Open

Coming up

Don't miss

Replay


LATEST SHOWS

MEDIAWATCH

Apparent beheading of Steven Sotloff sees more calls for #IsisMediaBlackout

Read more

AFRICA NEWS

Lesotho Coup: Exiled Prime Minister vows to return home after fleeing

Read more

DEBATE

Child Migrants In America: What to do about the wave of unaccompanied minors? (Part Two)

Read more

DEBATE

Child Migrants In America: What to do about the wave of unaccompanied minors?

Read more

THE INTERVIEW

Abbas Araghchi, Iranian deputy foreign minister

Read more

THE OBSERVERS

More of this year's best Observers stories

Read more

FOCUS

When water becomes a weapon of war

Read more

ENCORE!

Eve Ensler: 'In The Body Of The World'

Read more

THE INTERVIEW

Ed Husain, Author of 'The Islamist'

Read more

  • IS video purports to show beheading of second US journalist

    Read more

  • Could France sell the Mona Lisa to pay off its debts?

    Read more

  • Video: Bodies ‘left behind’ as Ukraine forces flee rebel assault

    Read more

  • Trust and 'bio-disaster units' needed to fight Ebola

    Read more

  • France vows crackdown on unemployment benefit ‘abusers’

    Read more

  • Julie Gayet wins privacy case against French glossy Closer

    Read more

  • Germany blocks popular car pick-up service Uber

    Read more

  • Several UN peacekeepers killed in Mali explosion

    Read more

  • NATO plans new 'spearhead' force to counter Russia

    Read more

  • French clubs left behind as others spend big

    Read more

  • Britain drops arrest warrant for ill boy’s parents

    Read more

  • When water becomes a weapon of war

    Read more

  • Arab media strike back at IS Islamists – with cartoons

    Read more

  • US military targets Somalia's al Shabaab Islamist group

    Read more

  • Eve Ensler: 'In The Body Of The World'

    Read more

  • Boko Haram Islamists seize northeast Nigerian town

    Read more

  • Is Carla Bruni against a political comeback for Sarkozy?

    Read more

  • Monaco’s Falcao leaves Ligue 1 for Man Utd

    Read more

Americas

Congress warned of further gloom for US economy

Text by News Wires

Latest update : 2010-08-19

Congress's budget agency has painted a grim picture of the US economy's fledgling recovery, warning of persistently high rates of unemployment and a ballooning budget deficit.

REUTERS - The U.S. economy faces even more difficult times ahead with chronic unemployment and slow manufacturing hurting the recovery, the head of Congress' budget agency said on Thursday.

The warning from the non-partisan Congressional Budget Office came on top of more bad economic data that heightened concerns about a return to recession and sent markets roiling. It could also spell trouble for Democrats facing November elections.

The CBO forecast the U.S. budget deficit will hit $1.342 trillion this year, down slightly from its March projection of $1.368 trillion.

It attributed most of the $27 billion change in its fiscal 2010 deficit projection to an estimated $50 billion reduction in the cost of TARP, the U.S. government's bailout of financial institutions in 2009.

But the figures show that without significant changes in U.S. tax and spending laws, the government will struggle to dig its way out of a deep fiscal deficit hole.

Congressional Budget Office Director Douglas Elmendorf painted a picture of a tough recovery from recession, although the CBO predicted a 3 percent economic growth rate this year.

"The considerable number of vacant houses and underused factories and offices will be a continuing drag on residential construction and business investment, and slow income growth as well as lost wealth will restrain consumer spending," he said.

The unemployment rate will not fall to around 5 percent until 2014, Elmendorf said. The last time the jobless rate was 5 percent was April 2008, just as the economy was heading into recession and unemployment was on the rise.

Bad for democrats

Anxiety over the economy is likely to punish President Barack Obama's Democrats at November's midterm elections because of perceptions of big deficits caused by government spending and high unemployment.

Republican Senator Judd Gregg warned of fiscal calamity.

"Today's CBO outlook only underscores what we already know -- the current pace of U.S. spending is unaffordable and unsustainable and without a change in direction this country is headed for fiscal calamity," said Gregg, the senior Republican on the Senate Budget Committee.

As if to illustrate the severity of the economic challenge ahead, the CBO forecast was released as new data dealt another blow to the fragile U.S. economy, driving prices on U.S. government debt higher and yields lower.

The benchmark 10-year Treasury note yield fell to a 17-month low of 2.56 percent this week.

Concerns about the massive deficit, and the U.S. triple-A credit rating, are not expected to lift Treasury debt yields from current low levels any time soon.

"We think bond yields are going lower, mostly on revised growth expectations -- all the shops are revising down their forecasts for inflation and growth," said Sergey Bondarchuk, U.S. interest rate strategist with BNP Paribas in New York.

Chronic unemployment

The budget and economic outlook are designed to give lawmakers the most up-to-date nonpartisan assessment of U.S. economic health and provide the latest projections on deficits that began in 2002 under former President George W. Bush and then skyrocketed in 2009 during recession and stimulus spending under Obama.

The CBO's deficit numbers are slightly lower than recent White House predictions for the fiscal gap, but the two use different measurements.

Members of Congress will rely on the CBO numbers as they decide how to tackle the yawning budget gap.

The CBO projected a 9.5 percent jobless rate for this year, falling only slightly to 9 percent in 2011 and averaging 6.7 percent in 2012-2014, significantly shy of the 4 percent target economists would consider a full employment level.

Last month, the White House said unemployment will decline slowly, to 8.1 percent in 2012, when the U.S. presidential election will be held.

Democrats blame Bush for the budget deficit and say Republicans are blocking efforts in Congress to fight unemployment and help small business.

"Republicans bear much of the responsibility for wiping out the surpluses they inherited in 2001 and creating these deficits," said Thomas Kahn, Democratic staff director of the House of Representatives' Budget Committee.

"And what's their solution now? Almost $4 trillion dollars in new tax cuts largely benefiting the most privileged. That would just dig the deficit hole even deeper," Kahn added, referring to Republican tax cut plans.

An independent, bipartisan commission is studying possible fixes to the budget and economic dilemma but is not due to report to Obama until December.

CBO also forecast a $1.066 trillion deficit for fiscal year 2011, which begins on Oct. 1, up slightly from the March estimate of $996 billion.

The U.S. budget deficit last year was a record $1.413 trillion, 9.9 percent of gross domestic product.
 

Date created : 2010-08-19

  • USA

    Fed chief warns US economy facing 'unusually uncertain time'

    Read more

COMMENT(S)