Nowadays I have been quite busy so I was glad when I could sit down a bit and surf on the net. I was checking World news to relax and absorb information. Maybe I should try surfing on the water because I wouldn't be so outraged. I read
on the website of New York Times. I also copy simplified version of the article. The only difference is that you can't see our Prime Minister's portrait.
U.S. Debt Gains on Hungary's
Based on the costs of fiscal stimulus and the bank bailout, the federal government’s ratio of debt to gross domestic product is heading much higher. By 2011, it may equal Hungary’s current ratio — which skyrocketed due to profligate spending and remnants of centrally planned waste.
While other factors are important, that suggests the credit quality of currently top-rated Treasury debt may trend down more toward the quality of Hungary’s government debt, which is nearer the bottom of the investment grade pecking order. That’s not a complete disaster, but it means Treasuries won’t really be a safe investment, either.
Assuming deficit projections by the Congressional Budget Office for the 2009 and 2010 fiscal years are right, and adding the cost of the stimulus plan, the bank rescue plan and borrowing costs, public debt would rise from 41 percent of G.D.P. in September 2008 to about 70 percent of G.D.P. three years later. That is roughly in line with Hungary’s December 2008 ratio.
After 2011, America’s debt-to-G.D.P. ratio is expected to decline again. The budget office projects deficits of less than 2 percent of G.D.P. after 2012, and the capital injected into the banking system under the government’s bailout plans should start to produce some returns for taxpayers around that time.
There are considerable downside risks. The budget office’s projections are based on optimistic assumptions: that growth averages 4 percent annually from 2011 through 2014, that the Bush tax cuts and alternative minimum tax relief all expire in December 2010, and that discretionary spending increases only in line with inflation after 2010.
The falling debt projection also assumes that none of the costs under the stimulus plan migrate into annual spending after 2010.
Should the recession deepen, or persist beyond 2010, higher budget deficits could become entrenched. Finally, the projection assumes interest rates in the United States remain low. With Treasury bond maturities now averaging only 48 months, higher interest rates would rapidly feed into higher borrowing costs and budget deficits.
“No European government has done anything as boneheaded as we have,” Ferenc Gyurcsany, Hungary’s prime minister, said of his country’s fiscal policy in May 2006. By 2012, United States policy makers may be echoing his words.
China’s Bargain?
China’s $25 billion oil purchase agreement with Russia trades cash for bargain-priced oil over 20 years. That solves a chunk of China’s long-term supply problem. Russia may be politically unreliable, but the advantages of the deal make it well worth the risk.
In return for $25 billion in loans, China will get a total of about 2.2 billion barrels of oil over 20 years. Including interest at 5 percent, that equates to a price of $17.40 a barrel over the period, a bargain when the longest New York Mercantile Exchange futures contract, for December 2017, sells at $73.22 a barrel.
The contract covers about 8 percent of China’s current oil imports, which are expected to increase sharply in coming years. The Chinese authorities regard long-term oil supplies as a key matter of national security, and are not prepared to rely more than modestly on the international spot market.
Hence in recent years, Chinese oil companies have invested in a number of African countries to line up supplies, and have had lengthy discussions with oil-rich but unreliable Venezuela. Given its energy concerns, a 20-year contact with even the erratically governed Russia could be regarded as only moderately risky.
Russian oil companies may be less likely to default on a deal with China, which takes a strong stance in most international matters, than they would be on an equivalent obligation to the more passive European Union, for example. Russia gets the capital needed to upgrade its oil industry and establishes a long-term relationship with a large and growing customer.
Even the low equivalent price of this contract probably represents a profit considering Russia’s low extraction costs. It also provides guaranteed demand in case of an oil glut.
This looks like a good deal for both sides, but Russia’s cash flow needs and the fall in oil prices seem to have given Chinese negotiators the advantage.
I wrote my opinion about this article but I felt it too strong so I removed it. Anyway I tell you a note to the Hungarian wastes: due to Obama's bailout and the Iraq War costs roughly $16000 per capita. I don't have so much debt. :) I had a feeling that the article writer was sending a message to Obama that he should be careful because the US may end up like Hungary. If it happens I won't feel sorry because 1, this article 2, they caused this crisis.
It is the first post ever I wrote with anger. I am fine by the way.
