are published annually by Freedom House as well as the Heritage Foundation’s economic freedom rankings.  At first glance, variation in these countries’ respective capacities to weather the financial and economic crisis does not seem to relate to the degree of market liberalization.

13.  Moreover, while a large and diverse internal market generally seems to bolster resilience (IMF, 2009c), this alone seems insufficient to galvanise recovery.  Although the Russian economy is over three times the size of Poland’s, Russia’s seemingly inexorable embrace of ever greater State intervention and persistently poor relations with foreign investors has characterised national economic policymaking in recent years.  In 2009 the Russian economy shrank by 7.9% (EIU, 2010).   Poland, which has a relatively large internal market although hardly the size of Russia, performed the best in the EU over the initial 18 months of the crisis. Its macro- and micro-economic policies seem to be a critical part of the explanation.  The relative wealth of a society (measured by GDP per capita) also appears to bear only a minor relation to resilience in the face of crisis.  While Ukraine and Albania’s average incomes are the second and third lowest in the region (approximately US$7,000), Albania had the highest growth on the continent, while Ukraine’s ranked second worse, with a drop of 15.3% in 2009.

14.  The relative starting positions of these economies are also of some import.  Standard growth theory asserts that, ceteris paribus, economies with lower levels of capital and income per worker will grow more quickly than more advanced economies when capital is suddenly made available, until all economies reach their ‘steady state rate of growth’ (Solow, 1956).  In the CEE this ‘catchup’ effect can be observed in Albania, which started at a significantly lower level of GDP per capita than its neighbours, but not in Moldova where the average income level was comparable to Albania’s in 1992 but which has subsequently lagged behind (IMF, 2009a).  In terms of cumulative GDP growth since 2003, IMF projections for 2010-2014 suggest that relatively poorer countries in the 1990s, such as Ukraine, Moldova and Russia, will outperform Poland. While Albanian growth will trail that of Poland, it is set to achieve cumulative growth in 2010 higher than that of Estonia, Latvia and Lithuania - countries where average income has grown rapidly over the past decade.  Surprisingly, the situation was not so different before the crisis.  In 2007 and 2008 Poland and Albania grew at their lowest pace since 2003, and the Baltic States were outperformed by Ukraine, Moldova and Russia.  Looking at cumulative growth since 1993, however, paints a different picture with Ukraine and Moldova growing the least in the CEE, while the fastest growing economy up to 2008 was Albania, followed by Estonia and Latvia, which only enjoyed average levels of GDP per capita throughout the 1990s.  All of this suggests that some of Europe’s poorer countries have grown more rapidly, and that some of this growth, for example, in Albania seem to be linked to progressive institutional reforms (SET, 2010) rather than a simple ‘catch-up’ mechanism.  In other words, government policies and institutions matter.

15.  In the final analysis the degree of liberalisation, economic size and the ‘catch-up effect’ of lower initial per capita income do not fully explain the region’s diverse growth patterns and the differentiated impacts of the crisis.  These structural factors certainly play an important role in setting the context for successful economic performance, but clearly the specific context in each country is quite varied.  This report will now discuss these different contexts and, in so doing, will highlight elements that have shaped the contours of a crisis that has severely undercut Central and Eastern European growth.

B. INTERNATIONAL TRADE

16.  A common feature of the CEE region is its dependence on external markets for domestic growth and prosperity.  Trade with Western Europe and Russia is crucial for all CEE economies.  Important differences emerge, however, with respect to their dependence on foreign finance.  The dizzying influx of foreign capital to the region in the years before the crisis ultimately generated large macroeconomic imbalances.  These capital inflows not only underwrote new and essential investment but also funded a consumption boom and current account deficits that were, in many cases, unsustainable (EBRD, 2009).  While the countries with more open financial structures posted impressive growth rates in the early 2000s (i.e., the Baltic States), these were also the economies hardest hit by the precipitous retrenchment of foreign capital and credit.  For those States operating in closed or tightly restricted capital markets, the crisis was transmitted through the contraction of export markets, while reduced financial inflows had a relatively smaller impact.

17.  In the eight years before the crisis, the CEE had posted exceptional rates of growth, especially when compared to their relatively dismal economic performance in the 1990s. Real GDP growth rates of 6 to 10% were common across the region in the middle part of this decade (IMF, 2010c). Increasing industrial output propelled much of this growth, particularly in those countries with the most ‘catching-up’ to do, including Albania, Belarus, Bulgaria, Latvia, Lithuania and Ukraine.  During this same period exports expanded even more quickly and consistently than industrial production, with only Ukrainian exports undergoing real declines prior to the crisis (EBRD, 2009).6  This growth was obviously welcomed and generally seen as a sign of the region’s increasing modernisation and resilience.

18.  In the years following the 1998 Russian crisis, some 50 million people moved out of poverty in Eastern and Central Europe, the former Soviet Union and Turkey. This was driven by rising incomes and particularly increasing real wages among the working poor. The recent crisis, however, has put these gains at risk. According to a recent World Bank Study, in 2010 there will be 11 million more people in poverty in the region and another 23 million people living just above the international poverty line relative to pre-crisis projections (Sugawara et. al.). In other words, roughly one fifth of those who recently escaped poverty will have returned to it. Countries where households have been overly dependent on the construction sector and remittances will suffer the most. Secondary effects on social safety nets and education could have even longer-term effects.

19.  The expansion of exports, by definition, increased the region’s reliance on external markets, especially with regard to Western European markets.  From 2006 until 2008 a majority of the CEE countries were exporting of goods and services at a level equivalent to more than half of their GDP, revealing a remarkable degree of openness.  Indeed, the CEE is significantly more dependent on external markets than other emerging market regions.  (Darvas and Veugelers, 2009) The Czech and Slovak Republics, Estonia and Hungary led the region in export dependence, with each posting gross export values equivalent to approximately 80% of GDP.  These four cases also demonstrate the downside risks of export dependence (at least in a recessionary world), as the Czech and Slovakian economies contracted by over 4% in 2009 despite strong fundamentals.  Hungary’s weaker fiscal position and Estonia’s credit-fuelled growth, by contrast, exacerbated their steep declines.  As discussed above, a significant domestic market can be most helpful when international markets are deteriorating.  For example, although Albania does not have a large internal market, it is less open to trade and finance than other transition countries. Unlike the rest of the region, it maintained an admirable growth rate in 2009.  Obviously, interdependence can sometimes generate additional losses during downturns, but this hardly justifies even temporary protectionist measures. Over the long run, openness brings a welter of economic benefits and should continue to be encouraged.

20.  While most of the CEE economies have seen exports rise as a share of GDP, one group, led by Russia, has had quite a different experience.  Despite the strong growth of the Russian economy from 2000 to 2008, gross exports of goods and services declined over this period from 44 to 31% of GDP-equivalence.  Only Belarus, Moldova and Ukraine have experienced similar declines in the export share of GDP since 2000 – all of which are members of the CIS (Commonwealth of Independent States). These countries are all relatively distant from Western markets, have some common institutional structures and political norms, and are less advanced in their transition toward liberal market structures and open societies.  These factors tend to reinforce existing trade and policy patterns within the CIS.  The CIS’s greater dependence on volatile primary resource exports is also a factor as this tends to discourage the kind of product diversification that might deepen their trading positions.  Moreover commodity crisis fell substantially during the crisis. Yet, for all their similarities, these economies have reacted in different ways to the global crisis.  Ukraine, for example, contracted by 15.2% against declines of 7.9% in Russia, 6.5% in Moldova, and a 0.2% increase in Belarus (UNECE, 2010).  In terms of net exports, Moldova suffered trade deficits of over 50% of GDP in 2007-08 (by far the largest in the CEE); Belarus had smaller trade deficits approaching 5%; Ukraine’s trade was balanced over the 2000-08 period, while Russia enjoyed consistently large trade surpluses stemming from its role as a major energy supplier.  Thus, even within this sub-group sharing several important characteristics, major differences are evident.

C. MACROECONOMIC (IM)BALANCES: CURRENT ACCOUNTS AND CAPITAL FLOWS

21.  The high volume of Central and Eastern European exports has been a critical factor in the region’s impressive growth over the past decade.  The pattern of rapid, trade-driven growth followed by a crash in many ways mirrors the East Asian experience during the 1990s (BIS, 2009).  Yet, the CEE is distinct insofar as many of these countries have experienced unprecedented levels of current account deficits largely due to the ubiquity of finance-led growth patterns. This was not the case in Asia (EBRD, 2009). Although current account deficits often reflect developing economies’ requirements for imported capital and capital goods, sustained and rising current account deficits can undermine macroeconomic stability when failing to bolster productivity growth (IMF, 2009d).  They also put downward pressure on currencies and, if the exchange rate is not allowed to depreciate, can potentially generate fundamental internal disequilibria. On the other hand, depreciation can push up inflation and increase the cost of debt denominated in foreign currencies; it is precisely for that reason that governments sometimes resist depreciation despite the potentially positive effect it can have on the trade balance (IMF, 2009d). When maintaining a fixed exchange rate, however, there is no choice but to adjust internally which can mean real wage cuts, increasing unemployment and reduced consumption. In retrospect, the vulnerability that deepened the crisis in the CEE is not surprising given that the average regional current account deficit was 5% of GDP (10% if one excludes Russia) for several years before the crisis.

22.  The Asian financial crisis of 1997-98 revealed that even when coupled with strong growth, large and sustained current account deficits leave economies vulnerable to swift reversals of capital inflows, which directly impinge on both growth and investor confidence (BIS; IMF, 2009d).  Likewise, significant current account deficits stemming from large capital inflows were crucial factors in the early and precipitous contractions in Estonia, Latvia and Lithuania, as most foreign finance fled at the first signs of uncertainty (World Bank, 2010).  Current account deficits in the Baltic region were among Europe’s largest and most unsustainable.  At their peak in 2007, the Estonian, Latvian and Lithuanian current account deficits stood at 17.8, 22.3 and 14.6% of GDP, respectively; two years later, these deficits had been completely reversed, and the three Baltic States had become the only current account surplus countries apart from Russia and Hungary in the CEE (IMF, 2010c).

23.  Current account deficits, however, only partially account for the region’s economic vulnerability.  Russia’s large surpluses, for example, did little to stem its contraction of 7.9% in 2009.  Moreover, while in 2008 Bulgaria and Montenegro posted the region’s largest current account deficits of 24 and 52% respectively, in 2009 their economies declined by 5.0 and 3.1%, relatively modest contractions compared to the Baltic States (IMF, 2010c).

24.  These narratives reveal significant differences between the boom and bust cycles in Central and Eastern Europe this decade and what transpired in East Asia eleven years prior.  First, the recent current account deficits and economic contractions in the CEE are much greater than those observed in East Asia in 1997-98 (EBRD, 2009).  Secondly, unlike East Asia in the 1990s, the CEE has been a net importer of goods and services this decade. While the Czech Republic, Hungary, Slovenia and Ukraine shifted from net exporter to net importer positions, Russia held the only consistent net trade surplus position from 2000 to 2008.  For the remainder, net imports ranged from below 5% of GDP (Belarus, Poland, Slovakia) to around 20% (Albania, Bulgaria, the former Yugoslav Republic of Macedonia, Latvia, Serbia) and to over 40 and 50% of GDP in the most extreme cases (Bosnia and Herzegovina, and Moldova).  Again excluding Russia from the calculation, the CEE saw aggregate net exports fall from -4.97% of GDP in 2006 to -5.76% in 2007, finally reaching its nadir in 2008 with net exports accounting for -6.25% of GDP (UNECE, 2010).  Clearly the economic success of the CEE was not simply rooted in export growth, domestic reform, finance driven growth and domestic consumption have also been key factors here (IMF, 2006).

25.  Over the past decade, gross capital inflows to most emerging market economies (EMEs) increased rapidly.  In a recent study of the potential sources of financial instability, the Bank for International Settlements reported that gross inflows into East Asia reached 15% in 2007, 5 percentage points higher than the pre-1997-98 peak, whereas the CEE region enjoyed gross capital inflows of over 20% of GDP. Spurred by closer integration with the European Union, these huge inflows were largely intermediated by foreign-owned banks, which reduced solvency risks while increasing credit risks (BIS, 2009).  In other words, foreign banks’ large capital bases ensured that subsidiaries had access to affordable capital, but the decision-makers’ distance from local market conditions and lending practices weakened their oversight capabilities. Credit risk proved an important factor in the rapid collapse of Central and Eastern Europe, as demonstrated by the steady increase in the proportion of non-performing loans (World Bank, 2010).  Although delayed payments and defaults are to be expected in downturns, the data on CEE arrears demonstrates patterns symptomatic of a more acute problem (EBRD, 2009; BIS, 2009; World Bank, 2010).

26.  In sustainable growth patterns consumption trends are smoother than the more volatile trends in income growth.  This, however, was not the case during the CEE’s boom years.  From 2003 until 2008, only the economies of Bulgaria, Croatia, Hungary, Poland, the Slovak Republic and Slovenia grew more quickly than the rate of private consumption growth. In the other ten economies with available data, people consumed increasingly more than they earned – a trend made possible through consumers’ ever-easier access to credit - oftentimes denominated in foreign currencies. Through the current crisis, these six countries generally performed better than Estonia, Latvia, Lithuania, Moldova, Romania, Russia and Ukraine, all of which underwent a significantly higher expansion of private consumption over GDP. Moreover, much of the credit to households and to businesses was euro-denominated, considerably increasing credit risks linked to exchange rate movements (World Bank, 2010).  Unsurprisingly, exposure levels tended to be greater in countries with a larger foreign-bank presence.

27.  This phenomenon was particularly evident in the Baltic States, Moldova and Romania. Consumption in Albania and Belarus expanded more quickly than GDP, but these countries suffered comparatively less than the Baltic States, Moldova, Romania, Russia and Ukraine where consumption rates increased at an even quicker pace.  One explanation for this is that, for various reasons, Albania and Belarus are more insulated from international capital markets (EBRD, 2009). Russia and Ukraine represent another exception as both had generated large current account surpluses prior to the crisis, but this offered insufficient protection in the face of unsustainably rising private consumption (particularly for Ukraine where private consumption grew annually by roughly 10 percentage points more than did GDP).  In sum, while much of the inflowing foreign capital was destined for fixed capital formation (the fastest growing component of investment across the region), those countries that indulged in unsustainable rates of private consumption growth were particularly vulnerable when the global economy turned downward.

28.  As a final note, the IMF recently highlighted the fact that certain Foreign Direct Investment (FDI) (i.e., those between parent banks and their subsidiaries) flows are far more volatile than previously thought. Such capital flows conform to patterns more akin to short-term debt than to long-term investments (IMF, 2010). While fixed capital investments were comparatively more stable, remittances appear to have contracted the least.

D. INTERNATIONAL ECONOMIC RELATIONS

29.  The remarkable growth in the CEE over the past decade was also driven by the region’s mounting integration with international institutions, and with the European Union in particular.  Some of the countries that have acceded to the EU since 2004, however, have faced serious institutional problems. In some cases there were difficulties in properly employing available EU structural and cohesion funds. But with strong support and encouragement from the European Commission (EC) and with capable domestic leadership, the absorption capacity of these economies increased markedly from 2007 onwards (Euractiv, 2008).  These funds combined with fundamental institutional reforms, which were an essential element of the accession process, enabled growth and stability in the region (Schnabl, 2009).  Membership in liberal inter-governmental organisations and even associate status with them has been a primary catalyst for pro-growth reform. Currently, Bosnia and Herzegovina, Croatia, the former Yugoslav Republic of Macedonia, Montenegro and Serbia have each signed and are implementing EU Stabilisation and Association Agreements, which have driven economic reforms in a manner to encourage institutional and policy convergence.

30.  The Commonwealth of Independent States plays a similar role in trying to unify regional policies, although liberal reform has hardly been a top priority for that body.  Led by Russia, this political and economic group also engages Belarus and Moldova along with Ukraine, which has not ratified the CIS Treaty but which participates as a full member.  Despite attempts to strengthen the CIS, it has yet to establish inter-governmental institutions with clear policy goals that support the members in times of need.  Its orientation, moreover, is not nearly as liberal as that of the EU or other regional institutions like ASEAN (Association of Southeast Asian Nations) or NAFTA (North American Free Trade Agreement), nor does the CIS have established legal relations regulating the convergence of policies.

