Daily Archives: July 1, 2010

A Fiscally Responsible Budget

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Guest Post by Congressman Bob Goodlatte

This week House Majority Leader Steny Hoyer announced that, in fact, the House Democrats will not produce a federal budget resolution for fiscal year 2011. This marks the first time since the passage of the Budget Act of 1974 that the House of Representatives has failed to pass an initial budget, setting the spending priorities for the following fiscal year. What does this mean for American taxpayers? Since it is the budget at the beginning of the year that sets the limits for federal spending, Americans can expect to see even more out-of-control spending coming from Washington.

As Congress continues to spend at a near-record pace, the federal government has amassed $935 billion in deficit spending (amount that government spending exceeds the revenues coming in) in the first months of the current fiscal year with the annual deficit approaching last year’s record $1.4 trillion. These figures are staggering but with no budget resolution to force Congress to make the tough but necessary choices the spending spree will continue.

In stark contrast to the Democrats’ out-of-control government spending, I am pleased to support a fiscally responsible budget resolution which reflects Washington’s need to make tough decisions about spending priorities, cut wasteful programs, and respect taxpayers’ wallets. This alternative budget resolution, which was offered by members of the Republican Study Committee (RSC), balances the federal budget and achieves a surplus by 2019. The RSC budget proposes $6.4 trillion less debt than President Obama’s budget.

This alternative budget targets wasteful spending by requiring each committee to find savings equal to one percent of total mandatory spending under its jurisdiction. Additionally, the RSC budget resolution repeals the failed Troubled Asset Relief Program (TARP) which was the program designed to bailout financial institutions. By repealing the program it would save American taxpayers $36 billion. The RSC budget repeals the expensive government takeover of our health care system which recently became law and replaces it with important measures to reduce health care costs like medical liability reform and the freedom to purchase healthcare across state lines. It includes additional measures aimed at cutting unnecessary spending such as ending the taxpayer funding of presidential campaigns, reforming food stamp spending and selling a small percentage of federal assets.

As elected officials and stewards of the taxpayer’s money, we have a responsibility to put together a sustainable budget and stick to it without increasing the tax burden. I have consistently supported measures to rein in the federal budget and curb spending by voting for the tightest budgets and spending bills possible. Again this year I am a strong supporter of the RSC budget resolution which will set us on the path to balancing our federal budget and restoring fiscal responsibility to Washington.

To contact me about this or any other matter, please visit my website at http://www.goodlatte.house.gov.

Dollar should be replaced as international standard

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From CNN:

Reacting to worldwide currency instability, a report released by the United Nations Department of Economic and Social Affairs argues, that “the dollar is an unreliable international currency and should be replaced by a more stable system.”

The use of the dollar for international trade came under increasing scrutiny when the U.S. economy fell into recession. “The dollar has proved not to be a stable store of value, which is a requisite for a stable reserve currency,” the report said.

Many countries, in Asia in particular, have been building up massive dollar reserves. As a result, those countries’ currencies have become undervalued, decreasing their ability to import goods from abroad.

Since 2008, the value of the U.S. dollar has arguably been propped up by its continued status as the world reserve currency. As a replacement standard, The World Economic and Social Survey 2010 supports the International Monetary Fund’s proposal fora standardized international system for liquidity transfer. This would mark a reinvigorated return of Special Drawer’s Rights or SDRs:

The SDR was created by the IMF in 1969 to support the Bretton Woods fixed exchange rate system. A country participating in this system needed official reserves—government or central bank holdings of gold and widely accepted foreign currencies—that could be used to purchase the domestic currency in foreign exchange markets, as required to maintain its exchange rate. But the international supply of two key reserve assets—gold and the U.S. dollar—proved inadequate for supporting the expansion of world trade and financial development that was taking place. Therefore, the international community decided to create a new international reserve asset under the auspices of the IMF.

However, only a few years later, the Bretton Woods system collapsed and the major currencies shifted to a floating exchange rate regime. In addition, the growth in international capital markets facilitated borrowing by creditworthy governments. Both of these developments lessened the need for SDRs.

The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. Holders of SDRs can obtain these currencies in exchange for their SDRs in two ways: first, through the arrangement of voluntary exchanges between members; and second, by the IMF designating members with strong external positions to purchase SDRs from members with weak external positions. In addition to its role as a supplementary reserve asset, the SDR, serves as the unit of account of the IMF and some other international organizations.

This revisits a controversy from March 2009 when People’s Bank of China Gov. Zhou Xiaochuan called for a new international reserve currency to replace the dollar:

Zhou suggested that the International Monetary Fund’s Special Drawing Right (SDR) should be given a greater role. Read more on the Chinese currency proposal.

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Speaking at the Council on Foreign Relations in New York, Geithner said that Zhou was “a sensible man” and that “everything he said deserves consideration.”

The dollar fell sharply on confusion about Geithner’s comments regarding SDRs. The Treasury secretary subsequently clarified his comments [Editor's Note: In March 2009, Geithner said that the dollar remains the main global reserve currency and that he doesn't see a change in that status in the foreseeable future].

Meg Browne of Browne Brothers Harriman said that the market had “blown [Geithner's remarks] way out of proportion.”

“[President] Obama has said that there’s no need for another reserve currency,” Browne said. “To use the SDR as a new reserve currency is really a stretch.”

Fast forward to July 2010 and the world economic crisis continues and threatens to intensify. With many predicting the crash of the Euro, how can there be any credibility in an aggregate currency when the price of all world currencies is continuously falling . This is especially evident as gold regularly pushes its all-time high. Lastly, will the aggregated value of the SDRs be nothing more than a cover-up of the impending blowup of the $600 trillion derivative bubble?