Obama To Take Swipe at Deficit

The story du jour is Obama's intention to decrease the federal deficit by half, or to $533 billion, by the end of his first term, a plan that will be officially outlined when he presents a budget Thursday to Congress for the 2010 fiscal year. Most of the savings will be come from troop withdrawals in Iraq and increasing taxes on Americans pulling in more than a $250,000 per year income. Withdrawing troops will save about $90 billion a year, but, as the New York Times notes, "it is not clear how much any savings would be offset by increased spending in Afghanistan, where Mr. Obama has ordered an additional 17,000 troops, bringing the total there to 56,000."

Obama inherited $1.3 trillion deficit when he took office last month, which equals 9.2 percent of gross domestic product, Bloomberg says. The administration's budget proposal cuts the deficit to 3 percent of GDP by 2013, at the end of Obama's first term.

Another sizable source of income could come from taxing the investment income of hedge-fund and private-equity partners at ordinary income tax rates rather than at the capital-gains rate, which is at most 15 percent, says the Times. Income tax rates are as high as 35 percent and could return to 39.6 percent under Obama's plans. The president's complete, multi-hundred-page document will be released in April.

CNNMoney has its eye on Capital Hill, too, but highlights Obama's order to Treasury yesterday to cut taxes for 95 percent of Americans as part of the $787 stimulus bill, "fulfilling a campaign pledge he hopes will help jolt the economy out of recession." He said in his weekly address: "I'm pleased to announce that this morning the Treasury Department began directing employers to reduce the amount of taxes withheld from paychecks, meaning that by April 1, a typical family will begin taking home at least $65 more every month."

The news arrived none to soon, according to the WP. "[Obama's] announcement came a day after one of his top economic advisers, former Federal Reserve Chairman Paul Volcker, said the global economy may be deteriorating even faster than during the Great Depression of the 1930s," it writes.

Meanwhile, the NYT offers a glimpse at life in Japan, which, it says, shows how "thrift can take lasting hold of a consumer society, to disastrous effect." Years after Japan has pulled itself out of a decadelong recession, "even well-off Japanese households use old bath water to do laundry, a popular way to save on utility bills. Sales of whiskey, the favorite drink among moneyed Tokyoites in the booming '80s, have fallen to a fifth of their peak. And the nation is losing interest in cars; sales have fallen by half since 1990."

Bloomberg, also looking eastward, reports that Japan, China, and South Korea, along with 10 other Southeast Asian nations, will be following through on a plan to form a $120 billion pool of foreign-exchange reserves to be tapped by countries to defend their currencies. The amount is $40 billion more than what was proposed in May and will be an expansion of the current arrangement, called the Chiang Mai Initiative, which allows only bilateral currency swaps. In a separate Bloomberg report, Secretary of State Hillary Clinton urged China yesterday to continue buying Treasury bonds to help finance President Barack Obama's stimulus plan.

Back at home, CNNMoney is reporting that regulators will soon launch a series of stress tests to help determine which U.S. banks need more assistance in the event of a deeper recession, according to an unnamed source. What that means, exactly, the article fails to say: "Little is known about the form of the stress tests, but the person described them as 'consistent, forward looking and conservative.' " Hmm.

Initial plans for tests were announced two weeks ago as part of Treasury Secretary Timothy Geithner's bank-stabilization plan. However, the source yesterday "for the first time linked the tests to additional government support for large banks. This person did not specify what form any extra capital cushion may take." Banks are expected to receive additional information from regulators this week.

However, the country's largest bank by assets is saying it doesn't need any more help. Responding to fears on Friday that the government may nationalize some banks, effectively "wiping out" shareholders, Kenneth Lewis, Bank of America's CEO, sent a memo to employees yesterday that said he "aimed to 'prove cynics and critics wrong' by spurning attempts at nationalization." The memo, obtained by Bloomberg, came as the bank's stock price plummeted as much as 36 percent. Perhaps all Lewis needs is a good stress test—whatever that is.