31.  Most CEE countries are also members of the IMF and the WTO.  WTO membership has provided a crucial economic advantage to it newer European members, as it has both advanced domestic reforms needed to bolster international competitiveness and helped open markets for these countries’ exports.  Indeed, the accession of Estonia and Latvia in 1999, and Lithuania in 2001, was an important factor in the Baltic export boom of the past decade.  Bosnia and Herzegovina, Montenegro and Serbia have all been working hard to join the WTO, and each is now approaching the final stages of accession talks (WTO, 2010).  In contrast, Russia, Belarus, Bosnia and Herzegovina, Montenegro and Serbia are continuing in the accession processes.  While there had been conflicting signals regarding Russia’s drive for membership, President Medvedev had appeared to win the internal struggle over whether Russia ought to join the organisation sooner rather than latter (FT, 2009).  President Obama endorsed this goal at a USRussian summit in June 2010 and vowed to make progress on the outstanding technical issues that the US government believes need to be resolved before Russia can be admitted. (Kaufman)  However, the outcome of Russia’s entry to the WTO remains uncertain given Prime Minister Putin’s continued commitment to protectionist measures, most recently in the automotive industry (FT, 2010d). The apparent difference between Russia’s two leaders in this regard is revealing.

32.  Participation in IMF programs has also helped vulnerable CEE countries to weather the downturn. The IMF has been instrumental in supporting the economies that were in free fall at the height of the financial crisis through the disbursement of loans necessary to cover current account deficits and to restore international investor confidence.  The IMF granted emergency assistance to Belarus, Bosnia and Herzegovina, Hungary, Latvia, Poland, Romania, Serbia and Ukraine.  With the exception of Poland, each country was extended a Stand-By Agreement (SBA), which has long been the central lending facility of the IMF. Stand-By Agreements are designed to help recipient countries address macroeconomic imbalances and, in particular, large current account deficits.  The loans, however, are disbursed in tranches, with each new issuance released if and only if the recipient country reforms its fiscal and macroeconomic policies in accordance with the conditions established in the agreement.

33.  This ‘conditionality’ incentivizes governments to take what are often unpopular decisions, which are nonetheless needed to restore economic stability.  In Latvia, both emergency assistance and fiscal consolidation were inescapable.  The SBA funded by the IMF, the EU and Scandinavian governments imposed requirements for tax hikes and wage cuts to curb a runaway budget deficit (FT, 2010a).  The programme has proven a tempting target for the opposition parties appealing to popular resentment.  However, when tough austerity measures become the criteria for bailouts, the pressure on governments is somewhat eased. In some cases, however, the IMF can become the target of government wrath as has occurred in Hungary, where the current government has put a halt to bail-out loan talks after the IMF claimed Hungary was not acting with sufficient alacrity to make durable cuts in State spending. (Fairclough)  In Ukraine, the Stand-By Agreement proceeded on course from November 2008 until the presidential electoral campaign inspired a series of populist spending measures. Following the establishment of the new government, the IMF formally approved a new Stand-By Agreement on 28 July 2010 worth US$15.2 billion over two and a half years (EIU Country Report, 2010). Although IMF conditionality has long been a contentious issue, there is little doubt that the quick delivery of emergency funds was fundamental in keeping, for example, the Latvian currency peg from breaking and in covering Ukraine’s foreign loan payments – two outcomes that would have seriously exacerbated the social and economic fallout of the financial crisis. The IMF has thus helped to ensure policy stability in the region through its role as the lender of last resort, while both the WTO and the EU have provided a longer-term context for advancing macro- and micro-economic reforms.

34.  Poland’s recent dialogue with the IMF has differed from those conducted by its neighbours.  Like Ukraine, Poland’s exchange rate was allowed to float freely, but the government has pursued sound macroeconomic policies and strong regulatory oversight. Its current account deficit stood at a manageable 5% of GDP in 2008 (IMF, 2009e). Currency depreciation endowed it with a degree of flexibility that fixed-exchange rate regimes did not enjoy (i.e. the Baltic States, Bulgaria and eurozone members). Poland also qualified for the IMF’s new ‘Flexible Credit Line’ (FCL) facility - a preemptive and optional loan that aims to restore confidence in the recipient’s economy (IMF, 2009f). Remarkably, Poland did not draw on the Special Drawing Rights SDR13.69 billion available before the contract expired in May 2010.  Poland and the IMF have now rolled-over the loan for another year (until July 2011), but it seems unlikely that Poland will need to access these emergency funds.

E. LABOUR, MIGRATION AND REMITTANCES

35.  The social impact of the global crisis, of course, has been enormous.  Falling real wages and rising unemployment have placed enormous burdens on both the people of the region and national institutions.  The shock has curbed what were often unsustainable levels of consumption, but those suffering job losses as a result are among the greatest victims of the crisis.  In addition to job losses, remittances coming into poorer countries and poorer communities have declined as the labour markets in host countries have also tightened.  Thus, with worsening prospects at home and abroad, many potential migrants are staying at home, while some of the diaspora return home looking for work in their communities. Unfortunately data on migration flows during the crisis remain imprecise. There are nevertheless signs that migration from the region decelerated or, in some cases, may have reversed.  All of these factors have increased demands for government social support.  Yet, government finances have deteriorated to such an extent that, in many cases, social services have not been able to keep pace with the rising demand for them.  While there is little evidence of a broad ideological shift against liberal capitalism either in the public or in national political parties, mounting public anger cannot be discounted, and this could set back reform processes (World Bank, 2010).  High unemployment could also increase criminal activity, which obviously has high social and economic costs.

36.  Job losses in part of Central and Eastern Europe have already reached unprecedented levels.  Based on the EIU’s estimates for 14 of the CEE countries,7 the number of officially unemployed persons increased from about 9.33 million in 2008 to 12.05 million in 2009 – a 30% jump in one year. The largest increases have been in the Baltic States.  In 2007, the unemployment rates were, respectively, 4.7, 6.0 and 4.3% in Estonia, Latvia and Lithuania; these figures for Q12010 reached 14.4, 20.4 and 15.6% – a three-fold increase in people actively looking for work (EIU, 2010).  Quarterly data from the Economist Intelligence Unit shows that unemployment rates in the CEE rose in each quarter in 2009 and have continued upward in the first two quarters of 2010.  A recent World Bank study (Arvo Kuddo) suggested that from 2008 to 2009 the official unemployment rate would skyrocket in the Czech Republic, Slovakia, Ukraine (an increase of > 30%), Russia (> 40%) and Moldova (> 60%).  While the rest of the region fared slightly better, there is clearly a risk that part of this rise in joblessness may become structural rather than cyclical, which will place greater long-term burdens on CEE governments and societies. The young working population and marginal groups, such as minorities and immigrations, have been hit hardest (Kuddo, 2009), a factor which could also increase the risk of social unrest in Central and Eastern Europe.

37.  Unemployment surveys cover only those persons who are registered as actively looking for work. They exclude those who have given up the search or who have never registered. To better fathom changes in the job market, therefore, it is useful to also look at total employment figures.  In the 11 countries with available data (the EU members plus Croatia), total employment fell in every country at the beginning of 2009.  While employment levels began to increase as Western stimulus measures kicked in the second and third quarters of 2009, the sluggish growth of export markets and the launching of fiscal consolidation measures led to decreases in total employment in Q4 2009 and Q12010 (Eurostat).

38.  While these absolute declines are stark, of even greater concern are the sector-specific declines.  Sectoral data for the CEE EU members reveals that the manufacturing sector has been the hardest hit.  Despite the slight rebound in total employment in mid-2009, employment in manufacturing has been declining in every country in almost every quarter: from Q1 2009 to Q1 2010, Czech Republic, Estonia, Latvia, Hungary, Slovenia and Croatia each had one quarter in which manufacturing employment increased – all other quarters showed reductions in the number of employed people.  In aggregate, this amounts to 705,000 fewer manufacturing jobs in Q12010 compared with the beginning of 2009 – or a loss of 1.8 million manufacturing jobs since Q12008.  As the manufacturing sector in these countries accounts for a greater share of employment than any other sector, it is a critical generator of wealth for the CEE countries and its workers (Eurostat).

39.  Adding to the social and economic consequences of greater unemployment and reduced wages are, respectively, the reversal of migration flows and declining remittances, which are a particularly important source of foreign exchange earnings in a number of CEE countries.  With fewer people moving to the advanced economies (particularly to Western Europe) and with increasing numbers returning to the CEE, competition for jobs and for social support has been a source of some social, political and economic tensions.

40.  Remittance flows to Central and Eastern European countries declined from their 2008 peak of US$57.2 billion to US$46.7 billion in 2009 – a drop of 18.3% (World Bank, 2010).  This is a significant reversal given the 20 to 30% year-on-year growth of remittance inflows during the preceding decade.  While this is indeed a heavy loss for many people in Central and Eastern Europe, the 2009 remittance receipts are still significantly higher than the US$38.8 billion received in 2006. In Serbia, Albania, Moldova and Bosnia and Herzegovina, remittances are economically crucial as they account for over 10% of GDP in each country.  It is important to note that remittances tend to flow to the lower echelons of society and thus provide an important degree of social support, even when not accounting for a large share of a given national economy.  For example, in 2008 inflowing remittances generated a mere 0.4% of Russia’s GDP (the lowest in the region), but this provided an extra US$6 billion in household income.


III. IMPLICATIONS FOR FISCAL AND MONETARY POLICY

41.  For obvious reasons the condition of public sector finances has deteriorated during the crisis.  Across the board, CEE governments have recorded their largest deficits in years. In several cases these represented the largest deficits since the initiation of transition.  They are not unique in this as most Western governments are also experiencing very serious fiscal pressures arising out of the global crisis, falling revenues and rising outlays linked to automatic stabilisers and stimulus packages.  In aggregate, the CEE’s deficit level rose from -1.8% of GDP in 2008 to 5.3% in 2009.  This is particularly worrisome as the region’s real GDP declined by approximately 6.2%.  Increasing expenditure is largely due to the onset of ‘automatic stabilisers’ including unemployment benefits and social services that kick in as an economy turns downward.  Although CEE countries have engaged in some discretionary spending to bolster demand, such countercyclical efforts are limited by thin reserves and borrowing limits which reduce the fiscal space for maneuver.

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A. FISCAL POSITIONS BEFORE THE CRISIS

42.  A central question all governments in Europe and North America must address today is: what government policies can most quickly put national economies on a sustainable growth path?  Of course, there are no easy answers to this question.  Rapid and sustainable growth depends on a multitude of factors, many of which are non-economic. These include institutional histories, social cleavages and political cultures.  Some serious faults have been identified in certain government policies during the ‘good times’ (IMF, 2010a), and there are discussions about which particular policies would have been more appropriate at particular points throughout the business cycle (Lewis, 2009). Indeed, the unprecedented nature of the financial and economic crisis has triggered a renewed appraisal of the foundation of macroeconomic policies which, among other things, has resurrected Keynesian approaches (IMF, 2009d; BIS, 2009).  Many analysts, including those from the IMF, now agree that fiscal policy should have, and could have, been tighter during the boom years.  Had greater prudence been exercised, governments would have had more fiscal space to combat the economic and social consequences of the crisis as it broke.  Of course, this is also true for a number of Western countries burdened with sustained fiscal deficit problems, but their ability to borrow internationally provides some fiscal flexibility that transition countries simply do not enjoy.

43.  Some critics (e.g. Darvas, 2009) have blamed many CEE governments and others in the OECD for pursuing pro-cyclical fiscal policies – that is, for over-zealously expanding government spending during periods of growth – which subsequently limited their capacity to engage in discretionary spending when it was truly needed during the downturn.    However, a recent study by John Lewis (2009) tests the cyclicality of CEE governments’ fiscal policies with real time data.8  Lewis’s empirical testing demonstrates that “the total response of fiscal policy is roughly the same size as external estimates of automatic stabilisers”, which suggests that the stance of discretionary policy is, on the whole, acyclical (Lewis, 2009).  Regardless of these spending trends, budget deficits were common during the boom years and, as a result, many governments squandered an opportunity to build up stronger financial positions during the boom.

44.  Interestingly, most CEE governments fared better in this area than the EU-27 average.  EU member States are obliged to keep government finances in line with the Stability and Growth Pact (SGP) criteria, in which deficits are to remain below 3% of GDP and total government debt is to be no higher than 60% of GDP. Only Bulgaria, Estonia (up to 2008), and Russia ran consistent budget surpluses during the five years leading up to the crisis (EBRD, EIU).  The stories behind these surpluses, however, vary considerably.  Impressive structural reforms in Estonia and Bulgaria, for example, reinforced their austere fiscal posture – policies that are essential to sustainability in small States with open economies and tightly pegged currencies (see below).  Russia’s budgetary surpluses were, by and large, the product of the high oil and gas prices, which account for a significant proportion of Russian exports and government revenues. Bosnia and Herzegovina also ran budgetary surpluses up to 2006.  However, this position began to weaken during the political stalemate following the parliamentary elections in Bosnia’s entity Republika Srpska held in October 2006.  Bosnia and Herzegovina’s finances rapidly deteriorated in 2007 and 2008 perhaps because the weakened influence of the EU’s High Representative removed an “external” source of fiscal discipline in that divided country.  While perhaps an extreme example, Bosnia’s recent history demonstrates how expedient policymaking can negatively affect a State’s long-term economic stability in a very short amount of time.

45.  The remaining 16 CEE countries ran deficits as well and the bulk of these were above the 3% floor.  As discussed in the previous section, the attraction of EU membership provides positive incentives for economic reforms, yet these seem to wane once membership is secured.  Indeed, although several CEE government budgets relaxed in recent years, this is not associated with entry into the EU but appears to begin once entry is ‘in the bag’ (Lewis, 2009).  Similarly, this was shown to be the case for the Czech Republic, Poland and Hungary in the years prior to NATO accession (Berger et al., 2007).  However, the deficits of the Czech and Slovak Republics were significantly reduced in 2007 and 2008, which somewhat eased the budgetary burden during the crisis.  In contrast, since 2003 Albania, Poland and Hungary each ran deficits well in excess of the -3% benchmark (EBRD, 2009; EIU).  Since 2006, Hungary has had a general government debt exceeding 60% of GDP.  For Belarus, Moldova, and Ukraine – where the desire to join the EU is less clear – government finances have been conditioned somewhat by financing and reform agreements with the IMF, with only Ukraine running consistent, albeit modest, deficits prior to the crisis.

46.  By comparison, in 2008 the EU-27 average government deficits stood at -2.3% of GDP, while the average debt load was 63.2% (equivalent figures were slightly worse for the euro-zone).  The latest data shows that the unweighted average of balances for EU members  in the CEE was 2.5% in 2008 and only 0.7% for the non-EU members.9  More impressive is the region’s average debt level, which stands at a mere 26.5%, with only Albania (55.9%) and Hungary (72.6%) as significant outliers.  On the whole, CEE government deficits before the crisis (including non-EU members) were lower than those of the advanced economies of Europe, North America and Japan.  Indeed, several of the EU’s southern members generated particularly high levels of debt in the run up to the crisis, in part, because their position in the eurozone significantly reduced interest spreads, and this encouraged significant capital inflows. These inflows proved unsustainable once the crisis struck.  As these governments lack the flexibility to devalue their currencies to kick start growth, they are compelled to choose between painful domestic austerity or the high-risk option of (partial) default.  To date the former solution has been chosen and Europe has scrambled to make the second option untenable.

47.  A similar dynamic is also apparent among some eurozone aspirants although they, theoretically, are in a position to devalue their currencies before joining.  However, this course has been avoided in the Baltic countries and in Bulgaria in favour of the long-term stability that eurozone membership should bring (Soros). In several countries very tight austerity measures have recently been introduced to address fiscal shortfalls as quickly and stringently as possible. Indeed, the discretionary fiscal space available to the CEE is much reduced because their access to foreign finance is now significantly restricted.  The unfortunate lesson is that despite high levels of growth, stability, and the myriad benefits of NATO and EU membership, the CEE governments will likely remain more fiscally austere than advanced economies as they face a greater need to assuage market foreign investors’ perceptions of default risk.

