Peter Orszag, the all-powerful White House budget director, will be the first senior member of President Barack Obama’s economic team to leave the administration, probably in a few weeks’ time.
His departure, while not unexpected, leaves a significant gap that Mr Obama will surely try to fill as soon as he can given the urgency with which America’s dire fiscal position needs to be tackled.
Despite Mr Orszag’s young age of 41, he is considered one of the most influential budget director in decades, playing a pivotal role in engineering Mr Obama’s two signature pieces of legislation so far: the stimulus bill and healthcare reform.
This will make him tough to replace, and the most likely candidates at this point are
Don Kohn is set to end his tenure as vice-chairman of the Federal Reserve tomorrow, but, at the request of his boss Ben Bernanke, he will be staying on as governor until September 1 at the latest.
The hope within the central bank is that as early as next month the Senate will begin to move towards confirming Mr Kohn’s replacement, Janet Yellen, currently president of the Federal Reserve Bank of San Francisco.
Also on the Senate’s docket are the nominations of Peter Diamond, the Massachusetts Institute of Technology economist, and Sarah Bloom Raskin, the Maryland banking regulator, which would complete the seven-member board of governors.
Their nominations have stalled in Congress mainly for logistical reasons:
Well, they couldn’t go much lower. Yields have risen in the latest auction of 28-day treasuries, as the bid-to-cover fell to 3.7, the lowest since April 6. The flight to safety had pushed the cost of this short-term debt almost to zero at the last auction.
The 2010 emergency Budget has lived up to its historic billing. Huge spending cuts and big tax rises are planned to bring borrowing down from its current rate in excess of 10 per cent of national income.
No allowance has been given to those who worry that such rapid deficit reduction might hit the economy too hard and make it counter-productive. We are back to Lord Snowden’s in 1931, described as an “evangelical Pennine socialist” by Lord Jenkins. I don’t think that description applies to George Osborne; and he must hope his reputation survives better than his 1930s predecessor. Here are four things that have interested me so far.
- The big news. Obviously, real spending cuts of 25 per cent in government departments outside health and overseas aid are big. Very big. This will mean the pain from this Budget will be felt for years and not just tonight. The really interesting thing is that
Canada’s is the third central bank in a week to cite increased downside risks to the economy. “The overall level of risks to Canadian financial stability has increased” in the past six months said the Bank of Canada’s financial stability review.
Live blog on UK Budget now running at Westminster blog.
All coverage available via Budget in-depth.
As a frame of reference, here are my broad brush predictions for the Budget later today. Some things I am pretty sure about, some I am certain about because they’ve been briefed and others are guesses, hopefully educated guesses.
- Fiscal mandate. George Osborne will commit the new government to eliminate the current structural deficit by the end of the Parliament (2014-15). He will also commit to the burden of public sector debt falling year-on-year by the same point.
- Growth. The Office for Budget Responsibility will cut the growth forecasts it released last week for 2011 and 2012 but raise them later in the Parliament, leaving the level of output in 2014-15 very close to that in last week’s announcement. The assumed medium-term Keynesian multiplier will be zero or negative.
- Public finances. Britain’s deficit will be scheduled to fall below 3 per cent of GDP in 2014-15 and will be close in 2013-14.
- Fiscal consolidation. There are
Having strengthened yesterday, the renminbi has opened sharply down against the dollar – indeed by the largest weakening since December 2008.
Market talk suggests Chinese state-owned banks bought dollars to save the central bank from having to intervene. If the currency is seen as a one-way bet, ‘hot money’ will likely flow into China – potentially interrupting monetary policy transmission and causing inflation.