Future Of US Budget-Alternative Forecast

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Presentation for the World Future Society in July 2009 by Kay E. Strong, Ph.D. University of Houston / futures program.

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Future Of US Budget-Alternative Forecast

  1. 1. Alternative Future for US Budget kay e. strong 3 december 2008 federal budget 101
  2. 2. Commencement 2028 Winnie Lui, grand-daughter of former Chinese Premier Wen Jiabao, stood proudly with 56,408 of her peers during the spring commencement on Saturday, May 10. This year’s commencement was, indeed, unique with 88% of the graduating class being Chinese nationals, the last of the cohort 2008 Study Aboarders. A story that began in 2008 ...
  3. 3. <ul><li>NBER dated the peak of the business cycle as Dec 2007 </li></ul><ul><li>downturn dogged the economy + 50 months </li></ul><ul><li>GDP growth hovered at an anemic 1.6% for the next 4 years </li></ul><ul><li>Lost wealth in the financial markets kept retirees in the labor market </li></ul><ul><li>Impending shortage of labor of 2015, ½ the graduates found jobs </li></ul><ul><li>Weak price pressure kept capacity utilization below 65 % </li></ul>2008 …. fast forward to 2018
  4. 4. <ul><li>Federal Budget Status: “Persistent Deficit” </li></ul><ul><li>Permanent tax cuts (2001-2011) </li></ul><ul><li>+ “security-related” expenditures </li></ul><ul><li>= cost -7.2 trillion cumulative budget deficits </li></ul><ul><li>By 2014 Reconstruction Cost doubled 2008’s $121,000 per Iraqi </li></ul>Government Financials (2008)
  5. 5. <ul><li>Sluggish economy  Tax Revenue drop </li></ul><ul><li>Debt financing exceeded 100% of GDP </li></ul><ul><li>Explosion in Retirement Costs compromises economic growth  “Investment in the Future” </li></ul><ul><ul><li>“ Youth-based” health </li></ul></ul><ul><ul><li>Education & Training </li></ul></ul><ul><ul><li>R & D </li></ul></ul><ul><ul><li>Infrastructure </li></ul></ul>2008 …. fast forward to 2018
  6. 6. Public Alarm Sounds “ The USA requires about $ 3 billion in foreign capital every working day to finance the huge gap between its consumption of foreign goods and its exports. … People don't realize this, but our economy is on life support from foreign lenders and investors.“ Clyde Prestowitz , President of the Economic Strategy Institute
  7. 7. Public Alarm Sounds “ The US ultimately must choose between painful deficit-shrinking measures or selling foreigners more and more US assets .” Barry Eichengreen of the University of California-Berkeley
  8. 8. Beaten-up dollar unsettles investor in US & abroad “ In the long run, though, the sliding dollar could dry up the world's appetite for the USA's oceans of debt . Were that to happen, some warn, we could see surging interest rates, a sinking economy and, perhaps, an end to the dollar's reign as the world's premier currency.”
  9. 9. <ul><li>Round Two: Stagflation bout </li></ul><ul><li>Foreigners lost appetite for US Government Debt Instruments </li></ul><ul><li> the value dollar fell in currency markets </li></ul><ul><li> interest rates rose in financial markets </li></ul><ul><li> stifled economic growth (planned investment) </li></ul><ul><li>Expansionary Fiscal Policy response constrained by cumulative excess External Debt financing of persistent budget deficits </li></ul><ul><li>RESULT : Rise in unemployment levels unchecked </li></ul>2018 Narrowly Adverting….Meltdown !
  10. 10. <ul><li>Expansionary Monetary Policy response failure to Contraction </li></ul><ul><li>Domestic Banks precipitated “ Credit Crunch ”  siphoned domestic liquidity off  re-invested in safe-haven foreign “oil” market funds </li></ul><ul><li>Foreign Central Banks  quietly diversified away from dollar-denominated assets  rebalanced foreign reserve holdings to avoid loss of value </li></ul><ul><li>The FED exhausted IR assets (holdings of foreign reserve assets & gold) trying to prop up the value of the fallen dollar </li></ul><ul><li>Currency Swap Arrangements with foreign Central Banks rejected over “solvency” concerns </li></ul><ul><li>RESULT : Inflationary pressure unchecked </li></ul>
  11. 11. <ul><li>Moody’s and Standard & Poor downgraded long-term obligation ratings of US Treasury Securities to Speculative grade “Ba” </li></ul><ul><li>… .. a.k.a. High Yield or Junk status </li></ul><ul><li>Market REACTION : Investors scrambled for “safe haven” alternatives </li></ul>2018 Narrowly Adverting….Meltdown !
  12. 12. <ul><li>International Markets demanded Securitization of US Debt or “fire sale” of physical national assets! </li></ul><ul><li>Coface won a sealed bid contract for “Securitization” of US debt securities </li></ul><ul><li>Anonymous Bidder demanded debt securities backing by “ reputable US assets ,” specifically, cultural heritage sites such as Yellowstone National Park & numerous highly regarded university properties in the mix </li></ul>2018 Narrowly Adverting….Meltdown !
  13. 13. <ul><li>A new age of Chinese prosperity and innovations in arts, science & technology </li></ul><ul><li>Trade involvement open to the West and South </li></ul><ul><li>Nationals settle abroad overseeing Chinese government investments </li></ul><ul><li>US is No exception: </li></ul><ul><ul><li>Chinese knowledge workers hold 50% of public offices </li></ul></ul><ul><ul><li>Hold the reins in the finance markets </li></ul></ul><ul><ul><li>Direct public works projects to rebuild America’s crumbled infrastructure and … </li></ul></ul>US partners with neo-Tang Dynasty 2028
  14. 14. <ul><li>give “new” meaning to </li></ul>
  15. 15. Alternative Future for US Budget Thanks for playing!

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