B. MEASURES IN THE MIDST OF CRISIS

48.  During 2009 most of the region’s governments, save Bulgaria, implemented expansionary fiscal and monetary measures aimed at buoying aggregate demand (Darvas, 2009).  Fiscal policy expansions came in the form of support for the most vulnerable, and for the unemployed in particular.  However, many countries provided credit to businesses, finance for infrastructure projects and income tax reductions (Darvas, 2009). There is not sufficient space here to assess all of these spending programmes.  What can be said is that due to the limited fiscal space the extra spending measures have generally been offset by consolidation measures. Consolidation was generally implemented through public-sector wage and/or hiring freezes, consumption tax increases as well as cuts in any other ‘non-essential’ areas.  The silver lining is that the forced consolidation will further structural reforms needed to put national budgets on a more sustainable foundation (IMF, 2009b).  There are concerns among some economists that European leaders have moved too quickly to embrace austerity and that there is a general risk of inducing a double dip recession should Europe’s governments radically reduce expenditure at what is still a economically vulnerable moment.  Indeed, the timing of the withdrawal of stimulus measures has been a matter of great debate this year. Clearly, each country must consider its unique circumstances, but it is crucial to recognise that, across the world, weak demand remains a fundamental hindrance to a strong recovery.

49.  Banking system insolvency has also been a concern. Following the European Commission directive, 12 CEE countries10 increased government-guaranteed deposit insurance. The EU members raised insurance to the recommended €50,000 level, while Albania and Croatia doubled and quadrupled deposit guarantees, respectively. Liquidity injections and bank re-capitalisation policies were also introduced, although at levels lower than in the more mature open-market economies. This was largely due to the prominent position of foreign-owned banks in the CEE (EBRD, 2009).  Of the six countries that engaged in banking sector support, Russia and Ukraine offered the largest and most direct support to their respective banking systems. This is not particularly surprising as both are among the CEE countries with the lowest shares of foreignowned banks and two of the highest shares of state-owned banks (EBRD, 2009). Bosnia and Herzegovina and Montenegro are small, relatively open economies but with significant foreign-bank presence (foreign banks owned 84.6% and 95% of banking assets in 2008). Yet, their liquidity injection (and, for Bosnia and Herzegovina, bank recapitalisation) programmes were implemented under the IMF and other international bodies in order to reduce widespread uncertainty.  Finally, Hungary and Latvia stand out as the most advanced economies of the six; yet their fiscal positions entering the crisis were particularly weak.  Although Latvia had strong fundamentals in 2008, its banking system was seen as more vulnerable than its neighbours, in part because foreign banks owned only 65.7% of Latvian assets, against 91.8 and 98.1% in Lithuania and Estonia respectively. Furthermore, Latvian state-owned banks accounted for almost 20% of banking assets in 2008, second to only Belarus and Russia.

50.  Indeed, the clear and committed support of foreign institutions, including the IMF, the EIB and foreign-owned banks operating in the CEE, played decisive roles in the crisis (EBRD, 2009).  The European Bank for Reconstruction and Development helped stabilise the region’s banks by orchestrating an orderly deleveraging process among the region’s banks which helped avoid a panic. The EU provided low interest loans to help countries maintain repayment schedules and the IMF provided vitally needed credit without imposing the kind of conditionality that proved problematic in past crises.

51.  Finally, extraordinary measures have been taken by many countries attempting to defend their currency’s exchange rate.  Bulgaria, Croatia, Estonia, Hungary, Latvia, Lithuania and Romania’s pegged currencies came under immense pressure due to the sudden reversal of capital flows.  In February 2009, the cost of insuring these governments’ five-year bonds against default each rocketed above 600 basis points (peaking at almost 1,200 bps for Latvia).  Defending currency pegs required that their central banks expend a significant proportion of their foreignexchange reserves. For those countries with large outstanding debts denominated in foreign currency, devaluation was not seen as a desirable option, compelling governments to engage in austerity measures to defend the exchange rate. This was particularly the case in the Baltic States which saw growth, wages and employment plummet as a result.   Even more costly was Russia’s failed defence of its managed float: after spending one third of its enormous stockpile of reserves, sterilisation measures were ultimately abandoned and the rouble was allowed to depreciate by 20% (Darvas, 2009).  Ukraine also failed to defend its managed float, but when the default-insurance market spread surpassed 5,000 basis points the country shifted to a free-floating policy under the auspices of an IMF Stand-by Agreement.  Of course, those countries with floating currencies (i.e., Czech Republic and Poland) were not obliged to defend costly pegs, and resulting depreciated currencies will bolster exports in 2010 and 2011.


IV. THE LATVIAN AND BULGARIAN EXPERIENCES

A.  LATVIA

52.  This Committee has had the opportunity to visit both Latvia and Bulgaria this year and will visit the Czech Republic after this report goes to press. The Latvian case is particularly interesting as it suffered Europe’s greatest economic contraction. After contracting by 4.2% in 2008, Latvia’s gross domestic product shrunk by an astounding 18% in 2009 and will likely fall another 2.3% in 2010 before finally returning to growth in 2011 (IMF, WEO).  In the decade preceding the crisis, Latvia and the other Baltic States were the fastest growing economies in Europe.  Latvia consistently recorded real growth rates of over 10%.  Rising levels of trade and investment during a global era of easy credit fed expectations for future growth.  As foreign capital flowed in and credit rapidly expanded, prices edged upwards. Inflation reached nearly 18% by mid-2008 (BoL presentation).  But wage levels were rising far more quickly than workers’ productivity rates (Vilipisauskas, Rose-Roth).  Average nominal wages more than doubled between 2000 and 2008, while productivity rose by less than 50% (BoL). Cheap euro-denominated credit fuelled what proved to be an unsustainable pace of wage hikes. Yet it was politically difficult to advocate a slow down in credit expansion in the face of the country’s unparalleled growth. Indeed, credit bubbles are easiest to detect after they have burst; but there were nevertheless clear signs of trouble. The current account deficit rose nearly fourfold, from 6.6% of GDP in 2002 to 22.3% in 2007.  Paradoxically, as the economy lost its competitive advantage in labour costs terms, economic growth c, , , ontinued to soar as credit-fuelled consumption and investment compensated for the worsening trade balance. This, of course, was not sustainable and was a central factor in the country’s economic collapse.

53.  Along with Estonia and Lithuania, Latvia had been considered to be on an inside track for euromembership.  The Bank of Latvia had dedicated itself to maintaining a stable exchange rate with the euro (at 0.703 lats/1 €).  For all intents and purposes, this deprived it of exercising an independent monetary policy.  When the crisis struck, however, foreign capital fled the country - a development that immediately squeezed businesses and consumers who had relied on cheap credit.  Had the exchange rate been flexible, the central bank would have been in a position to lower the interest rate or engage in quantitative easing to increase the availability of credit.  Under a fixed exchange rate regime, however, there is no leeway to do so.  The Bank of Latvia was determined to maintain the pre-crisis exchange rate despite the massive ‘internal devaluation’ that resulted. This was a key factor in the plummeting growth and soaring unemployment that ensued, but the authorities felt that given the high level of foreign currency-denominated debt, a devaluation would have had more adverse effects over the long run and rendered eventual euro membership all the more elusive.

54.  The Governor of the Bank of Latvia argued that devaluation would have damaged the country’s credibility and increased the level of bankruptcies.  Moreover, it would have generated fewer incentives for improving productivity and still would not have been sufficient to reverse the huge current account deficit (NATO PA, spring).  In effect, Latvia’s decision to maintain its fixed exchange rate required a high degree of suffering over the short term in order to lay the foundations for longer-term growth.  There are some signs that this shock therapy strategy is beginning to work.  This summer the EBRD revised its growth forecast upwards (from  3.0% to 2.0% for 2010), and the Economist Intelligence Unit notes that since January 2010 year-on-year industrial output has been increasing at respectable rates. And, as of June 2010 the Latvian economy reached industrial output levels equivalent to peak output in 2008 (EIU, 6 July 2010) and there are signs that its competitiveness is being restored.

55.  The response to the economic collapse in Latvia was further hindered by restricted fiscal leeway.  Latvia had been running relatively minor budgetary deficits in the years before the crisis, but even in 2008 falling tax revenue and increasing demands for social services generated a deficit equivalent to 4% of GDP. To support the overwhelmed social system and to regain some economic stability Latvia turned to the IMF, the EU and the Scandinavian governments in December 2008 for a €7.5 billion rescue package (FT, 2010a).  Under the agreement, Latvia’s budget deficit was set to reach 8.5% of GDP in 2010. This gave it leeway to provide some protection for the poorest and to finance active labour market policies and temporary jobs programmes (IMF, 2010d).  The World Bank has also offered support for these emergency programmes (World Bank, 2010b).  This unprecedented Stand-by Agreement runs until the end of 2011. But with the pick up in economic activity, the Latvian government now feels that it can avoid drawing upon the rescue capital put up by Scandinavian donors. This would be a very welcomed sign of a stable recovery.

B. BULGARIA

56.  Bulgaria experienced less of a downturn than Latvia over the course of the global economic crisis, but it has had to cope with other structural problems posing important potential barriers to long-term economic growth. Although the country underwent a rapid transition to prepare itself for EU membership, the problems of corruption and persistent inadequacies in its judicial system have been of great concern to the European Union and to Bulgaria’s domestic reformers. In other areas, its reforms have been more successful and, as a result, the country was less vulnerable than it otherwise would have been as the global economy slowed.  Even prior to joining the Union in 2007, Bulgarian public finances remained within the bounds of the SGP (Stability and Growth Pact). Indeed, the State was generating budgetary surpluses and public debt had begun to fall (reaching 14.1% of GDP in 2008).  Like Latvia, Bulgaria has pegged to the euro and that peg was maintained during the recent crisis.  This policy helped encourage significant capital inflows during the past decade but credit conditions were significantly tight in Bulgaria due to regulatory measures arising out of the 1997 financial crisis. During the boom years, Bulgaria’s GDP grew by a relatively moderate 6 to 7% and it underwent a comparatively minor but nonetheless very painful contraction of 5% in 2009 (IMF, 2010c).

57.  Bulgaria’s fiscal caution is rooted in the inflationary crisis in 1997 (BNB Meeting). The economic havoc that resulted informed successive governments’ efforts to rein in spending and ensure as much stability and predictability as possible.  Although pegging the currency to the euro deprived the central bank of monetary autonomy, tight financial regulation helped rein in the banks.  For example, when credit growth reached 45% in 2007 the authorities responded by increasing the capital adequacy ratio to 17% - far higher than the Basel II requirements (BNB Meeting).  This capital buffer proved very useful in 2008 and 2009 as foreign investment dried up. Capital inflows fell by 54% from 2008 to 2009, but domestic capital stocks generated through these regulatory measures helped keep the economy from falling off a cliff (UNECE, 2010). Bulgaria was hardly unique in this regard. The Czech Republic is another country that ensured that its banking practices and its budget were operating on a sustainable basis.  (The Economist, 20 March 2010)

58.  The government also maintained an admirable degree of fiscal discipline in the years before the crisis. This, in turn, accorded it a degree of flexibility in the recent downturn. The budget deficit for 2010 is estimated at 4% of GDP – the first time in over a decade that Bulgaria’s shortfall will exceed 3% (EIU, 2010). Yet infrastructure and social outlays have partly counteracted some of the worst aspects of the crisis and headed off potential social disruptions that the downturn might have otherwise induced. Bulgaria, however, continues to confront competitiveness challenges.  A large share of Bulgaria’s exports is in the textile sector and it is directly competing with China and other low-cost East Asian producers (BNB Meeting). Corruption continues to burden the national economy and weakens the effectiveness of the State. Addressing this will be essential to improving the country’s competitiveness and Committee members learned that doing so has become a top priority of the current government.
 
V. IMPACT ON MILITARY EXPENDITURE

59.  As governments across the region consolidate their budgets through spending cuts and tax increases, there are concerns in NATO circles about the impact on military expenditure.  Even before the crisis, several countries of the former Yugoslavia had been scaling down their military budgets, as had the Czech Republic and Hungary; nevertheless the region’s overall military spending increased roughly 7 to 8% in the three years before the crisis struck (SIPRI, 2010).  The latest data from SIPRI shows that, as an unweighted average, military spending increased by 4.2% in 2008 and declined by 1.2% in 2009.  When considered as a proportion of GDP, however, the region’s large contraction in 2009 meant that military spending increased from 1.8% to 2.1% of GDP (with each country, save Montenegro, maintaining or increasing their proportional allocation).  It is important to consider that there is less flexibility to adjust defence spending in the short term so the impacts of the crisis on defence spending may only be evident later.

60.  Of course, these averages hide important differences within the diverse region which are driven by threat perceptions and strategic ambitions as much as by economic factors.  Bulgaria, Croatia, Estonia, Lithuania, Moldova, Montenegro, Romania, Serbia, Slovakia and Ukraine all cut real military spending by no less than 5.8% in 2009 (most cuts are in the 7 to 10% range).  Quite remarkably, Latvia and Russia both increased their respective defence budgets in 2008 and 2009.  In light of its large economic contraction, estimates are that Latvia’s military budget increased from 1.7% in 2007 to 2.6% of GDP in 2009. Russia’s spending increased from 3.5% to 5.0% (by far the largest proportional spending increase in the CEE since the Balkan wars).  This will obviously be of some concern to Russia’s neighbours.  Russia’s immense size means that total military spending in the region increased from US$90.8 billion in 2008 to US$93.1 billion in 2009 – with Russia accounting for over 65% of this figure.

See word document for table.


VI. RECOMMENDATIONS AND CONCLUSION

61.  In the aftermath of the worst global economic crisis since the Great Depression, it is crucial that all governments refrain from protectionist measures.  The longterm costs of protectionism far outweigh short-term and narrowly construed benefits.  In particular, nothing about the current crisis changes our understanding of open trade, the benefits of which include higher growth, increased consumer choice and international solidarity.

62.  CEE governments will continue to face daunting social, political and economic challenges as a result of this crisis.  With this in mind, the region’s governments will need to recognise that fiscal consolidation is inevitable, but it must facilitate the kinds of structural reforms and investments that will encourage long-term growth as well as budgetary sustainability.

63.  Neither euro-membership nor flexible currency regimes will insulate countries from the impact of global crisis. Appropriate monetary policies ultimately hinge not only on the economic fundamentals, institutions and practices of each country, but also on their unique economic cultures and their political, diplomatic and economic priorities.

64.  Over the long run, governments in the CEE as well as those throughout the OECD must adjust their approach to fiscal policymaking to ensure that savings are generated during boom periods to provide the necessary funds needed to finance spending measures during downswings. Doing so will help moderate rather than exacerbate the business cycle.  This is not always easy to do, and institutional change as well as a frank public discussion about fiscal matters is essential. An important lesson of this crisis is that many governments have pursued pro-cyclical fiscal policies that triggered financial bubbles and ultimately deprived governments of the resources needed to deal with the bursting of the bubbles. This must change.  That said, most of the governments have managed very well in adjusting to new economic conditions, and some like Latvia and Hungary have had to make massive adjustments to deal with large current account and budget deficits.  In some respects, this response might be a model for more timid policymakers in the West who sometimes have been slow to react to these conditions. Finally, the courage and patient sacrifice of the people of many CEE countries should be recognized as they have endured difficult times with a remarkable degree of stoicism. These countries have generally maintained political and social stability as a result.  This is a testament to the strength of these democracies and their civil societies.

65.  Fiscal reforms should protect pro-growth programmes that improve human capital, encourage innovation, and build infrastructure.  Spending cuts, for example, should target inefficient State policies, while rationalizing pension plans and healthcare entitlements in order to make them sustainable over the long term, particularly given demographic trends. Much of the region needs to refine policies designed to cope with an ageing workforce, poor infrastructure and the emergence of powerful direct competitors in Asia. This makes reform all the more essential.  Some countries need to improve tax collection methods.  Any increased taxes ought to focus on consumption and natural resource use rather than penalising potential sources of growth.  Obviously, ensuring public health and high education standards should remain a priority, as both are essential to long-term economic success. Moreover, several countries could increase revenues through more progressive tax regimes, which might lower the burden on the most vulnerable segments of society.  Again, many such reforms are also needed more broadly throughout the OECD.

66.  A reconsideration of the secular benefits of full capital account liberalisation is in order. Short-term capital movements into and out of emerging economies can be highly destabilising, and some measure of control may be in order to help insulate fragile market structures from the whims of the international investor community. Transition governments must be mindful of the foreign currency-denominated debt that households are taking on. When this exceeds certain thresholds, the economy as a whole becomes highly vulnerable in a downturn.

67.  At the time of writing, it is not entirely clear if the world is headed for a second recession or if the current relatively weak rate of growth can be sustained. There are signs though that conditions for the poor could grow worse. Food prices, for example, are now rising and this hits the poor disproportionately.  The solutions to this particular problem must include multilateral measures and more open trade in food products. In this light, Russia’s decision to impose grain export restrictions will only exacerbate rather than improve the region’s food security and represents a step backwards for Russia’s food industry which has great potential to play an important role in world markets.

