House Republicans Chopping Fiscal 2011 Budget

As part of their election pledge to chopp off $100b of government spending, House Republicans on February 19, 2011 approved a measure, by 235-189 votes (oppossing votes have been cast by all 186 Democrats and three Republican members), aimed at cutting the spending for the remainder of Fiscal 2011 by $61b. Most of the 87 freshman Republicans, helped elected by the Tea Party movement, wanted to cut more, but Republican leaders in concert with the Democratic lawmakers scuttled a measure championed by the conservative Republican Study Committee to ax government by an additional $22 billion. The four-day of gruelling debate was centered around the scope and scale of governance, ideological posturings and possible impact of the extreme measures inserted in some of more than 400 amendments submitted. Initially the Republican leadership was intent on a modest cut of $35 billion, but the move was torpedoed by the rebellious freshmen Republicans few weeks ago. Now the battle line (as blogged by Prabir based on reports as of February 20, 2011) is drawn as the current funding of government will expire March 4, 2011.

Obama's 2012 Budget Blueprint

President Barack Obama on February 14, 2011 sent Congress a $3.73 trillion budget proposal for the Fiscal 2012 that would freeze spending for five years. The budget projects a record deficit of $1.65 trillion for Fiscal 2011, surpassing the existing record of $1.41 trillion for Fiscal 2009, that would represent 10.8 percent of total economy, highest since 1945 when heavy borrowing to fight World War II helped fuel the deficit to 21.5 percent of the economy. Obama's budget also projects the national debt, currently at the level of $14 trillion, to hit $16.7 trillion by Sept 30, 2012. Other salient features of Obama's 2012 Fiscal blueprint includes: * Projected Deficit for Fiscal 2012: $1.1 trillion * Projected Reduction of Deficits over the next decade: $1.1 trillion

European Financial Crisis

There is a concerted effort by the 27-member European Union to come up with a comprehensive plan for identifying symptoms of and preventing a future financial crisis that had crippled Europe's economy and required massive bailout for Greece and Ireland. The plan is to be submitted at the bloc's summit during March 24-25, 2011. One of the main features of the evolving plan is to strengthen the $599.94 billion European Financial Stability Facility and create an alternative mechanism to replace EFSF in June 2013.

Obama Administration's Prescriptions on Government Involvement in Housing

Obama administration issued a report on February 11, 2011 that would sharply reduce the access to affordable mortgages and nudge to shring Fannie Mae and Freddie Mac that currently guarantees nine out of every ten mortgages. The report laid out three distinct options:

Option I: Would eliminate government guarantee for middle-income mortgages

Option II: Would offer guarantees to investors mostly in the time of distress

Option III: Would offer guarantees to a broad range of mortgages but with a caveat: lenders need to buy a guaratee from private insurers.

The report, prepared by the Department of Treasury and Department of Housing and Urban Development, aimed to preserve the access of low-income families to affordable mortgages. The report also asked for debate and discussion on mortgage interest deduction clause of tax code as it might divert investment from other sectors of the economy. Both agencies got flak from conservatives as federal government had to bail them out with the infusion of $135 billion in taxpayers money in the aftermath of 2008 housing crisis.

Record Budget Defecit Projected for Fiscal 2011

According to Congressional Budget Office, the budget deficit may reach as high as $1.5 trillion for this fiscal year (Oct 1, 2010-Sep 30, 2011). The CBO report issued January 26, 2011 revealed an ominous state of economic affairs that called for immediate attention from policymakers as well as lawmakers for seriousness of fiscal condition requiring federal government to borrow 40 cents for every dollar it spends. The record budget defecit projected for this fiscal year is due to variety of factors ranging from last December's (December 2010) Bush-era tax cut extention to anemic affairs of economy coming out of the worst recession since the Great Depression. The estimate came in the backdrop of another potential fiscal wreck as the country's debt cap of $14.3 trillion is close to be hit. The latest CBO estimate also said that Social Security Trust fund would pay more that it receive this year and would completely exhausted by 2037.

Financial Crisis Inquiry Commission Report

The ten-member Financial Crisis Inquiry Commission created by President Barack Obama to investigate into the cause of 2008 financial meltdown and recommend measures to prevent it in future came up short on formulating a unified response. Six Democratic members issued a majority report, 576-page The Financial Crisis Inquiry Report, that blames lack of regulatory oversight and Wall Street irresponsibility for the meltdown. The report was issued on January 25, 2011, and the report was available at bookstores by January 27. On January 26, three Republican members issued a dissenting report that criticized broad economic forces--instead of Wall Street irresponsibility and lack of regulatory oversight as pinpointed by the main report--such as glut in Asian savings that had fueled in easy mortgage-backed securities as primary culprit. A second dissent focused on government policy on loose standard of homeownership as the causing factor.