Last week, Federal Reserve Chairman Ben Bernanke gave his Semiannual Monetary Policy Report to Congress. In it, he explained how high Federal deficits will causes interest rates to spike beyond the Fed's control:

In order to keep the ratio of outstanding government debt to GDP constant, we need to have deficits from 2.5%-3%. (The current projection of) 4-7% is not sustainable, and if that were actually to happen, we would see increasing interest costs and eventually the markets would just entirely lose confidence in our fiscal policy, and interest rates would spike. So it is very important that Congress, even though we are now still in a very deep recession or in a very weak economy, it is important for Congress to try to clarify how we are going to exit from our fiscal position and try to provide a credible blueprint for how our federal deficit will be controlled over the next ten
years, twenty years.

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Congress Needs a Debt Exit Plan originally appeared on About.com US Economy on Wednesday, March 3rd, 2010 at 14:00:40.

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At first glance, the economic growth report for fourth quarter 2009 improved - it was up 5.9% instead of the 5.7% growth rate reported last month. However, and just like last month, this growth was based on businesses stocking up low inventory, which added 4 points.

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Looking Back - Fourth Quarter Didn't Do So Well originally appeared on About.com US Economy on Monday, March 1st, 2010 at 15:48:21.

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The most important leading economic indicator, manufacturers' orders for Durable Goods, is (finally!) up - a surprising 10% from last year. After 22 loooong months, January business orders for things like computers, autos and machinery was higher when comparedyear-over-year. This means business confidence is picking up.

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"We're Out of the Woods!" says Durable Goods Report originally appeared on About.com US Economy on Friday, February 26th, 2010 at 11:54:05.

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The Center for Economic and Policy Research recently released "The Budget Deficit Scare Story and the Great Recession" in which it states that concerns about the $1.3 trillion deficit are just "a well-funded public relations campaign (that) has managed to largely push the economic crisis to the back burner." The Center argues that the surge in the deficit in the last two years is a result of lower tax revenues and necessary stimulus spending, both a result of the recession. The Center also correctly notes that the deficit increase over the next decade is a result of higher defense spending and mandatory Medicare costs. These are both reasons to continue to be concerned about the budget deficit, as I have been warning for the last three years.

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Is Concern Over the Budget Deficit Just a Scare Story? originally appeared on About.com US Economy on Wednesday, February 24th, 2010 at 11:52:37.

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A reader asks:

How does the Federal Reserve's plan to reduce banks' reserve balances affect the global demand for and price of oil, copper, grains, sugar...all of which are limited, in-demand commodities. Global population increases and expansion of the economies of China and India (both with populations of a billion plus) will drive demand and cause inflation. If the Fed raised interest rates high enough to soak up global excess dollars, won't that choke American consumers, too?

Oil and gas prices have little to do with monetary policy or supply and demand. They have a lot to do with what investors/speculators think other investors/speculators will do. Commodities prices will careen wildly up and down as long as there is economic uncertainty, which will be the case for quite a while, maybe years.

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Can the Fed Really Head Off Inflation? originally appeared on About.com US Economy on Tuesday, February 23rd, 2010 at 18:47:38.

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President Barack Obama is determined to lower the costs and create new jobs in health care. Today, Obama launched a new health care reform plan that is mainly modeled after the Senate Health Care Reform Bill. It keeps a state-regulated insurance exchange, and restrictions on federal funding for abortion, but cuts back taxes on the high end health plans. It increases the Medicare payroll tax on upper-income earners and adds Medicare taxes on investment income.

Share Your Opinion - Should Health Care Be Reformed?

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How Obama's 2010 Health Care Reform Plan Affects Economy originally appeared on About.com US Economy on Monday, February 22nd, 2010 at 19:26:07.

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In January 2010, the Consumer Price Index (CPI) was up .2% since last month. Gas prices rose 4.4%%, while the winter heating season drove oil prices up 6.1%. For more, see Current Inflation Rates.

Your Opinion: Which Is the Bigger Concern - Inflation or Recession?

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Grocery Prices Keep Dropping originally appeared on About.com US Economy on Friday, February 19th, 2010 at 13:19:31.

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Japan has replaced China as the largest holder of U.S. Treasuries. The $12 trillion U.S. debt has worried China enough to begin selling off its holdings. As of December 2009, China held $755 billion, which is still 20% of U.S. debt to foreign countries.

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China No Longer America's Biggest Banker originally appeared on About.com US Economy on Tuesday, February 16th, 2010 at 10:50:51.

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People are not letting the recession stop them from sharing the love on Valentine's Day. This year, Valentine's Day will contribute around $14 billion to the economy, according to the National Retail Federation. Instead of spending less, people are looking to get more for their dollar by heading to discount stores (40%) instead of department stores (30%) or florists and other specialty stores (20%). Many are buying more practical gifts. Others are spending less on big-ticket items to loved ones, and more on small gifts to friends, family and even pets.

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Happy Valentine's Day, America! originally appeared on About.com US Economy on Sunday, February 14th, 2010 at 17:39:31.

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Will the Federal Reserve raise the Fed Funds rate in 2010 to prevent inflation? Probably not, since Federal Reserve Chairman Ben Bernanke has already started winding down many of the programs that steered the worlds' largest economy away from collapse. On February 10, he outlined a plan that uses other tools to absorb money the Fed has pumped into banks since August 2007.

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Will the Fed Raise Rates in 2010? originally appeared on About.com US Economy on Thursday, February 11th, 2010 at 10:44:18.

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