68.  Defence budgets are vulnerable in the kind of downturn that is coursing through Europe. New NATO members are going to be under strong political pressure to cut defence budgets. Generating some degree of savings may be necessary and one way to do so is to create new efficiencies through enhanced European defence integration and defence industrial co-operation. Of course, more open transatlantic defence trade and co-operation can be particularly helpful in this regard.

BIBLIOGRAPHY


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Coulibaly, Brahima (2009), “Currency Unions and Currency Crises: An Emprical Assessment”, International Journal of Finance and Economics, vol. 14: 199 – 221.

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Gordon Fairclough, “Hungary sets own path on economy,” Wall Street Journal, 2 August 2010.

Financial Times (2009), “Russia scraps WTO customs union bid”, 15 October.

Financial Times (2010a), “Latvia vote keeps IMF talks on track”, 21 January.

Financial Times (2010b), “Doubts emerge about Ukraine reform,” 9 February.

Financial Times (2010c), “Slovaks Mark fist year behind euro ‘shield’” 7 January.

Financial Times (2010d), “Russia plans tariff rise on car imports” 30 August.

“Fingered by Fate,” The Economist, March 20, 2010.

Heritage Foundation (2010), Terry Miller and Kim R. Holmes, 2010 Index of Economic Freedom.  http://www.heritage.org/index/

IMF (2006), M. Ayhan Kose, Eswar Prasad, Kenneth Rogoff and Shang-Jin Wei, “Financial Globalization: A Reappraisal”, IMF Working paper, WP/06/189, August.
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1   These are Albania, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, the former Yugoslav Republic of Macedonia*, Moldova, Montenegro, Poland, Romania, Russia, Serbia, Slovakia, Slovenia and Ukraine.

  * Turkey recognises the Republic of Macedonia with its constitutional name.
2   Ukraine is technically not a member of the CIS, as the Ukrainian Parliament has not ratified the CIS Treaty.  However, it participates as a de facto full member.
3   These data are for the 17 reporting countries in the CEE.  Up-to-date data was not available for the former Yugoslav Republic of Macedonia, Montenegro and Serbia.
4   The Czech Republic is even more modernised according to the EBRD’s assessment, as it has ceased providing development assistance as of 2009. Therefore, the country is no longer part of the Transition Report.
5   Only Belarus (2.04), Bosnia and Herzegovina (2.78), Montenegro (2.85) and Serbia (2.89) rank lower than these three extreme cases.
6   The EBRD does not report this information for all countries. Omitted are Belarus, Bosnia and Herzegovina, the Czech Republic, the former Yugoslav Republic of Macedonia, Montenegro and Serbia.
7   Excluding Albania, Belarus, Bosnia and Herzegovina, the former Yugoslav Republic of Macedonia, Moldova and Montenegro.
8   That is, data that was actually available at the time of budget making, rather than the more accurate revisions that are generally used in econometric studies.
9   For non-EU members in the CEE Albania, Belarus and Montenegro are excluded, as the latest data from the EIU does not include their revised budgets.  With the EBRD’s data from November 2009, the non-EU member’s fiscal balance is -1.0% of GDP, unweighted.
10   Albania, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovak Republic, Slovenia.

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178 ESC 09 E rev 1 - INFORMATION DOCUMENT* - THE GLOBAL FINANCIAL CRISIS AND ITS IMPACT ON DEFENCE BUDGETS

HUGH BAYLEY (UNITED KINGDOM) - RAPPORTEUR
* this is an information document only

I.  INTRODUCTION

II.  BACKGROUND

III.  NATIONAL DEFENCE BUDGETS: A SURVEY OF KEY ISSUES IN NATO MEMBER COUNTRIES

A.  Albania
B.  Belgium
C.  Bulgaria
D.  Canada
E.  Croatia
F.  Czech Republic
G.  Denmark
H.  Estonia
I.  France
J.  Germany
K.  Greece
L.  Hungary
M.  Iceland
N.  Italy
O.  Latvia
P.  Lithuania
Q.  Luxembourg
R.  Netherlands
S.  Norway
T.  Poland
U.  Portugal
V.  Romania
W.  Slovakia
X.  Slovenia
Y.  Spain
Z.  Turkey
AA.  United Kingdom
BB.  United States

IV.  CONCLUSION

 

I. INTRODUCTION

1.  In 2008, it was estimated that global military expenditures totalled $1,464 billion, representing an increase of 4% in real terms compared to 2007, and a 45% increase since 1999. Despite the overall growth of governments’ defence budgets in the past decade, the global financial crisis has had a significant and far-reaching impact that will eventually compel governments to reassess national budgets. Economically burdened nations are now compelled to restructure budgets to cope with the current crisis and reflect new fiscal realities. Government efforts to stabilize and reinvigorate their national economies raises the question of how these adjustments will affect defence expenditures and the manner in which governments will seek to achieve national and international security goals.

2.  In a discussion following a presentation by Neil Davies, Chief Economist and Head of Division for Economic Statistics and Advice at the UK Ministry of Defence, to the Economics and Security Committee (ESC) in Oslo, Norway, several ESC members noted that it would be useful to have a detailed assessment of envisioned defence spending in NATO countries in the coming years. Members of the committee further inquired how these cuts would be managed and whether this would affect their future commitment to NATO missions. This document is not intended to provide a detailed account of the various defence ministries’ spending budgets. Instead, it will survey the landscape of recent defence budgetary trends and shifts the 28 NATO member countries are contemplating as a consequence of the global financial crisis. The profiles below are thus snapshots of highly complex situations and are intended only to point to several key factors shaping those situations.   


II. BACKGROUND

3.  To avert recession and the possibility of complete economic collapse in the wake of the global financial crisis, most NATO governments pursued expansionary economic policies and adopted significant fiscal and monetary stimuli packages. This survey will suggest that NATO members have generally increased their defence budgets, and continue to contribute financial aid and forces to NATO expeditionary missions, such as Afghanistan.

4.  While this may initially seem surprising, most defence spending involves long-term commitments, which are often difficult and expensive to reverse over the short run. Defence budgets for 2009 were already in place prior to the financial crisis, while planning for 2010 has limited governments’ ability to alter drastically their defence budgets. In light of increasing government debt, rising social welfare demands, and plummeting GDPs, maintaining current defence spending may prove difficult over the medium term. Experts agree that regardless of near-term funding streams, the nations’ defence ministries and military services all face tough budgetary decisions in the coming years. Though the document’s findings will demonstrate how defence budgets have not yet been drastically affected, governments have, however, started to restructure their budgets in anticipation of coming budgetary pressures. The document concludes that so far member countries have not sacrificed their obligation to national and international security, as well as their commitment to NATO’s mission. While current concern for these matters is warranted, this document suggests that governments may feel both politically and financially compelled to reduce defence outlays after 2011 if the economic situation does not improve substantially. The footnotes obviously point readers to more detailed accounts. The author would like to thank all those Parliaments that provided information for this information document.


III. NATIONAL DEFENCE BUDGETS: A SURVEY OF KEY ISSUES IN NATO MEMBER COUNTRIES

A. ALBANIA

5.  According to the Implementation Plan for Transformation of the Armed Forces (2002-2010), Albania plans to increase spending by 0.1% GDP every year until 2010. Though Albania’s defence budget for 2009 is $270 million1 and the Ministry has pledged to spend 2% of GDP on defence in 2009, under-funding remains the primary challenge for Albania’s armed forces. Albania’s armed forces consist of 11,020 troops, but the current restructuring efforts will force the reduction of troops to roughly 10,000 men by 2010. Defence officials admit that Albania will continue to need bilateral assistance and international support to increase local force levels for international expeditionary forces, strengthen logistical support, and acquire military hardware.

B. BELGIUM

6.  Belgium spends just over 1% of its GDP on defence (half of NATO’s suggested level), and NATO criticized its armed forces modernisation plan for 2000-2015 for not meeting the expected military expenditure threshold of member states. The 2000-2015 defence modernisation programme anticipates personnel reductions of over 16%. The government will channel resulting savings into funds for international peace operations, procurement investment, and spending for about 24 major modernisation projects.2

7.  Despite the global financial crisis, Prime Minister Herman A. Van Rompuy has also announced that Belgium would double its civilian aid to Afghanistan. In 2009 and 2010, Belgium’s budget for Afghanistan will reach €12 million ($17 million) per year.3 Moreover, the Belgian Defence Minister, Pieter de Crem, has stated that the government has increased its ground troop strength in northern Afghanistan and continued to provide F-16s in the south. In regards to the Belgian government’s current €200 million deficit on the account of the Treasury,4 Defence Minister DeCrem has promised to sell outdated materials to bring much needed funds into the MoD.

C. BULGARIA

8.  The Bulgarian economy has and continues to be significantly affected by the economic crisis. Economists predict that Bulgarian GDP is set to contract by around 6% in 2009, and according to Fitch Ratings, Bulgaria has $26.2 billion of debt due in 2009, equal to 6% of the GDP. Furthermore, the latest NATO press release criticized Bulgaria for only allocating $12,384 per capita for defence (in comparison, the Czech Republic allocates $24,476 per capita, Denmark $36,891, and the US $46,941). These are worrisome numbers, and raise concern for how the global financial crisis will affect the limited amount of funds already budgeted for defence.

9.  Bulgaria's Defence Ministry is working to make its forces interoperable with other NATO forces and is seeking to standardise and codify its military hardware to comply with NATO standards. The new Defence Minister, Nikolay Mladenov, recently reported that the Ministry is now operating almost like a construction firm. He made it clear that his top priorities would be to prevent cuts in the salaries of the military, and to guarantee sufficient funds for Bulgarian military missions abroad. Mladenov further noted that the Ministry staff was too large (currently employing 1,440 people and its Social Agency maintains about 800), and personnel cuts would be necessary to achieve optimization.

D. CANADA

10.  The economic slowdown in Canada has compelled the government to impose a freeze on new defence programmes. It has announced that spending would remain in line with the 2007 budget.  In 2008, however, the Prime Minister laid out the Canada First Defence Strategy, a 20year programme designed to enhance force capacity by investing in ‘four pillars’: personnel, equipment, readiness, and infrastructure. It will increase force size to 100,000 (70,000 regular and 30,000 reserve); replace core equipment fleets; strengthen readiness to deploy and sustain troops once deployed; and improve and modernise defence infrastructure. Over the next 20 years, the Canada First Defence Strategy will expand the annual defence budget from approximately $18 billion in 2008-09 to over $30 billion in 2027–28.5

11.  In the 2008-2009 budget round, the Finance Minister announced plans to increase defence spending by 1.5% a year until 2011. After which increases of 2% per year could be expected until 2020, amounting to an additional CAD 12 billion for defence for over a 20-year period.6 Despite the global economic downturn and a $50 billion deficit, in May 2009, Defence Minister Peter MacKay reassured the elite of the defence industry that the crisis would not prevent the Canadian government from spending $60 billion on new equipment.7

E. CROATIA

12.  Although Croatia initially anticipated spending 2% of its GDP on defence by 2010,8 because of the economic crisis this benchmark will unlikely be achieved. Croatia now anticipates cutting its military budget by about €74 million. After a meeting on 6 March 2009 amongst Ministers of Defence from southeast European countries, Croatian Defence Minister Branko Vukelic reassured the international community that Croatia would continue to participate in NATO, UN and EU missions in Afghanistan, Chad, and the Golan Heights, and would strive to adopt NATO equipment standards. Croatian President Stjepan Mesic has also reaffirmed the country’s commitment to NATO, while noting that modernizing and equipping the army would continue, although at a slower pace than originally anticipated.9

13.  Croatia currently has 270 troops in northern Afghanistan as part of the NATO-led ISAF forces,10 and plans to dedicate to NATO operations a motorized infantry company, an engineering platoon, and a nuclear, chemical, and biological weapons defence platoon.

F. CZECH REPUBLIC

14.  The Czech Republic’s defence spending has been constrained by competing government priorities, and will unlikely meet NATO’s suggested defence spending of 2% GDP before 2014. The Defence Ministry estimates that between 1.5 and 1.7% of GDP will be spent on defence over the next four years. According to the approved state budget for 2010, the Czech Defence Ministry’s budget will fall by CZK 7 billion ($364 million). Whereas the defence sector was allocated CZK 56 billion ($2.9 billion) in 2009, it will be reduced to CZK 49 billion ($2.5 billion) in 2010.

15.  The Czech Republic has reassured the international community that major modernization projects are unlikely to be affected. The Defence Ministry will likely proceed with the purchase of 107 Pandur II armoured personnel carriers (APCs) and four Casa C-295M transport aircrafts. The budget reduction will also not affect foreign missions, which cost around CZK 3 billion ($182 million).

G. DENMARK

16.  The Danish government is currently working on its National Defence Bill, which will establish a framework for Danish Armed Forces spending until 2015. Despite the economic crisis, the Danish government has indicated plans on increasing defence spending. The annual increase could be as high as $100 million. This, however, contradicts figures provided by Danish National Statistics, which predicts defence spending will likely fall in 2010 from $4.72 billion to $4.67 billion. Several opposition parties, including the Social Democrats (SDP), oppose increases in defence spending, especially the purchase of aircrafts. The SDP also opposes increases in funding for Denmark's military operations in Afghanistan, and wants the government to cut the overall defence budget in the face of serious economic challenges.11

17.  In April 2008, Denmark increased its force level in Afghanistan to 698. The Parliament of Denmark projected that spending in Afghanistan for 2009 is about DKK 745 million to defence and about DKK 400 million to development.

H. ESTONIA

18.  As a result of the global financial crisis, in June 2009, the Estonian Ministry of Defence revealed a $3 million cut in the defence budget from $414 million in 2008 to $411 million in 2009.12 The economic crisis has also spurred movement towards joint defence procurement among Latvia, Lithuania, and Estonia. Officials from the three countries are seeking to harmonize their national procurement plans in order to eliminate differences in the armament and equipment contributed by each country.13

19.  In January 2009, the new Defence Development Plan for 2009-2018 was adopted, which seeks to strengthen Estonia’s national defence capability and that country’s capacity to contribute to international security. The 2007-2010 budget plan identifies the following procurement priorities: EEK 10 billion ($887 million) for the development of modern, multipurpose and quickly reacting military components; EEK 1.2 billion ($106 million) for two multipurpose ships, renovation of the Kati, a spill response vessel, and other critical equipment; and, EEK 1.9 billion ($168 million) to participate in NATO integrated air safety system and to develop an air-policing airport in Amari that meets minimum requirements.14

20.  Estonia has also participated in NATO-led operations in Afghanistan since 2003. Estonia currently has 150 personnel stationed there,15 and deployed additional troops for the elections in August 2009.


I. FRANCE

21.  In response to the global financial crisis, France has pursued an expansionary economic policy.  It will increase its defence budget for 2009 and 2010 by €1.8 billion to reach €32.02 billion. The 2009 budget included increased allocations for spending in R&D (€110 million), materiel procurement (€1,425 million), and infrastructure and transport work (€220 million). For foreign operations France will increase spending from 2008 by €50 million to roughly €888 million in 2009, of which €115 million will be dedicated to NATO operations in 2009.

22.  Defence Minister Herve Morin recently noted that the six-year plan will inevitably require equipment cuts and procurement delays because a 40% increase in investment would be needed to pay for planned programmes and those funds may not all be available.16 The Ministry of Defence, however, has been authorized €500 million in supplementary funding. Total supplementary spending amounts to €1,485 million for 2009 and €770 million for 2010.17

23.  In order to underwrite the €1.8 billion ($2.3 billion) rise in defence spending, France intends to close bases around the country and sell property and radio frequencies. Over three years, defence officials hope to acquire €4.5 billion from asset sales and savings, which will subsequently be utilized for equipment modernizations and pay rises for military and civilian staff. Defence spending from 2009 to 2020 is estimated to total €377 billion.18 Defence spending would be held constant in real terms until 2012, after which it would increase annually by 1% above the inflation rate.19

J. GERMANY

24.  Germany’s defence budget for 2009 rose by €1.6 billion, a 5.6% increase over 2008 levels20.  The budget for 2010 has already been set at €31 billion.

