About three months after President Barack Obama announced his budget plan and a week after Congress passed a blueprint, more details for the necessary cuts are being released.
The White House announced Thursday the $17 billion in cuts that the new administration hopes to make in 121 programs.
It sounds like real money -- and it is real money -- but it's still just an ice chip off the $3.5 trillion budget that the Democrat-controlled 111th Congress approved last month. That is expected to lead to a bigger-than-ever federal deficit of $1.5 trillion in fiscal year 2010. Obama's proposed cuts would come to less than 0.5 percent of the budget and would only reduce the federal deficit by less than 1.7 percent.
As The Washington Post pointed out Thursday, Obama's new proposed cuts are not as ambitious by half as the Bush White House's attempt to cut $34 billion out of 151 programs.
Like Bush's program, Obama's cuts are likely to face opposition from Congress where "delete from budget" is the true third rail. Indeed, Obama is going to try to push through some of the same cuts that Bush wanted.
One example is the $400 million State Criminal Alien Assistance Program that gives money to states to help them pay for the costs of keeping illegal immigrants who commit crimes in jail. Much of that money goes to New York, California and Florida, three of the four most populous states in the union that all voted for Obama on Nov. 4. But eliminating that program won't be popular in any of them.
About half of the $17 billion comes from defense programs, which Secretary of Defense Robert Gates has already announced. Full department-by-department details of the budget apparently will come next week.
Also Thursday, the stress tests of the 19 largest U.S. banks, the results of which have been trickling out all week, are being fully released. Some banks -- Goldman Sachs and JPMorgan Chase among them -- did well. Others -- including Bank of America and Citigroup -- didn't.
Bank of America Corp. was deemed to need $34 billion in additional capital -- twice as much as Obama's total proposed budget cuts so far. Wells Fargo & Co., the stress assessors concluded, needs $15 billion; Citigroup Inc. needs $5 billion, and GMAC, the financing operation of General Motors, $11.5 billion. However, none of these banks seem to be insolvent.
When these details emerged Wednesday, financial markets celebrated big time. Major indexes in the United States soared to four-month highs.
Foreign bourses followed suit Thursday. Japan's Nikkei, which was closed the first half of the week, was up 4 percent. This suggested that investors had feared the results would be far worse and were relieved that they weren't.
It also suggested that the strategy of Obama and his Treasury Secretary Timothy Geithner to enforce much more transparency as well as regulation on investment houses to prevent the kind of abuses that led to last September's financial meltdown is being well received and that it is starting to restore trust in U.S. banks and investment houses.
However, the very real optimism being expressed by the markets still needs to be tempered with caution. Federal Reserve Board Chairman Ben Bernanke soberly warned this week that while the contraction of the U.S. economy has slowed a little, it certainly has not stopped. Some 630,000 jobs were lost in April. That is a bit better than the more than 650,000 jobs that were lost the previous five months in a row. But it is still a catastrophic contraction by any normal standard.
And on Thursday, General Motors announced a loss of $6 billion in the first quarter of 2009. The company said its sales collapsed by $20 billion. The company has already received $15.4 billion in federal bailout loans, and it has to complete a radical restructuring plan by June 1 or follow Chrysler into bankruptcy protection. However, analysts said that even if that happened, GMAC might not have to go the same way.
Obama's new proposed federal spending cuts are a necessary start, but both the White House and the Congress will need to steel themselves to cut a lot deeper and more courageously to ensure the financial stability of the U.S. government and the long-term value of the dollar and to stave off the specter of hyperinflation. After Thursday's announcements, skeptics will still be asking: Where's the beef?