Several German lawmakers hit a nerve last week with their suggestion that Greece sell some of its assets in order to cut its debts. The German newspaper Bild summarized this line of reasoning quite memorably: “We give you cash, you give us Corfu.”

That zinger has prompted a cottage industry of possibly humorous efforts to tote up what Greece should consider selling. For example, the Christian Science Monitor has a slide show of the top ten items it thinks that Greece could sell, including the Parthenon and the Acropolis.

While no one (?) takes these suggestions seriously, they do raise an important point. Spending reductions and revenue increases are important when governments face budget pressures, but they are not the only option. Governments can also sell off assets.

Which raises a natural question. If push comes to shove, what could the United States sell in order to cut its debts?

The United States isn’t Greece, of course, and I am far from suggesting that we actually need to start selling. On the other hand, there’s plenty of rhetoric (some coming from me) that the United States should set a target for its publicly-held debt. If we do adopt one, we should keep in mind that asset sales may be one way that policymakers may try to reach it.

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Many commentators have pointed to Chile’s stringent building codes as a key reason why the death toll from its earthquake (in the hundreds at this writing) has been so much lower than in Haiti (in the hundreds of thousands).

Unfortunately, much of this commentary confuses two separate concepts: building quality and building codes. Building quality clearly played a key role in minimizing death and damage from the earthquake. Indeed, Chilean buildings are well-known for incorporating earthquake resistance techniques such as the strong columns, weak beams system.

That doesn’t imply, however, that building codes deserve credit for the quality of the buildings. Indeed, I can think of three other factors that likely deserve some credit as well:

• Chile’s wealth. In 2009, per capita income in Chile was eleven times higher than in Haiti. Even in the absence of any building codes, the relatively rich Chileans would not be living in buildings as fragile as those in Haiti.

• Chile’s history of earthquakes. In 1960, Chile suffered the largest earthquake on record (9.5), killing several thousand people. Even in the absence of any building codes, memories of that quake would have encouraged Chileans to construct more earthquake-resistant buildings. In Haiti, in contrast, the last major earthquake was in 1842, before the memories of any living Haitians.

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The economy grew briskly last quarter. According to the second estimate by the Bureau of Economic Analysis, gross domestic product increased at a 5.9% annual pace in the fourth quarter of 2009, a bit higher than BEA’s first 5.7% estimate.

As usual, I think the best way to understand this report is to see what sectors contributed the most or least to reported growth:

Almost two-thirds of the growth reflects businesses restocking their shelves and warehouses: inventories accounted for 3.8 percentage points of the overall 5.9% of growth.

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Budget aficionados have long warned that the U.S. budget is on an unsustainable path. That’s old news (but important).

The new news, which I hope you’ve noticed, is that those warnings have become more urgent over the past year or so. Why? Because our future problems have moved much closer.

Over at the Committee for Economic Development, Joe Minarik has a nice chart that illustrates how rapidly the budget outlook deteriorated:

Joe’s chart shows two projections of the U.S. publicly-held debt. The blue line shows the history of the debt (measured relative to the size of the economy), as well as a projection of the future debt based on analyses by the Congressional Budget Office released in late 2007. The red line shows a similar projection, but based on CBO budget analyses released in January of this year.

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As I discussed briefly yesterday, Treasury has announced plans to revitalize its Supplementary Financing Program (SFP), which will effectively mop up $200 billion in excess reserves over the next two months. Even though this is a Treasury action, it strikes me as an important step (with many yet to come) in the Fed’s exit strategy.

The boost in the SFP has created some confusion among observers, however, because of the limited information that Treasury and the Fed have provided about the rationale for the move. Indeed, as one reader pointed out to me, Ben Bernanke makes no mention of the SFP in his prepared testimony today. (Anyone know if he was asked about it in Q&A?)

Over at Econbrowser, Jim Hamilton provides an excellent summary of the SFP and the possible implications of its rebirth. He concluding thoughts:

Still, one is led to wonder whether there might be a connection between today’s announcement about the SFP and last week’s announcement of an increase in the Fed’s discount rate. Numerous Fed officials encouraged us to interpret the latter as a routine and technical management tool. Are the discount hike and SFP renewal separate and purely technical developments, or is something more involved?

If you are interested in these issues, I encourage you to read his entire post.

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As Confucius once said, a journey of a thousand miles begins with a single step. The Fed faces just such a journey today: returning monetary policy to normal as the economy heals. And in case you didn’t notice, the Fed has already taken three steps down the road.

Step 1 was the termination of various special credit facilities (e.g., the Term Auction Facility) that were created to provide liquidity during the crisis.

Step 2 was last week’s sort-of-surprise announcement that the Fed was increasing the discount rate from 0.5% to 0.75%.

Step 3 is today’s announcement that Treasury is reviving the Supplementary Financing Program (SFP). Over the next two months, Treasury will issue $200 billion in bills for the SFP and then place the proceeds in its account at the Fed. The SFP will thus mop up $200 billion of liquidity that Fed asset purchases have injected into the monetary system.