25.  Despite an increase in the defence budget, Germany has begun restructuring current defence programmes and commitments in anticipation of the latter implications from the global financial crisis. In order to finance the wide-ranging structural changes and capability requirements, the Ministry of Defence has announced a series of measures intended to save €26 billion by 2015: personnel cuts will continue with a further 17% reduction in military personnel and 40% reduction in civilians by 2010; the number of military bases will be reduced from over 600 to roughly 400; and several procurement programmes will be cancelled or scaled back. There are concerns that tight budgetary conditions may prompt Germany to pull out of its partnership with the US and Italy on the Medium Extended Air Defence System (MEADS).21

K. GREECE

26.  In 2008, the Greek government made significant improvements in the transparency and oversight of the national defence budget. The 2008 budget increased 6.9% from 2007 to €5.97 billion.

27.  Though Greece hopes to restructure substantially its domestic defence industries and upgrade its technological infrastructure, the economic downturn will likely impair this effort. The 2010 defence budget is slated for a 15% cut, in order to husband resources needed to weather the economic crisis. Estimates put Greece’s military spending between €6-10 billion (3-4% GDP per year).22 The defence budget will be further cut by 10% through to 2015 in an attempt to reduce the Greek deficit.23 Over the next five years, Greece will allocate roughly €15.5 billion for procurement: 26% of the funds will be allocated for upgrading and modernization of existing systems, 19% for naval operations, 19% for air operations, 15% for ground operations, and 5% for air defence.24

L. HUNGARY

28.  Hungary has been hit particularly hard by the global financial crisis, with GDP falling 6.7% this year alone.25 In response, the International Monetary Fund (IMF) and the European Union assembled an emergency financial rescue package of $25.1 billion. In March 2009, the Hungarian government reaffirmed its commitment to NATO operations in Afghanistan, as well as its ongoing effort to modernise national defence forces in compliance with NATO standards.

29.  Military expenditure has fallen substantially over the last decade, due to pressures on government finances and the need to reduce the overall budget deficit. Among the Central and East European countries Hungary has one of the smallest defence industrial sectors. The Hungarian National Assembly has held a series of debates on budgetary planning in light of the financial crisis.

M. ICELAND

30.  Although a long standing and important member of NATO, Iceland does not have a standing army although it maintains a coast guard and a Crisis Response Unit. Because of the severe economic crisis in Iceland, which has been made all the more trying due to the failure of the country’s banking system, the government will have to radically change the funding and structure of the Icelandic Defence Agency. Some of the Defence Agency’s tasks include: participation in coordinated NATO Air Surveillance and Policing operations; preparation and execution of defence exercises in Iceland; execution of the US-Iceland bilateral defence agreement from 1951; and, cooperation with international institutions in the field of defence.26There have been calls to save money by merging different operations of the Agency with that of other institutions. According to the 2009 budget, ISK 1.2 billion ($11 million, €8 million) will be allocated to the Iceland Defence Agency.27

N. ITALY

31.  The restructuring of the Italian defence budget reflects the current three-year spending reduction plans imposed by Finance Minister Giulio Tremonti on all Italian ministries. The 2009 defence budget was characterized by a 4% decrease in spending from €21.13 in 2008 to €20.29 billion in 2009. As a result of this contraction, Italian defence spending will account for just 1.24% of the GDP in 2009.

32.  Future spending plans suggest that forces will be further reduced to 141,000 by 2012 (in 1995 force levels were 330,000). The 2009 functioning budget includes a decrease of 24.9% in training expenditures, a 36.7% decrease in maintenance expenditures and a 45.8% decrease in infrastructure expenditure.

O. LATVIA

33.  Latvia’s GDP is projected to contract by 18% this year, which has raised concerns about the sustainability of government spending. Latvia nevertheless remains committed to maintaining defence spending levels at 2% of the GDP until 2010. Its leaders see doing so as an expression of the nation’s strong commitment to NATO membership. The government has already ordered a 40% reduction on planned budget expenditures with the exception of EU budget payments, Defence Ministry payments to NATO and the UN, and other payments to international organisations. Once implemented, the budget amendment will result in the Defence Ministry’s budget being reduced by LVL 30.8 million ($60.8 million).28

P. LITHUANIA

34.  In light of the global financial crisis and its very serious impact on Lithuania and, faced with increasing debt and a collapse in economic growth, the Lithuanian government has reduced its 2009 defence budget to $430.8 million, a level 20% below the defence allocation for 2008. This marks Lithuania’s first defence cuts since 1999. The new budget will reduce spending for light arms and surveillance equipment by 8.5% (LTL 25.1 million), personnel supplies by 6%, maintenance by 16.7%, communications by 7.5%, transportations by 20.8%, and facilities maintenance by 68.8%.29 Lithuania will also look to co-operate with the other Baltic countries such as Latvia, Estonia, and Poland to establish a joint procurement plan to economize and reduce defence-operating costs.30

35.  The chairman of the National Security and Defence Committee for the Lithuanian Parliament, Arvydas Anusauskas, has admitted that cuts in defence spending could make it more difficult to fulfil all the country’s international commitments.  Defence spending will likely stand at 1.2% of GDP in 2009- the lowest of any NATO country31 but Lithuania is also in the midst of one of the steepest declines among NATO members.

Q. LUXEMBOURG

36.  Luxembourg has an army of approximately 450 professional soldiers, about 340 enlisted recruits and 100 civilians. The total budget stands at $369 million, or 0.9% of GDP. The Luxembourg government has been working on a package of economic and social measures to combat the global financial crisis, which includes the planning and development of infrastructure projects scheduled for 2011-2012.  In 2005 Luxembourg spent approximately $310 million on defence, or about 0.85% of the GDP. Luxembourg participates in the NATO ISAF mission in Afghanistan, takes part in EU and NATO sponsored missions in Africa, and has committed to sending a team of de-mining experts to participate in UNIFIL in Lebanon.

R. NETHERLANDS

37.  The Netherlands economy appears to be weathering the economic crisis and it does not face the kinds of fiscal pressures that several other NATO member states confront. Defence spending in 2009 increased from €8.1 billion to €8.5 billion. The Dutch government estimates a 1% budget surplus for 201132. It forecasts that the government will contribute $13.9 billion in 2012 to defence spending- an increase of 23.9% over spending levels in 2007.33

38.  In November 2007, the Dutch government agreed to remain an additional two years in Uruzgan, Afghanistan, beyond its original 1 August 2008. Foreign Minister Maxime Verhagen indicated the government would slightly reduce overall Dutch military presence during this time, and that if troops were still needed in the region at the end of this timeline, NATO would need to find others to fill the void. The Dutch currently have 1,730 troops in Afghanistan.34 The Dutch mission in Afghanistan is thus slated to conclude on 31 July 2010.

S. NORWAY

39.  There has not been any political discussion within Parliament about reducing the defence budget as a consequence of the global financial crisis. Indeed, Norway increased 2009 defence spending by 2% to about $5.4 billion, mitigating fears among military leaders that the government would use the economic downturn to reduce defence outlays. In real terms, the 2% increase represents an additional $101 million for the Norwegian Armed Forces above what was distributed in 2008. Moreover, in January 2009, the armed forces had a budget increase of NOK 88 million, and in the revised national budget the government recently added NOK 505 million for international operations.

40.  Defence Minister Anne-Grete Strøm-Erichsen assserts that the increase in the defence budget affirms the government's intention to bolster its military capability as part of Norway’s long-term strategy to strengthen and participate to a greater extent in NATO and UN international missions. The strategy aims to increase the armed forces by 1,000, thereby boosting the overall force size to 17,000.  A budget increase of NOK 800 million is forecast over the next four years.

T. POLAND

41.  In the wake of Russia’s conflict with Georgia, Poland announced it would increase defence spending in 2009. It embarked upon a $22.7 billion 10-year modernization programme focused on air defence, helicopters, Navy, command and communications systems, and unmanned aerial reconnaissance equipment. The economic crisis, however, has compelled the government to announce a 7.8% cut in its defence budget for 2009 to PLN 22.6 billion ($6.5 billion) compared with the $7.5 billion budget on which it had originally planned. As Poland’s defence budget is pegged to its GDP, defence outlays hinge on national economic performance.35

42.  The Ministry of Defence intends to keep defence expenditure in 2010 in line with the legal minimum requirement of 1.95% of the GDP. As of April 2009, defence spending was expected to rise gradually from PLN 23.8 billion in 2009 to PLN 28 billion in 2013. As a result of the global financial crisis, Poland has been reassessing priorities and defence commitments. It withdrew Polish Military Contingents from three UN-led operations, while increasing the number of Polish troops to 2,000 in Afghanistan in May 2009.

 

U. PORTUGAL

43.  In 2008, the defence budget was set at €2.1 billion ($3.11 billion). The government stated that its priority would be the modernisation of equipment, the upgrading of infrastructure, and the continued reduction of personnel numbers. However, given the current economic climate, military spending is not a top priority for the current government, and it is unlikely to increase substantially over the short term.

V. ROMANIA

44.  The approved expenditures for the Ministry of National Defence for FY2009 were initially LEI 7,652 million, representing 1.32% of the GDP. In April 2009, after the state budget rectification, the new budget allocated to the Ministry of National Defence was reduced by LEI 696 million, which resulted in an adjusted budget of about LEI 6,955 million. As a consequence of the global financial crisis and fiscal pressures in Romania, the government has cancelled or postponed a series of new planned acquisitions. The only new expenditures and acquisitions involve NATO/EU related commitments or are absolute priorities such as those that might improve the protection of the deployed troops. The Ministry of Defence also suggests that Romania will maintain the current level of forces on foreign missions by withdrawing troops from Iraq and increasing the presence of Romania’s troops in Afghanistan.

W. SLOVAKIA

45.  Since defence expenditure levels are roughly correlated to economic performance in Slovakia, as long as economic growth is maintained the defence expenditure is expected to remain steady. In 2008, the budget increased by 11% from 2007; however, Slovakia’s reports to the UN revealed that the Defence Ministry had not spent its full budget. There has been some concern expressed about how the global financial crisis will shape Slovakia’s future defence budget. The Defence Ministry has already delayed plans to purchase new aircrafts, and the government recently announced it will seek savings of almost €332 million across the public sector. These could be signs that future defence spending might contract.

46.  Since mid-2008, Slovakia has steadily increased its share of deployable troops to the ISAF mission in Afghanistan, KFOR in Kosovo, ALTHEA in Bosnia and Herzegovina, UNFICYP in Cyprus, and the UNTSO observer mission at the Lebanese, Syrian and Israeli borders. Slovakia has made a concerted effort to increase troop strength in Afghanistan from 70 in June 2008 to the current level of 246.36 Slovakian defence funding will continue to focus this year on personnel, training readiness, and equipment and infrastructure modernisation.

X. SLOVENIA

47.  The economic downturn has compelled the Slovenian Defence Ministry to make draconian reductions in defence spending. The mid-term Defence Plan for 2007-2012 initially anticipated defence expenditures reaching 2% of Slovenia’s GDP by 2009; however, Slovenia will unlikely be able to achieve this mark before 2014. To reach that level of spending, the defence budget would have to be increased by between 8 and 16% over that period.

48.  In March 2009, Defence Minister Ljubica Jelusic announced that the defence budget would be further cut and would only grow by 5.36% from 2008. Slovenian defence spending is heavily concentrated on efforts to transform the military from a conscript-force to a fully professional NATO-compatible service. Efforts are also underway to bring procurement spending under the main budget. Recent ministry activity includes the purchase of new combat vehicles for €438 million; stabilising personnel costs at around €210 million; and increasing funds for operations from €70 million in 2005 to €180 million by 2010.

Y. SPAIN

49.  Between 2000 and 2007 Spanish military spending nearly doubled from €7.6 billion to €12.7 billion. Spain is the fifth highest defence spender in Europe, but political support for increased military spending is lukewarm. Budget increases ended in October 2008 when the global financial crisis shifted priorities away from military spending. The Spanish Ministry of Defence is preparing to decrease spending to €8.24 billion, which is a 3.9% decrease from the 2008 level of €8.49 billion.37 While spending on personnel is expected to rise by 2%, the Ministry of Science and Innovation announced that it would slash defence R&D outlays by 12% (to €1.45 billion) and investment is also likely to fall by 15% compared with 2008 levels. The Zapatero government’s commitment to tax cuts and increased social spending will place further pressure on the defence budget.38

50.  Despite the smaller budget, the MoD intends to supply the army with a new fleet of mineprotected armoured fighting vehicles. Spain’s professional military will be 81,000 strong in 2009.

Z. TURKEY

51.  On 11 December 2007, Turkey’s parliament approved a 1.7% increase in the MoD’s FY2008 budget, which was fixed at TRY 13.27 billion ($8.84 billion). Operations against the Kurdistan Workers' Party (PKK) terrorist organisation in Iraq and a broad effort to bolster Turkey’s domestic defence industry by strengthening technological capacity are two factors which have increased military outlays.39

52.  Despite the serious impact of the global financial crisis on Turkey and a 35% depreciation of the Turkish Lira against the dollar, MoD officials insist that the economic downturn will not adversely affect current defence procurement expenditures.40 In late 2008 Turkey approved a budget increase from TRY 13.27 billion to TRY 14.5 billion ($9.3 billion) for 2009, and the defence budget is forecasted to rise to TRY 15.70 billion in 2010. Some independent analysts, however, foresee an eventual decrease both in Turkey’s defence budget and in its troop strength due to the weak economy, EU pressures, and evolving threats.

AA. UNITED KINGDOM

53. Published in 2007, the UK Government’s Comprehensive Spending Review (CSR) for the financial years 2007/08-2010/11 provided defence with an agreed settlement of an average annual increase of 1.5% until 2010/11 (nearly £4 billion over the period in cash). The Core Defence budget was set at £32.6 Bn for 2007/08, £34.1Bn for 2008/09, £35.4Bn for 2009/10, and £36.9Bn for 2010/11. In 2009 the Defence Budget will be over 10% higher, in real terms, than in 1997, marking the longest period of sustained growth since the 1980s.

54. The cost of operations is additional to the Core Defence Budget and is met from the UK’s Treasury Reserve. In the financial year 2008/09, over £2.6Bn was spent in support of operations in Afghanistan and nearly £1.4Bn on Iraq - bringing the total spent on all UK operations since 2001 to over £14Bn. Included in this figure is £5.2Bn spent on Urgent Operational Requirements (UORs) in terms of equipment that could not have been anticipated through the normal procurement programme.

55. The UK Treasury does not put a limit on the amount of money available from the Reserve in support of the UK armed forces on operations. However, in recent years the Treasury and Ministry of Defence have agreed an estimate for the UOR funding - in financial year 2009/10, an estimate of £635 million was agreed for UORs. This estimate has subsequently been enhanced by £101 million to counter Improvised Explosive Devices, bringing the total UOR estimate to £736 million. Any expenditure over and above this estimate would initially be met by the Reserve, but would ultimately have to be repaid through the defence budget within two years.

56. While these defence spending levels have so far been sustained during the financial crisis, in January 2008 the Select Committee on Defence predicted that cuts in the defence programme are likely. In March 2008, the House of Commons Defence Committee concluded that the Government could not fund the MoD’s full-equipment programme and that it would need to make difficult decisions to compile a more realistic and affordable procurement programme. The next spending review will take place in 2010 during which time the future of the defence budget will become clearer.

BB. UNITED STATES

57.  In May 2009 President Obama requested $533.8 billion for the FY2010 base defence budget and $130 billion for overseas contingency operations (OCO) in Iraq and Afghanistan. Though the budget proposal does represent a cut in Bush Administration projections, it still amounts to a 4% increase overall from 2009. Though US defence spending is rising, albeit at a slower pace under the Obama Administration, a number of analysts suggest that defence budget cuts are likely to occur over the coming years due to serious fiscal pressures. Jane’s forecasts a 6% drop in the FY2011 defence budget (to $644.55 billion), and by 2013 defence outlays could fall as low as $606.6 billion. A recent assessment of Obama's defence policies conducted by Morgan Stanley suggested that Obama "will not cut the DoD budget within his first 18 months in office", but could "curtail defence spending growth, with an eye for a potential defence budget peak possibly in 2010 or the year after".

