Breaking News, World News and Taiwan News.

Updated Monday, January 18, 2010 10:18 am TWN, By Caroline Baum, Bloomberg

Sponsors
▪	Find great real time deals on China Flights. Book flights to China or China domestic flights 24/7.
▪	Buy china wholesale products from reliable chinese wholesalers on DHgate.com!
▪	Save 75% for all hotels in Shanghai, Beijing and whole China. Lowest rates for Flights in China.
▪	Get the best deals for Guangzhou Hotels or choose from more than 10,000 hotels in 499 Chinese cities.

Obama, Bernanke need miracles

The White House Office of Management and Budget expects a US$1.5 trillion deficit this year, even before health-care reform becomes reality. Expanded coverage won't be fully phased in until 2014, while the proposed taxes to pay for it start right away. The effect will be further deterioration in the long-term budget outlook.

Obama has pledged to go through the budget with a fine- tooth comb, an exercise that will turn up more knots than solutions. That's because there isn't much of a discretionary budget to cut.

Non-defense discretionary spending accounts for only one- sixth of the federal budget, according to Veronique de Rugy, senior research fellow at the Mercatus Center at George Mason University in Arlington, Virginia.

Congress will want to increase appropriations for homeland security, which falls largely outside the defense budget, following the Christmas underwear-bomber incident, according to de Rugy. It would be smarter, and probably cheaper, to outsource homeland security to the Israelis and El Al.

The rest of the budget is on automatic pilot: interest on the public debt and entitlement spending on programs such as Medicare and Social Security. Last year, the Treasury paid US$383 billion of the US$7.55 trillion of publicly held debt. Borrowing at interest rates close to zero kept the cost down. In 2008, interest on the public debt totaled US$451 billion.

When P (price) starts to rise along with Q (quantity), the result isn't going to be pretty. When the public debt consistently grows faster than the economy, game over.

Congressional Elections

The 2010 midterm election will be the most visible, and certainly the most definitive, referendum on Democrats' one- party rule.

Not that Republicans did any better. Divided government is looking better by the day.

Only 38 percent of the public is in favor of the Democrats' health-care plan, according to an average of nine opinion polls by Realclearpolitics.com. If the folks in the survey are anything like me, their disapproval started with Obama's cram- down effort, telling Congress he wanted a bill on his desk by the August recess.

From that point on, what was in the bill mattered less than the urgency of restructuring 16 percent of the United States (U.S.) economy. We were asked to believe that the House and Senate plans would miraculously expand care and cut costs.

It'll be a year of miracles if challenges facing the Fed and the administration can be solved that easily.

Caroline Baum, author of “Just What I Said,” is a Bloomberg News columnist. The opinions expressed are her own.

1|2