Getting those budget blues

By Dorothy Ramienski
Internet Editor
FederalNewsRadio

The government has been taking a very proactive role in the economic turmoil in recent weeks.

The White House announced on Friday it will work with Congress on a plan to have the government would buy distressed mortgages from banks at deep discounts.

This move comes on top of government intervention concerning Fannie Mae, Freddie Mac and insurance giant A.I.G.

So, with all this in mind, will the financial turmoil impact your agency’s budget?

On Friday’s Daily Debrief, hosts Christopher Dorobek and Amy Morris spoke with Bob Bixby, Executive Director of The Concord Coalition, who says the current deficit is “absurd”.

We’re looking at about a $500 billion to begin with and, who knows, this [government action] could double that size, which would be, frankly, off the charts as a percentage of our economy. . . . It’s really going to dominate the agenda next year.

Bixby says the government was between a rock and a hard place, though maybe some action should have been taken years ago.

When I think about it, I think about it as Henry Paulson falling on a grenade. I think the idea here is that . . . it’s better for the government to take the hit and absorb the loss . . . rather than take the risk that it would have even further consequences for the general economy if the government didn’t act. So, there’s no good option here. It’s just going to cost the federal government an awful lot of money.

Since the federal government is footing the bill, federal agencies might feel the effects, as well.

I think, with the deficit being this size, everything is going to be squeezed and particularly tight, so I wouldn’t look for any big increases in the agencies. Another way to look at it is, it could be that the deficit is so big that some of the amounts that are talked about in the agency budgets won’t seem so big, so that’s, I suppose, looking at it from the side of — there are some expansions that could possibly happen.

Many who are involved with the federal government’s finances agree that there is a large chunk of the budget that can’t be controlled — it’s money that simply must be spent.

When the government borrows, it pays interest and the interests costs are going to grow along with the deficit and will probably take up more of the budget. So, it’s just going to be a very bad environment for looking for any extra money. Taxpayers are certainly not going to want to have to hear about higher government spending if they’re hearing about all of these hundreds of billions of dollars that are trying to bail out these firms.

Bixby also notes that a precedent has been set, though he’s remiss to guess exactly what this means for the future of government in the long-term.

I would think that the government would want to try to acquire these assets and then get out of it as soon as they can, but that’s not going to be easy, because who would want to take them off the government’s hands? The whole point of the government acquiring this stuff is to get it out of the private markets and let the private markets begin to function normally again. It really raises a lot of questions about the types of business the government is going to be in.

Bixby thinks these recent acquisitions — real estate and insurance — will be run by the Treasury Department and not the Federal Reserve, but he also says that decision hasn’t really been made yet.

The bottom line is, there are a lot of questions that must be answered quickly.

I think that the next administration is really going to have to make this work. While Paulson is working with Congress to put this in place, they’re really writing the agenda for the next president.

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