58.  There have already been important cuts in particular military programmes and hardware, which have been supported by US Secretary of Defence Robert Gates, who has continuously called for the curtailment of a number of big-ticket items in order to generate savings that could be applied to higher priority and more useable systems. Major weapons systems, especially those behind schedule, are under scrutiny. Secretary Gates has made compelling cases for ending programmes that significantly exceed their budgets or use limited tax dollars to buy more capability than the nation needs. Moreover, Secretary Gates wants to de-emphasize structures and spending for conventional warfare against larger enemies, and shift this money to programmes for “irregular” warfare against small and unpredictable adversaries.41

59.   The Pentagon is planning to increase the number of special operations forces by 5%, and will hire more than 30,000 new civilian officials over the next five years, by gradually reducing the number of contractors to 26% of the Pentagon work force. The DoD will also have to manage the bill for withdrawing 130,000 US soldiers from Iraq, along with enough military hardware and gear to fill over 450,000 shipping containers.
IV. CONCLUSION

60.  In summary, many NATO members in Central and Eastern Europe are finding it financially necessary to reduce defence budgets and military personnel. Many are also redoubling efforts to focus on niche capabilities in order to put their defence spending on a more financially sustainable level; it is an economic approach based on the theory of comparative advantage. However, this requires a strong and reliable alliance if it is to work over the long run.

61.  In Western Europe and the US, large procurement programmes are likely to be scaled back to free up spending for other policy priorities. Ballooning budget deficits is making this almost inevitable.

62.  While the above survey may not have illustrated a drastic change and reduction in defence spending, the future contraction of defence budgets may be inevitable, particularly if the current recession endures or the recovery is weak. The report suggests that governments have taken precautionary measures by altering spending habits, but economists widely believe that defence spending may well be reduced over the longer term – after 2010 – when the real cost of dealing with the financial crisis emerges. When governments start reducing spending again and are forced to repay massive debts from borrowing, public sector budgets will come under increasing pressure. As the British MoD’s chief economist Neil Davies told members of the Economics and Security Committee in May 2009, although few countries are making substantial real cuts in defence outlays at the present time, beyond 2011, inflationary and fiscal pressures could force cuts in real defence spending.

63.  This raises concerns in security circles, particularly as many feel that the global economic crisis has made the world a more dangerous place. The Chairman of the Joint Chiefs of Staff, Michael Mullen, recently noted that “the degree that this financial crisis has an impact on us, and it will, I worry about an increased level of insecurity [and] instability around the world.”

64.  Since the potential impact of the financial crisis has yet to be fully understood, it is difficult to forecast how this will alter future defence spending. Nevertheless, defence ministries will be forced to make difficult decisions and assess the opportunity costs of their various operations and activities- sacrificing the lesser necessity over the greater, perceived need. Former US Undersecretary of Defence, Dov S. Zakheim, has warned that the lower rate of defence budget growth would manifest itself most sharply in acquisition accounts and procurement and R&D. He further warned that the economic crisis could have a major and deleterious impact on national defence budgets that would leave the West more vulnerable than it currently is. In the current era of economic scarcity, security is likely to be increasingly understood as a commodity and governments are going to be challenged once again to affix a value to it and ensure that their national budgets are sufficiently robust to make the necessary payments.

 

1   Jane’s Sentinel Country Risk Assessments (April 6, 2009)
2   Jane’s Sentinel Country Risk Assessments
3   Dawn Media Group http://www.dawn.com/fixed/group/group.htm
4   http://hln.be
5   http://www.forces.gc.ca
6   Jane’s Sentinel Country Risk Assessments
7   World News
8   “NATO enlargement: Albania, Croatia, and Possible Future Candidates.” Congressional Research Service
9   Croatian Ministry of Defence online. http://arhiva.morh.hr
10   “NATO enlargement: Albania, Croatia, and Possible Future Candidates.” Congressional Research Service
11   Defense News (May 2009)
12   Estonian Ministry of Defence
13 http://blog.icds.ee/contact/baltic-defence-cooperation-during-economic-crisis-between-symbolism-and-substance International Centre for Defence Studies
14   Jane’s Sentinel Country Risk Assessments
15   Estonian Review http://web-static.vm.ee/static/failid/352/ER_12_2009.pdf
16   International Institute for Strategic Studies, The Military Balance 2009
17   French Senate
18   http://news.bbc.co.uk/2/hi/europe/7458650.stm
19   French Ministry of Defence.
20   “European Defense Spending Outlook, 2009” Center for Strategic & International Studies
21   International Institute for Strategic Studies, The Military Balance 2009.
22   Dimitris Karantinos, “Impact of the financial crisis upon the Economy,” EEO SYSDEM report by the European Commission.
23   “Defence budget to be cut”, Neoskosmos, 23 June 2009.
24   Jane’s Sentinel Country Risk Assessments
25   “Hungary’s 2009 GDP to drop 6.7 pct.”,  http://www.upi.com
26    Iceland Ministry of Foreign Affairs
27   Iceland Review
28   The Baltic Course (June 1 2009) http://www.baltic-course.com/eng/finances/?doc=14379
29   Jane’s Sentinel Country Risk Assessments
30   “Lithuania Cuts Defence Budget” (March 11, 2009) Defense News
31   Ibid.
32   Budget Memorandum 2009. Ministerie Van Financiën.
  http://www.minfin.nl/dsresource?objectid=58546&type=pdf
33   Data Monitor Industry Profiles: Defence Spending in the Netherlands.
34   Hendrickson, Ryan C. (2009) “What Options for NATO? Dutch Force Projection and Defense Capabilities,” Comparative Strategy, 28:1, 60-67
35   Jane’s Sentinel Country Risk Assessments
36   http://www.nato.int/issues/commitment/docs/090407-slovak-rep.pdf
37   “Spanish Military Expenditure 2009”, (October 2008) Centre Del s d’Estudis per la Pau,
   http://www.centredelas.org/attachments/376_informe_despesa_2009-eng.pdf
38   Jane’s Sentinel Country Risk Assessments
39   Security Concerns and Local Industrialization Boost Turkish Military Budget, (December 2007) Jamestown Foundation,
40   “Undeterred by Financial Crisis, Turkish Defence Companies Plan to Increase Domestic Arms Production,” (February 2009) Jamestown Foundation
41   Epstein, Keith, (April 2009) “Defense Budget Reflects Shifting Priorities”, Business Week Online

Offline chris jones

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Berny is in the know -NWO, a key player, yup, he admitted this only because it would be unacceptable to say otherwise to a group of intelligent human beings.
 What will happen if the dollar bites the dust. All kinds of shiiiit. Civil unrest, martial law, and the people will run to the GOV for food, and lodging FEMA, where else can they go... I can't see it happening any other way, the pantry is empty, the unpatriotic disenting citizenry who took to the streets are being dealt with, the wars prepetuate, creditor nations and NATO step in, and the fairy tale ends and the reality becomes evident to all.


Offline larsonstdoc

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Berny is in the know -NWO, a key player, yup, he admitted this only because it would be unacceptable to say otherwise to a group of intelligent human beings.
 What will happen if the dollar bites the dust. All kinds of shiiiit. Civil unrest, martial law, and the people will run to the GOV for food, and lodging FEMA, where else can they go... I can't see it happening any other way, the pantry is empty, the unpatriotic disenting citizenry who took to the streets are being dealt with, the wars prepetuate, creditor nations and NATO step in, and the fairy tale ends and the reality becomes evident to all.



  They know that they can make the sheep do anything FOR FOOD.
I'M A DEPLORABLE KNUCKLEHEAD THAT SUPPORTS PRESIDENT TRUMP.  MAY GOD BLESS HIM AND KEEP HIM SAFE.

Offline chris jones

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  They know that they can make the sheep do anything FOR FOOD.
  You bet it is Larson, a fundamental for controlling the masses. The ruling class are still prepetuating a smokescreen,  (by means of deception). But I get the feeling they are knawing at the bit, drooling in anticipation of the time when they can  go balllls to the wall and gain supremacy over the seething masses of what they labe as the inferior humans.
  I heard a state pol say to his entourage, let the worms go back to their breeding grounds, kinda sums up their oppinion of us commoners.

Offline okay

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I so loooooove the title of this thread, Anti ;D :D ;D :D ;D :D ;D :D

Offline larsonstdoc

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Ben Bernanke's 30 Stupidest Quotes
« Reply #654 on: December 11, 2010, 09:19:38 am »
http://capoliticalnews.com/blog_post/show/7141

Read more at the link above.  LOL!!!!!

#2 (On 60 Minutes in response to a question about what would have happened if the Federal Reserve had not "bailed out" the U.S. economy) "Unemployment would be much, much higher. It might be something like it was in the Depression. Twenty-five percent."

#4 (January 10, 2008) "The Federal Reserve is not currently forecasting a recession."


#5 (When asked directly during a congressional hearing if the Federal Reserve would monetize U.S. government debt) "The Federal Reserve will not monetize the debt."

#6 "One myth that’s out there is that what we’re doing is printing money. We’re not printing money."


#8 (November 21, 2002) "The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost."



#27 "Not all information is beneficial."


I'M A DEPLORABLE KNUCKLEHEAD THAT SUPPORTS PRESIDENT TRUMP.  MAY GOD BLESS HIM AND KEEP HIM SAFE.

Offline bigron

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  • RON PAUL FOR PRESIDENT 2012
Paul versus Bernanke
« Reply #655 on: January 03, 2011, 04:03:31 am »
Jan 4, 2011 
http://atimes.com/atimes/Global_Economy/MA04Dj01.html 
 

Paul versus Bernanke



By Hossein Askari and Noureddine Krichene

The fascinating two-year "rumble" that has been threatening since the November 2010 mid-term United States elections will unfold after the new congress is seated this week. The feature bout on the card will pit: in the right corner, Ron Paul, the Texas Republican congressman, a graduate of Duke University Medical School, 1988 presidential candidate and author of the best-selling 2009 book End the Fed; and in the left corner, Ben Bernanke, chairman of the board of governors of the US Federal Reserve System, MIT PhD economist, former chairman of the Council of Economic Advisors and Fed governor.

This dream prize fight should take place because the Republicans have "mischievously" nominated Ron Paul as the chair of an important sub-committee of the House Financial Services Committee, namely the sub-committee on domestic monetary policy and technology, which scrutinizes US monetary policy.

The two combatants, Paul and Bernanke, have sharply opposite views in ideology and policy-making.

Read More :

http://atimes.com/atimes/Global_Economy/MA04Dj01.html




 
 
 

Offline Catalina

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'Fearmongering' Bernanke Warns of Catastrophe if Debt Limit not Raised
« Reply #656 on: February 07, 2011, 05:49:50 pm »
Federal Reserve Chairman Ben Bernanke on Thursday issued a stern warning to Republican lawmakers that delays in raising the United States' $14.3 trillion debt limit could have "catastrophic" consequences.

"Beyond a certain point ... the United States would be forced into a position of defaulting on its debt. And the implications of that on our financial system, our fiscal policy and our economy would be catastrophic," he told the National Press Club.


http://news.yahoo.com/s/nm/20110204/bs_nm/us_usa_fed
Spare no cost for truth's sake, neither depart from it for any gain. -Proverbs 23:23

Bestow not the gifts that God has given you to get worldly riches. -Proverbs 23:4

Offline Geolibertarian

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Re: 'Fearmongering' Bernanke Warns of Catastrophe if Debt Limit not Raised
« Reply #657 on: February 07, 2011, 06:10:19 pm »
Federal Reserve Chairman Ben Bernanke on Thursday issued a stern warning to Republican lawmakers that delays in raising the United States' $14.3 trillion debt limit could have "catastrophic" consequences.

"Beyond a certain point ... the United States would be forced into a position of defaulting on its debt. And the implications of that on our financial system, our fiscal policy and our economy would be catastrophic," he told the National Press Club.

http://news.yahoo.com/s/nm/20110204/bs_nm/us_usa_fed

Even a broken clock is right twice a day, and Bernanke's remarks are an obvious illustration of that fact.

To understand why, see:

       http://forum.prisonplanet.com/index.php?topic=197548.0
       http://forum.prisonplanet.com/index.php?topic=199144.0
"Abolish all taxation save that upon land values." -- Henry George

"If our nation can issue a dollar bond, it can issue a dollar bill." -- Thomas Edison

http://schalkenbach.org
http://www.monetary.org
http://forum.prisonplanet.com/index.php?topic=203330.0

Offline freedom_commonsense

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Re: 'Fearmongering' Bernanke Warns of Catastrophe if Debt Limit not Raised
« Reply #658 on: February 07, 2011, 06:18:43 pm »
Even a broken clock is right twice a day, and Bernanke's remarks are an obvious illustration of that fact.

To understand why, see:

       http://forum.prisonplanet.com/index.php?topic=197548.0
       http://forum.prisonplanet.com/index.php?topic=199144.0

They're going with spending cuts instead in the UK, as well as increased taxation.

http://www.hm-treasury.gov.uk/spend_index.htm

Offline agentbluescreen

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Re: 'Fearmongering' Bernanke Warns of Catastrophe if Debt Limit not Raised
« Reply #659 on: February 07, 2011, 06:30:27 pm »
They will force Congress to borrow more money to continue to waste-finance the Likudnik's destructive, counterproductive foreign wars and to grease the Bernanke fraud ponzi-machinery at gunpoint if they have to. If they detect any hesitation there will be no more Sears Tower.

Does anybody have a Bernanke Joker Photo?

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Re: 'Fearmongering' Bernanke Warns of Catastrophe if Debt Limit not Raised
« Reply #660 on: February 07, 2011, 06:43:37 pm »

Offline agentbluescreen

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Re: 'Fearmongering' Bernanke Warns of Catastrophe if Debt Limit not Raised
« Reply #661 on: February 07, 2011, 07:06:57 pm »
"We have the Sears Tower, you know...."



Image is copyrighted - posters available
http://www.flickr.com/photos/uswgo/4220125612/

Offline agentbluescreen

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Ben Bernanke Tells the Truth: The US is on the Brink of Financial Disaster
« Reply #662 on: February 07, 2011, 08:10:48 pm »
http://www.infiniteunknown.net/2010/10/07/ben-bernanke-tells-the-truth-the-us-is-on-the-brink-of-financial-disaster/

Ben Bernanke Tells the Truth: The US is on the Brink of Financial Disaster
Posted On Oct 07 Economy, Global News, Politics

If elite puppets like Ben Bernanke finally admit the truth, then we are getting very close to greatest financial collapse in history.

The US is totally bankrupt and the Greatest Depression is here.



Yesterday, Federal Reserve Chairman Ben Bernanke delivered a speech before the the Annual Meeting of the Rhode Island Public Expenditure Council in Providence, Rhode Island. In the speech, he warned about the current state of the government finances. His conclusion, the situation is dire and “unsustainable”.

It is remarkable that mainstream media has given this speech no coverage. I repeat, the central banker of the United States says in his own words:

Let me return to the issue of longer-term fiscal sustainability. As I have discussed, projections by the CBO and others show future budget deficits and debts rising indefinitely, and at increasing rates. To be sure, projections are to some degree only hypothetical exercises. Almost by definition, unsustainable trajectories of deficits and debts will never actually transpire, because creditors would never be willing to lend to a country in which the fiscal debt relative to the national income is rising without limit. Herbert Stein, a wise economist, once said, “If something cannot go on forever, it will stop.” One way or the other, fiscal adjustments sufficient to stabilize the federal budget will certainly occur at some point. The only real question is whether these adjustments will take place through a careful and deliberative process that weighs priorities and gives people plenty of time to adjust to changes in government programs or tax policies, or whether the needed fiscal adjustments will be a rapid and painful response to a looming or actual fiscal crisis.

This is as close as you are ever going to see a central banker admit that his country’s financial situation is so dire that it could breakup at any time.

Here’s more from Bernanke’s remarkable speech:

The recent deep recession and the subsequent slow recovery have created severe budgetary pressures not only for many households and businesses, but for governments as well. Indeed, in the United States, governments at all levels are grappling not only with the near-term effects of economic weakness, but also with the longer-run pressures that will be generated by the need to provide health care and retirement security to an aging population. There is no way around it–meeting these challenges will require policymakers and the public to make some very difficult decisions and to accept some sacrifices. But history makes clear that countries that continually spend beyond their means suffer slower growth in incomes and living standards and are prone to greater economic and financial instability.

Now, get this, he warns that it is not only the Federal government that has financial problems, but also states and local governments:

Although state and local governments face significant fiscal challenges, my primary focus today will be the federal budget situation and its economic implications.

Does Bernanke see the tsunami hitting or what?

Then, he put things in historical perspective:

The budgetary position of the federal government has deteriorated substantially during the past two fiscal years, with the budget deficit averaging 9-1/2 percent of national income during that time. For comparison, the deficit averaged 2 percent of national income for the fiscal years 2005 to 2007, prior to the onset of the recession and financial crisis. The recent deterioration was largely the result of a sharp decline in tax revenues brought about by the recession and the subsequent slow recovery, as well as by increases in federal spending needed to alleviate the recession and stabilize the financial system. As a result of these deficits, the accumulated federal debt measured relative to national income has increased to a level not seen since the aftermath of World War II.