Treasury began the SFP in September 2008 when the Fed needed help sterilizing the monetary impact of the programs it created to provide liquidity to the financial sector. The program peaked at more than $500 billion in late 2008, and then began to decline as sterilization ceased to be a Fed concern and as the federal debt limit began to loom. With the recent increase of the debt limit, Treasury again has room for the SFP, hence today’s announcement.

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Most of official Washington was closed today in the wake of Snowmageddon. But not the Senate Budget Committee, which went ahead as planned with its hearing “Crisis and Aftermath: The Economic Outlook and Risks for the Federal Budget and Debt.“

The three witnesses were Carmen Reinhart of the University of Maryland (famous for her work with Ken Rogoff on the history of financial crises), Simon Johnson of MIT (famous for his blog, The Baseline Scenario), and yours truly.

You can find my written testimony here. You can watch the hearing from a link on the website.

The gist of my message was:

Our nation is on an unsustainable fiscal path. If current policies continue, we will run trillion-dollar deficits in the years ahead—even after the economy recovers—and the public debt will rise faster than our ability to pay it. Persistent deficits and rising debt will undermine American prosperity, threaten beneficial social programs, and weaken our position in the world.

Those threats deserve immediate attention but our economy remains fragile. Payroll employment has fallen by 8.4 million jobs since the start of the recession, and long-term unemployment is at record levels. Recent data have provided some glimmers of hope—strong GDP in the fourth quarter and a decline in the unemployment rate in January—but our economy has a very long way to go.

Policymakers thus face a difficult challenge of balancing concern about current economic conditions with a meaningful response to our looming fiscal crisis. In thinking about that balance, they should keep five points in mind:

1. Don’t expect a rapid recovery. The recession does appear to be behind us, but the economy has much healing ahead of it.

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The most encouraging item in todays jobs report was the sharp drop in underemployment (which includes not only those who are unemployed but also marginally attached workers and those who are part time for economic reasons). The underemployment rate fell to 16.5%, down from its peak of 17.4% last October and from 17.3% in December:

The headline unemployment rate also declined; it now stands at 9.7%, down from its 10.1% peak in October and from 10.0% in December.

These declines are encouraging, but the labor market obviously has a long way to go. Just how far was reinforced by BLS’s updated figures on the number of payroll jobs. Total job losses now stand at 8.4 million since the recession began at the end of 2007.

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At a time of unsustainable deficits, deficit neutrality is a remarkably lame vision for climate policy.

Last year, President Obama proposed to raise $500 billion over ten years through a cap-and-trade system that would limit carbon emissions. This year his climate policy raises nothing.

The president still backs cap-and-trade, but he has caved into congressional pressure to give away or spend all that potential revenue rather than use it to help taxpayers. Cap-and-trade has thus become cap-and-spend.

The new policy is described as follows in a footnote to Table S-2 of the budget:

A comprehensive market-based climate change policy will be deficit neutral because proceeds from emissions allowances will be used to compensate vulnerable families, communities, and businesses during the transition to a clean energy economy. Receipts will also be reserved for investments to reduce greenhouse gas emissions, including support of clean energy technologies, and in adapting to the impacts of climate change, both domestically and in developing countries.

I am sympathetic to the idea that the value of some emission allowances should be used to compensate some families, communities, and businesses as the system ramps up. But studies have repeatedly found that such compensation would require only a fraction of the overall value of the allowances. There should still be plenty of room for allowances that are ear-marked for deficit reduction.

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1. Big deficits. Under the President’s specific proposals, deficits will total $10 trillion from 2010-2020. Oh, and if existing policies (as defined by the administration) run their course, those deficits would actually be $12 trillion. Those are gigantic numbers. Under either scenario, our debt would grow faster than the economy every single year. That’s simply not sustainable.

2. The Fiscal Commission warning label. Budget-watchers know Table S-1 as the place to go for budget totals. In today’s budget, however, Table S-1 had a new feature: a box describing the President’s Fiscal Commission:

The Administration supports the creation of a Fiscal Commission. The Fiscal Commission is charged with identifying policies to improve the fiscal situation in the medium term and to achieve fiscal sustainability over the long run.  Specifically, the Commission is charged with balancing the budget excluding interest payments on the debt by 2015. The result is projected to stabilize the debt-to-GDP ratio at an acceptable level once the economy recovers.  The magnitude and timing of the policy measures necessary to achieve this goal are subject to considerable uncertainty and will depend on the evolution of the economy.  In addition, the Commission will examine policies to meaningfully improve the long-run fiscal outlook, including changes to address the growth of entitlement spending and the gap between the projected revenues and expenditures of the Federal Government.

I think of this as a warning label because it’s trying to warn readers that the official deficit forecasts are too pessimistic if, and some would say this is a big if, the commission has an impact.

I think the commission is a step in the right direction, and I welcome the President’s willingness to set an intermediate fiscal goal, even as I might quibble about some details. In addition, I wish he had gone further and specified a target for reducing the debt-to-GDP ratio by, say, 2020.

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