Then, he explains the deterioration and the problems it will create for the entire economy:

For now, the budget deficit has stabilized and, so long as the economy and financial markets continue to recover, it should narrow relative to national income over the next few years. Economic conditions provide little scope for reducing deficits significantly further over the next year or two; indeed, premature fiscal tightening could put the recovery at risk. Over the medium- and long-term, however, the story is quite different. If current policy settings are maintained, and under reasonable assumptions about economic growth, the federal budget will be on an unsustainable path in coming years, with the ratio of federal debt held by the public to national income rising at an increasing pace.2 Moreover, as the national debt grows, so will the associated interest payments, which in turn will lead to further increases in projected deficits. Expectations of large and increasing deficits in the future could inhibit current household and business spending–for example, by reducing confidence in the longer-term prospects for the economy or by increasing uncertainty about future tax burdens and government spending–and thus restrain the recovery. Concerns about the government’s long-run fiscal position may also constrain the flexibility of fiscal policy to respond to current economic conditions.

Then, he tells us how powerful the negative trends are and how the aging population and Obamacare are going to make things worse:

Our fiscal challenges are especially daunting because they are mostly the product of powerful underlying trends, not short-term or temporary factors. Two of the most important driving forces are the aging of the U.S. population, the pace of which will intensify over the next couple of decades as the baby-boom generation retires, and rapidly rising health-care costs. As the health-care needs of the aging population increase, federal health-care programs are on track to be by far the biggest single source of fiscal imbalances over the longer term. Indeed, the Congressional Budget Office (CBO) projects that the ratio of federal spending for health-care programs (principally Medicare and Medicaid) to national income will double over the next 25 years, and continue to rise significantly further after that…he aging of the U.S. population will also strain Social Security, as the number of workers paying taxes into the system rises more slowly than the number of people receiving benefits. This year, there are about five individuals between the ages of 20 and 64 for each person aged 65 and older. By 2030, when most of the baby boomers will have retired, this ratio is projected to decline to around 3, and it may subsequently fall yet further as life expectancies continue to increase. Overall, the projected fiscal pressures associated with Social Security are considerably smaller than the pressures associated with federal health programs, but they still present a significant challenge to policymakers.

Then he goes back to warn that the financial mess also exists at the state and local level:

The same underlying trends affecting federal finances will also put substantial pressures on state and local budgets, as organizations like yours have helped to highlight. In Rhode Island, as in other states, the retirement of state employees, together with continuing increases in health-care costs, will cause public pension and retiree health-care obligations to become increasingly difficult to meet. Estimates of unfunded pension liabilities for the states as whole span a wide range, but some researchers put the figure as high as $2 trillion at the end of 2009.5 Estimates of states’ liabilities for retiree health benefits are even more uncertain because of the difficulty of projecting medical costs decades into the future. However, one recent estimate suggests that state governments have a collective liability of almost $600 billion for retiree health benefits. These health benefits have usually been handled on a pay-as-you-go basis and therefore could impose a substantial fiscal burden in coming years as large numbers of state workers retire.

Bernanke then breaks the news that the problem is global:

It may be scant comfort, but the United States is not alone in facing fiscal challenges. The global recession has dealt a blow to the fiscal positions of most other advanced economies, and, as in the United States, their expenditures for public health care and pensions are expected to rise substantially in the coming decades as their populations age. Indeed, the population of the United States overall is younger than those of a number of European countries as well as Japan.

Bernanke then re-emphasises, the damage this will do to the overall economy:

Failing to address our unsustainable fiscal situation exposes our country to serious economic costs and risks. In the short run, as I have noted, concerns and uncertainty about exploding future deficits could make households, businesses, and investors more cautious about spending, capital investment, and hiring. In the longer term, a rising level of government debt relative to national income is likely to put upward pressure on interest rates and thus inhibit capital formation, productivity, and economic growth. Larger government deficits increase our reliance on foreign lenders, all else being equal, implying that the share of U.S. national income devoted to paying interest to foreign investors will increase over time. Income paid to foreign investors is not available for domestic consumption or investment. And an increasingly large cost of servicing a growing national debt means that the adjustments, when they come, could be sharp and disruptive. For example, large tax increases that might be imposed to cover the rising interest on the debt would slow potential growth by reducing incentives to work, save, hire, and invest.

He then states that we do not know how much time is left before all hell breaks loose:

It would be difficult to identify a specific threshold at which federal debt begins to pose more substantial costs and risks to the nation’s economy. Perhaps no bright line exists; the costs and risks may grow more or less continuously as the federal debt rises. What we do know, however, is that the threat to our economy is real and growing, which should be sufficient reason for fiscal policymakers to put in place a credible plan for bringing deficits down to sustainable levels over the medium term.

From there,Bernanke goes into a bit of wishful thinking by identifying ways Congress can rein in spending and make the tax system more efficient. Good luck with all of that.

The real important part of Bernanke’s speech is the first half where he warns of the financial crisis just ahead.

Tuesday, October 5, 2010

Source: Economic Policy Journal

Offline Catalina

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Re: 'Fearmongering' Bernanke Warns of Catastrophe if Debt Limit not Raised
« Reply #663 on: February 07, 2011, 08:12:52 pm »
Hill poll shows 62% opposed to raising the debt ceiling

    Only 27 percent of likely voters favor raising the nation’s $14.3 trillion debt ceiling, while 62 percent oppose it, according to an exclusive poll for The Hill.

    The poll found solid opposition from Republicans and also from independent voters, who are critical to President Obama’s re-election in 2012.

    Seventy-seven percent of likely GOP voters and 64 percent of independent voters said they don’t want the debt ceiling to be raised. Even among Democrats, more oppose raising the ceiling (46 percent) than support it (42 percent).


http://hotair.com/archives/2011/02/07/hill-poll-shows-62-opposed-to-raising-the-debt-ceiling/

Despite the wishes of the people, they will follow the puppet masters.
Spare no cost for truth's sake, neither depart from it for any gain. -Proverbs 23:23

Bestow not the gifts that God has given you to get worldly riches. -Proverbs 23:4

Offline Geolibertarian

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Re: 'Fearmongering' Bernanke Warns of Catastrophe if Debt Limit not Raised
« Reply #664 on: February 08, 2011, 08:49:39 am »
Despite the wishes of the people, they will follow the puppet masters.

If the people would familiarize themselves with the following, perhaps they'd be more careful about what they "wish" for:

       http://forum.prisonplanet.com/index.php?topic=197548.0  
       http://forum.prisonplanet.com/index.php?topic=199144.0

As to the fiscal crisis, if a critical mass of people would simply stop obsessing over mindless distractions and use their collective power to compel the government to (a) stop the wars and (b) stop handing out trillions of dollars in "bailout" money to criminal bankers, that alone would bring this engineered crisis to a screaching hault.

Unfortunately, it appears unlikely they'll do this, since that would mean having to put almost as much effort into political activism as they do into cheerleading their favorite sports teams.

Thus, what will probably happen instead is that they'll sheepishly let Congress cut the social safety net at the very time it's needed most (a typical form of "shock therapy"). And that, of course, is precisely what both the international bankers and their "opponents" from the austerity-promoting Austrian School want to happen.

So once again, the parasitic ruling elite are playing chess while everyone else plays checkers.
"Abolish all taxation save that upon land values." -- Henry George

"If our nation can issue a dollar bond, it can issue a dollar bill." -- Thomas Edison

http://schalkenbach.org
http://www.monetary.org
http://forum.prisonplanet.com/index.php?topic=203330.0

Offline agentbluescreen

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Re: 'Fearmongering' Bernanke Warns of Catastrophe if Debt Limit not Raised
« Reply #665 on: February 08, 2011, 09:07:51 am »
This is the real "sports play-off" that's going on here...


Offline larsonstdoc

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Re: 'Fearmongering' Bernanke Warns of Catastrophe if Debt Limit not Raised
« Reply #666 on: February 08, 2011, 09:13:51 am »


  This is such a non-story.  The only thing they can do is print more money.
I'M A DEPLORABLE KNUCKLEHEAD THAT SUPPORTS PRESIDENT TRUMP.  MAY GOD BLESS HIM AND KEEP HIM SAFE.

Offline Geolibertarian

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Re: 'Fearmongering' Bernanke Warns of Catastrophe if Debt Limit not Raised
« Reply #667 on: February 08, 2011, 09:25:44 am »
This is such a non-story.  The only thing they can do is print more money.

Contrary to what the monetary flat-earthers from the Austrian School might have you believe, the banking cartel does not "print" money. Let me repeat that: it does not "print" money!

It loans money (or at least what most people believe to be "money") at interest, and does so without ever creating the money needed to pay that interest.

----------------------------

"Have you ever wondered how everyone -- governments, corporations, small businesses, families -- can all be in debt at the same time and for such astronomical amounts? Have you questioned how there can be that much money out there to lend? Now you know: there isn't. Banks do not lend money; they simply create it from debt....Isn't it astounding that, despite the incredible wealth of resources, innovation and productivity that surrounds us, almost all of us -- from governments to companies to individuals -- are heavily in debt to bankers? If only people would stop and think: 'How can that be? How can it be that the people who actually produce all the real wealth in the world are in debt to those who merely lend out the money that represents the wealth?' Even more amazing is that once we realize that money really is debt, we realize that if there's no debt, there'd be no money. If this is news to you, you are not alone. Most people imagine that if all debts were paid off, the state of the economy would improve. It's certainly true on an individual level. Just as we have more money to spend when our loan payments are finished, we think that if everyone were out of debt, there would be more money to spend in general. But the truth is the exact opposite: there would be no money at all. There it is: we are totally depenedent on continually renewed bank credit for there to be any money in existence. No loans, no money."


----------------------------

Thus, any attempt to fix this mess that does not involve implementing the monetary reform measures called for here will amount to nothing more than rearranging deck chairs on the Titanic.
"Abolish all taxation save that upon land values." -- Henry George

"If our nation can issue a dollar bond, it can issue a dollar bill." -- Thomas Edison

http://schalkenbach.org
http://www.monetary.org
http://forum.prisonplanet.com/index.php?topic=203330.0

Offline larsonstdoc

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Re: 'Fearmongering' Bernanke Warns of Catastrophe if Debt Limit not Raised
« Reply #668 on: February 08, 2011, 09:42:03 am »


  Well call it what you will Geo.  It is the scam of all scams.  I understand where you are coming from.  I am giving the macro point and you are close up giving the micro point. 
I'M A DEPLORABLE KNUCKLEHEAD THAT SUPPORTS PRESIDENT TRUMP.  MAY GOD BLESS HIM AND KEEP HIM SAFE.

Offline Catalina

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Re: 'Fearmongering' Bernanke Warns of Catastrophe if Debt Limit not Raised
« Reply #669 on: February 08, 2011, 10:16:49 am »
If the people would familiarize themselves with the following, perhaps they'd be more careful about what they "wish" for:

       http://forum.prisonplanet.com/index.php?topic=197548.0  
       http://forum.prisonplanet.com/index.php?topic=199144.0

As to the fiscal crisis, if a critical mass of people would simply stop obsessing over mindless distractions and use their collective power to compel the government to (a) stop the wars and (b) stop handing out trillions of dollars in "bailout" money to criminal bankers, that alone would bring this engineered crisis to a screaching hault.

Unfortunately, it appears unlikely they'll do this, since that would mean having to put almost as much effort into political activism as they do into cheerleading their favorite sports teams.

Thus, what will probably happen instead is that they'll sheepishly let Congress cut the social safety net at the very time it's needed most (a typical form of "shock therapy"). And that, of course, is precisely what both the international bankers and their "opponents" from the austerity-promoting Austrian School want to happen.

So once again, the parasitic ruling elite are playing chess while everyone else plays checkers.

Geo your quote:

if a critical mass of people would simply stop obsessing over mindless distractions and use their collective power to compel the government to (a) stop the wars and (b) stop handing out trillions of dollars in "bailout" money to criminal bankers, that alone would bring this engineered crisis to a screaching hault.

Is absolutely right, but there's a problem. America loves war. This is an excellent article addressing this particular issue.

Secret China war plan: trillions in U.S. debt. Yes, Americans love war. Yes, wars cost money. And pile on debt, new taxes. Still, we love war. Why else let the military budget burn 48% of your tax dollars? But why is it “off the table” when the GOP talks “deficit cuts”?

Why? We love war. We’d rather attack with a macho battle cry like “damn the torpedoes, full speed ahead!” than listen to a warning from historian Kevin Phillips: “Most great nations, at the peak of their economic power, become arrogant, wage great world wars at great cost, wasting vast resources, taking on huge debt, ultimately burning themselves out.”

Which dominates our Congressional deficit hawks? Which is China’s military strategy?

Admit it, we love war. Marine Corps posters grabbed me as a kid. Trained me as an aviation weapons system tech. So I couldn’t resist Erik Sofge’s edgy thriller, “China’s Secret War Plan,” about a China-U.S. war. Like a fast-paced Tom Clancy thriller. In Popular Mechanics: One of my favorites as a kid working in a small-town magazine store.

Yes, war’s popular. Locked in our DNA long ago. Sofge’s thriller was based on war games played by Pentagon generals and Rand Corporation strategists.


Americans love war. Can’t resist videogames, war movies: “Hunt for Red October,” “Platoon,” “Dirty Dozen,” “Star Wars,” “Terminator.” War turns us on, a testosterone virus in our brains. Our love blinds us to costs, collateral damage, unintended consequences, new debt for our kids. Besides, they’ll grow up loving war. DNA is passed on. Can’t resist.

That hot button was pushed recently with “secret” photos of China’s new stealth bomber exposed during the state visit of China’s President Hu Jintao. Sofge’s thriller begins:

Aug. 9, 2015, 0400. China’s war for “Taiwan starts in the early morning. There are no naval bombardments or waves of bombers … 1,200 cruise and ballistic missiles rise from heavy vehicles on the Chinese mainland ... Taiwan’s modest missile defense network. a scattered deployment of I-Hawk and Patriot interceptors, slams into dozens of incoming warheads … a futile gesture. The mass raid overwhelms the defenses as hundreds of Chinese warheads blast the island’s military bases and airports.”
Do taxpayers have a choice? Plan for big wars, get bigger deficits?

The GOP wants to cut America’s massive debt. But “off-the-charts” military spending is “off the table.” Back in the ‘40s, WWII consumed 57% of our GDP. Today, war eats up about half America’s budget.

We’re sinking under Iraq war debt. Nobel economist Joseph Stiglitz estimates Iraq at $3 trillion, with $2 trillion for future costs, like VA medical. The Afghan war, maybe another $3 trillion. Plus endless terrorist threats. Future wars are “planned” years, even decades in advance, strategies based on Pentagon-Rand war games.

America talks peace. But deep inside our collective brain is a dark monster: We’re little kids who love playing war. Age 10 I had a collection of model fighter planes, played air wars. Age 15, owned three guns for hunting. Then the Corps. Like a moth to the flames, we cannot resist our destiny in war.
Sofge brings alive the action in our brains:

“Taiwan’s air force is grounded … Taiwanese troops mobilize in downtown Taipei and take up positions on the beaches facing China, just 100 miles to the west. But they know what the world knows: This is no longer Taiwan’s fight. This is a battle between an old superpower and a new one.” Games or reality, it’s all in our heads.

Or is this how WWIII starts? Between an aging America that loves war, won’t surrender without a fight, and the world’s rapidly emerging superpower, predicted to have a population one billion larger than America’s by 2050. Plus an economy 40% of the world’s GDP, dwarfing America’s GDP predicted to fall to just 14%. Yes, China’s the emerging new superpower, a crafty enemy laughing as we waste our economic resources.

Listen as Sofge quotes retired Rear Adm. Eric McVadon, former naval attaché in Beijing: “They are obsessed with Taiwan. On some given day, it’s entirely possible for people to be standing around a table in the Politburo in Beijing, and someone gets the ball rolling. And when it stops, we’re at war.”

Warning: That toxic thinking may well happen again when new neocons, a future Rumsfeld/Cheney team, gets the same paranoid itchings at the same time as China’s generals, all driven by inflated egos, irrational obsessions and a propensity to make the same kind of misjudgments that launched the Iraq War.
Warrior mindset sabotages our economy and superpower status

”Right now the Chinese seem to have taken the lead in this new arms race,” warns Sofge: “When Rand released a report in 2000 describing the potential outcome of a Sino-American conflict over Taiwan, the United States won the war handily. Nine years later, the nonpartisan think tank revised its analysis, accounting for Beijing’s updated air force, its focus on cyber warfare and its ability to use ballistic missiles to take out American satellites. Rand’s new conclusion: The United States would ultimately lose an air war, and an overall conflict would be more difficult and costly than many had imagined.”

Warning, just nine years from 2000 to 2009: The Iraq-Afghan Wars were supposed to make America stronger. Wrong. Those nine years are a perfect example of how war distorted America’s collective brain. Our neocon mindset about the Iraq war resulted in what’s now the “biggest foreign policy blunder” in history. Sofge captures this insanity:

”Ever since 1949, when Nationalist forces retreated to Taiwan following the Communist victory in the Chinese Civil War, Beijing has regarded the island as a renegade province of the People’s Republic. Now, in 2015, only the United States can offer Taiwan protection.” But “the nearest aircraft carrier is the U.S.S. Nimitz, which had just left the Japanese port of Yokosuka on Tokyo Bay … at least two days for the carrier to reach the strait … The closest other carrier group, near Pearl Harbor, is six days out.”

Yes, too late: The war’s over in less than 24 hours. Ironically, the Iraq/Afghan wars have not only weakened our economy and weakened our ability to fight future wars, they weakened America’s superpower status by indirectly handing the war-game victory to China. Worse, our irrational, neocon war brain is now demanding Americans “double down,” insisting defense cuts are “off the table.” Yes folks, America loves war; in that mindset, we will take on trillions new debt, even go down in flames.
Powerful new war strategy: China’s army of “cyber-attack” hackers

Suddenly, Sofge’s thriller exposes China’s fabulous new high-tech strategy: “Until the Nimitz arrives, it’s up to Kadena Air Base in Okinawa, 400 miles northeast of Taiwan, to defend the island. By 0515 hours, Air Force pilots are taking off in 40 F-15E fighters … airborne when Kadena comes under attack.

Error messages begin popping up on computer screens. Modern air defense systems share sensor information but this connection is going to become a liability. An army of hackers operating throughout China swarms the base’s networks, tying up communications with gibberish and cluttering the digital screens of radar operators with phony and conflicting data.”

Future wars: New “army” of hackers, tech geeks, game players, search-engine geniuses. Today Chinese compete with Google, X-Box, Facebook. Later they’re China’s cyber warriors, trained by China’s war-loving generals. The Pentagon knows: They’ll add trillions to our budgets, taxes and deficits, preparing for future wars. Forget cuts.

Hackers score many victories disabling Taiwan: “Early-warning satellites detect the infrared bloom of 25 ballistic missiles launched from the Chinese mainland. Five detonate in orbit, shredding American communication and imaging satellites … partially blinds U.S. forces.” So much for all that money wasted on a satellite defense system.


The pace of Sofge’s thriller accelerates like the final swift dogfight in “Top Gun:” China’s “20 remaining missiles re-enter the atmosphere over Okinawa … Kadena’s Patriot batteries fire missiles … but they are off-network … in disarray. Ten missiles are struck by multiple interceptors … equal number slip through … hit Kadena. … GPS-guided warheads contain bomblets … crater the base’s two runways … air-bursts devastating barracks, radar arrays and hangars … F-15s on the way … F-22 stealth fighters now cannot land on the bases shattered runways … Kadena’s satellites gone, the Nimitz and its flotilla of eight escorts … Aegis-guided missile destroyers … submarines … steaming toward an enemy possessing one of the world’s largest submarine fleets … an arsenal of land-, air- and sea-launched anti-ship missiles.”

Want more? Read Sofge’s “China’s Secret War Plan” thriller in the December 2010 Popular Mechanics. See how America could lose WWIII to China … in less than a day.

But Sofge hedges: “Chances are that a war between China and the United States will not happen in 2015, or at any other time. Under normal circumstances, a war for Taiwan would simply be too costly for either side to wage, especially given the chance of nuclear escalation. But circumstances are not always normal.”

In fact, history tells us wars are never “normal,” always unpredictable. Imagine this new cyber war, with an “army of Chinese hackers” beating America’s high-tech and very high-cost military.

China vs. USA, WWIII. Too costly? That never stops nations. Especially when leaders on both sides have macho egos, love war, act irrational. Add up China’s new stealth bomber, the deterioration of America ego losing those Pentagon war games and a resurgence of neocon war-loving politicians and you have to conclude that taxpayers will keep spending trillions preparing for the next global war, years in advance.

If not with China in 2015, then with some other boogeyman lurking the dark shadows of our collective brains, bad guys that will dominate the thinking of military generals for decades to come, for as the Bush Pentagon put it: “By 2020, warfare will define human life.”

So to be ever-vigilant, we’ll spend trillions, prepare for anything, anyone, anytime. Why? We love war!


http://www.marketwatch.com/story/secret-china-war-plan-trillions-in-us-debt-2011-02-08
Spare no cost for truth's sake, neither depart from it for any gain. -Proverbs 23:23

Bestow not the gifts that God has given you to get worldly riches. -Proverbs 23:4

Offline lovkarpin

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Re: 'Fearmongering' Bernanke Warns of Catastrophe if Debt Limit not Raised
« Reply #670 on: February 08, 2011, 11:49:57 am »
Even if most of the debt the American Government will issue is going to fund those horrible wars being fought around the world, not raising the debt ceiling in the current situation will just bring the most horrible of wars to the streets of America first and then to the rest of the world, when the United States of American defaults and goes bankrupt.

At least with increasing the debt ceiling the Government will someday be able to trade those bonds it issued for a hard currency backed by the Government spent into circulation interest-free and as legal tender, which will balance the books without inflating or contracting the money supply if done within a reasonable time frame (not just dumping all that money into the economy in one day). which is much better than the "shock-therapy" and martial law that will happen once the debt monetization process will stop.



"The Constitution says the Congress shall have the power to borrow money on the credit of the United States. And if you attempt to sabotage that provision, saying -- 'No, the Congress should not have the power to borrow money on credit of the United States, and we're going to enforce that by extra-legal means; we're going to do it through Moody's, Fitch, and Standard & Poor's, through the debt downgrade and the inability of the U.S. to float a bond issue.' -- then you're violating the Constitution. That's already impeachable right there. So impeachment first, and then the rest."

--Webster Tarpley, World Crisis Radio broadcast, 11/06/10, 1st hour

http://forum.prisonplanet.com/index.php?topic=197548.0

Online TahoeBlue

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Re: 'Fearmongering' Bernanke Warns of Catastrophe if Debt Limit not Raised
« Reply #671 on: February 08, 2011, 12:33:00 pm »
The answer to why interest rates are so low....

http://www.cbo.gov/doc.cfm?index=11999

CBO - Federal Debt and Interest Costs December 2010

http://www.cbo.gov/ftpdocs/119xx/doc11999/12-14-FederalDebt.pdf
http://www.cbo.gov/ftpdocs/119xx/doc11999/12-14-FederalDebt_Summary.pdf

Abstract
Recently, the federal government has been recording the largest budget deficits, as a share of gross domestic product (GDP), since the end of World War II. As a result of those deficits, the amount of federal debt held by the public has soared--surpassing $9 trillion at the end of fiscal year 2010 and equal to 62 percent of GDP. The interest the government pays on that debt is currently low by historical standards as a percentage of GDP but is expected to grow rapidly over the next several years as interest rates rise.
...

At the same time, a sharp drop in interest rates has held down the amount of interest that the government pays on that debt. In 2010, net interest outlays totaled $197 billion, or 1.4 percent of GDP--a smaller share of GDP than they accounted for during most of the past decade.

The Congressional Budget Office (CBO) projects that, under current law, debt held by the public will exceed $16 trillion by 2020, reaching nearly 70 percent of GDP.

CBO also projects that interest rates will go up. The combination of rising debt and rising interest rates is projected to cause net interest payments to balloon to nearly $800 billion, or 3.4 percent of GDP, by 2020.

http://www.cbo.gov/ftpdocs/119xx/doc11999/12-14-FederalDebt.pdf
...
At the end of 2010, gross federal debt totaled $13.5 trillion—about $9.0 trillion in debt held by the public and $4.5 trillion in debt held by government accounts.

CBO projects that, under current law, gross federal debt will increase in every year of the 2011–2020 period, reaching $23.1 trillion in 2020 (see Table 2-2).  

That increase stems primarily from the projected growth in debt held by the public, which is projected to exceed $15.2 trillion by the end of that year.

The largest balances among the government (debt) accounts are in the two Social Security trust funds—the Old-Age and Survivors Insurance and Disability Insurance trust funds.

By the end of 2010, those trust funds had accrued close to $2.6 trillion; in CBO’s projections, that combined balance rises to $3.8 trillion by the end of 2020 (see Table 2-3).

 In addition, the retirement funds for federal civilian and military employees held a combined $1.1 trillion in government account securities at the end of 2010; those balances will increase to slightly more than $2 trillion over the next 10 years, CBO projects. By the end of 2020, the total balance of all trust funds will climb to more than $6 trillion, and the total held by all government accounts will reach $7 trillion.
...
Congress placed a limit on the total amount of federal debt that could be outstanding at any given time. Since then, the Congress has passed numerous increases to the debt limit—commonly known as the “debt ceiling”— some of which have been temporary and many of which have been permanent.

What the Debt Limit Covers     ( and What the Debt limit DOES NOT COVER--->>>> )
Debt subject to limit includes virtually all of gross federal debt. It excludes debt issued by other federal agencies that the Treasury does not control and that generally lack the full faith and credit of the U.S. government (such as securities issued by the Tennessee Valley Authority).

It also excludes debt issued by Fannie Mae, Freddie Mac, and the Federal Financing Bank (FFB)—an arm of the Treasury created in 1973 and authorized to issue up to $15 billion of its own debt. (Debt issued by Fannie Mae and Freddie Mac is also not included in other standard
measures of federal debt; see Box 1-1 in Chapter 1).

Options for the Treasury When Debt Approaches the Limit

CBO estimates that the debt ceiling, which was raised to $14.294 trillion in February 2010, will be reached in the next several months. At that point, barring Congressional action to raise the ceiling, the Treasury would have to stop issuing additional debt for a period of time and, instead, use alternative strategies for managing its cash and debt to continue to fund government activities.

Because the government will be running a significant deficit in 2011, such strategies will allow the government to continue operating for only a limited time without further borrowing.

Suspending Sales of Nonmarketable Securities.

One of the first actions the Treasury has often taken when the debt limit was about to be reached has been to suspend the sale of securities in the state and local government  series.5 That action does not immediately clear any room under the debt ceiling and has virtually no impact on the markets for public debt because securities in the state and local government series are not sold or traded in secondary markets. However, suspending sales of those securities removes some uncertainty about the future path of debt because the timing and amounts of issuances to
state and local governments is difficult to predict.
Behold, happy is the man whom God correcteth: therefore despise not thou the chastening of the Almighty: For he maketh sore, and bindeth up: he woundeth, and his hands make whole ; He shall deliver thee in six troubles: yea, in seven there shall no evil touch thee. - Job 5

Offline Geolibertarian

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Re: 'Fearmongering' Bernanke Warns of Catastrophe if Debt Limit not Raised
« Reply #672 on: February 08, 2011, 01:49:19 pm »
Geo your quote:

if a critical mass of people would simply stop obsessing over mindless distractions and use their collective power to compel the government to (a) stop the wars and (b) stop handing out trillions of dollars in "bailout" money to criminal bankers, that alone would bring this engineered crisis to a screaching hault.

Is absolutely right, but there's a problem. America loves war.

No, the military-industrial complex loves war. The majority of American citizens have been opposed to war for years now:

       http://www.pollingreport.com/iraq.htm
       http://www.pollingreport.com/afghan.htm
       http://www.military.com/news/article/poll-majority-oppose-afghanistan-war.html

And that, of course, is why the Karl Roves of the world are always attempting to focus everyone's attention on cultural wedge issues.
"Abolish all taxation save that upon land values." -- Henry George

"If our nation can issue a dollar bond, it can issue a dollar bill." -- Thomas Edison

http://schalkenbach.org
http://www.monetary.org
http://forum.prisonplanet.com/index.php?topic=203330.0

Offline chris jones

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Re: 'Fearmongering' Bernanke Warns of Catastrophe if Debt Limit not Raised
« Reply #673 on: February 08, 2011, 07:18:46 pm »
  The next few generations of Americans will be paying for this abomination, and that's a conservative speculation.
                         Your all on the same channel, just a different contrast.
 Folks like us see this nation going down the perverbial drain, were pizzed off and attempting to wake up the people, to liberate them of their illusion that all is well, it can't happen here syndrome.
 The nation has been raped, we are bankrupt and will remain in debt for generations to come. Our wars have been ongoing for a decade and will continue,afterall perpetual war is on the elites agenda.
 The parasites have created enemys in the extreme, a tactice to insure their takedown of country.
These freaks are international, global, they dont have allegance to any nation, and ours stands in the way therfor it must be eradicated beggining with our constitution and our BOR.
  The MIC, we ll know wars have been and allways will be fought for profits fed by the blood of the common man.  Nothing has changed.
  Did I just go off the map a tad? Bernake has stuffed his fear tactic down the throats of the Republicans, basic terror tactic, "muck with us boys and don't raise the debt limit, the USA is done for".
 I fear for the younger generation, I mean realy FEAR for the kids, I'm gut sick, pizzed, livid,that the people are being snowed by these freaks..
  Parting note.. I am dedicated backer of Ron Paul, as for his son Rand, I am with hope he finds a bit of humility and takes his fathers council.
  

Offline No2NWO

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Bernanke Tells Budget Committee Unemployment Will `Remain Elevated'
« Reply #674 on: February 09, 2011, 05:26:22 pm »
Bernanke Says Unemployment Will `Remain Elevated'

Federal Reserve Chairman Ben S. Bernanke said the unemployment rate is likely to remain high “for some time” even after the biggest two-month drop in the jobless rate since 1958.

Bernanke told the House Budget Committee today that while the declines in the jobless rate in December and January “do provide some grounds for optimism,” he cautioned that “with output growth likely to be moderate for a while and with employers reportedly still reluctant to add to their payrolls, it will be several years before the unemployment rate has returned to a more normal level.”

Bernanke and the Federal Open Market Committee are waiting for further proof of a durable pickup in the job market as they press forward with their plan to buy $600 billion in Treasury securities to boost the pace of recovery. In its Jan. 26 statement, the panel said the recovery “has been insufficient to bring about a significant improvement in labor market conditions.”

The extent to which the recovery is established and inflation is pointing higher or lower will help determine whether the Fed expands or pulls back on the stimulus, Bernanke said in response to questions.

Full story: http://www.bloomberg.com/news/2011-02-09/bernanke-says-unemployment-in-u-s-to-remain-elevated-even-after-decline.html
"BEAT THEM BY NEVER JOINING THEM" ~ No2NWO
Rise and rise again, until lambs become lions.

Offline Valerius

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On Drudge right now. http://www.drudgereport.com/
"No man can put a chain about the ankle of his fellow man without at last finding the other end fastened about his own neck."  -Frederick Douglass

Offline Valerius

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"Foreign Banks Tapped Fed's Lifeline Most as Bernanke Kept Borrowers Secret"

By Bradley Keoun and Craig Torres - Apr 1, 2011

©2011 BLOOMBERG L.P.

http://www.bloomberg.com/news/2011-04-01/foreign-banks-tapped-fed-s-lifeline-most-as-bernanke-kept-borrowers-secret.html
"No man can put a chain about the ankle of his fellow man without at last finding the other end fastened about his own neck."  -Frederick Douglass

Offline Amos

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"Foreign Banks Tapped Fed's Lifeline Most as Bernanke Kept Borrowers Secret"

By Bradley Keoun and Craig Torres - Apr 1, 2011

©2011 BLOOMBERG L.P.

http://www.bloomberg.com/news/2011-04-01/foreign-banks-tapped-fed-s-lifeline-most-as-bernanke-kept-borrowers-secret.html


I read that this morning, if this doesn't wake up the congress then nothing will or now they are legally complicit.

Offline Valerius

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Are there really people that still doubt that John Perkins book?
"No man can put a chain about the ankle of his fellow man without at last finding the other end fastened about his own neck."  -Frederick Douglass

Offline Amos

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Are there really people that still doubt that John Perkins book?


most people don't even know who John Perkins is, let alone believe him; btw it seems Libya got most the cash, now that is doing a deal, so in the end we will never know for sure where the money went, LOL this is so nuts, you couldn't make it up.