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Archive for the ‘United States Debt’ Category

US Credit Again Downgraded

Posted by Steve Markowitz on April 7, 2012

Yesterday, Egan Jones, a respected credit rating agency, downgraded US credit another notch from AA+ to AA.  Last July, the same firm downgraded US credit from AAA to AA+, just before Standard & Poor’s followed suit.

While the mainstream media is yet to give much press to this downgrade, it is significant.  In making the downgrade, Egan Jones said: “Without some structural changes soon, restoring credit quality will become increasingly difficult.”  Egan Jones referred to the United States debt to GDP ratio that now is approximately 100% and predicted to grow to over 112% by 2014.  The concern is that without changing the trajectory of the debt, the bond markets will get spooked significantly increasing America’s cost of borrowing, creating a negative feedback spiral as is currently occurring in some European countries.

Some of the Left will point to the current low yields on Treasuries as an indicator that America does not have a debt problem.  The theory goes that since there are buyers for US Treasuries at such low rates, that there must not be a problem.  That might have some validity if it wasn’t for the fact that over 60% of the Treasuries are currently being purchased by the Federal Reserve.  That certainly sounds like alchemy, if not a Ponzi scheme.

It wasn’t too long ago that countries like Greece and Portugal were able to sell sovereign bonds at very low interest rates..  However, when the markets decided that their debt was excessive, the yields skyrocketed almost overnight.  The United States is not immune from this possibility.


Posted in United States Debt | Tagged: , , , , , , , , , | 2 Comments »

US Debt Exceeds $15 Trillion

Posted by Steve Markowitz on November 16, 2011

One of the more profound sites on the Internet can be found at http://www.usdebtclock.org/.  With only a one-page chart, this website includes the most important statistics of the United States and should be required viewing for all Americans.  A snapshot of that chart taken this evening is included below.

One of the more significant figures in the chart is in the upper left-hand corner that shows the total published US debt now exceeding g $15 trillion.  This is a staggering number, but there are even more significant figures included.

  • The $15 trillion published US debt is nearly the same as the total annual US Gross Domestic Product (GDP).
  • The published US debt equals about $48,000 per US citizen and more than $133,000 per taxpayer.
  • The total US debt is approximately 6.5 times the total annual federal revenues collected.  This means that if the government stopped all spending, including the interest on the debt, and tax revenues remained flat, it would take over six years to pay back the debt.
  • The two largest expenditures for the federal government are Medicare/Medicaid and Social Security.
  • The unfunded liabilities of the US federal government, including Social Security, Medicare and prescription drugs is estimated to be $116 trillion, is approaching eight times the total listed US federal debt and a whopping $1 million per taxpayer.
  • The total federal state and local governments annual spending is about $7 trillion, now over 46% of GDP.

Clearly, America’s financial house is in poor condition.  Should we continue down this unsustainable path it is likely that America will in face similar challenges now threatening the European Union.  There is no free lunch.  That has to be repaid.

Currently playing out in Washington is the drama of the so-called “Super Committee”.  This panel, set up as part of the last budget deal, includes six each Republican and Democrat senators charged with finding $1.2 trillion in spending cuts over the next 10 years.  Congress must agree to the proposed cuts by the Super Committee no later than December 23 of this year or $1.2 trillion in cuts will be imposed across-the-board, significantly affecting defense spending and entitlements.

The Republicans on the Super Committee are fighting against tax increases while Democrats are opposed to spending cuts, especially relating to entitlements.  Both sides are playing to their constituents.  It is likely that the Committee will come to a last-minute compromise that will be more smoke
and mirrors, kicking the can down the road once again.  For example, it is estimated that even with $1.2 trillion in cuts, the total federal deficit will increase by approximately $9 trillion more during the next 10 years.  Further, $1.2 trillion in cuts is but a drop in the bucket when America’s total debt including unfunded liabilities are taken into account.

The size of America’s deficit is staggering.  Even more troubling is the speed at which this deficit has grown in more recent years.  As the chart indicates, America’s deficit remained relatively flat until the early 1970s.  It is not coincidental that the debt acceleration began at about the same time that President Nixon removed American fiscal restraint by cutting direct convertibility of the US dollar to gold.  The increase in America’s debt has accelerated even more during the past two decades as the federal government spending increased unabated.  In addition, both the federal government and Federal Reserve made significant interventions into the economy, first with low interest rates to avoid economic corrections, and more recently with huge bailouts of industries and banks.  The numbers below indicate that through both Republican and Democrat administrations, the government has failed to manage the Peoples’ finances with any prudence.

To begin putting the United States’ financial house back in order will require sacrifice by all Americans.  The country has been on a spending spree promoted by the Baby Boomers and the bill has come due.  Those that indicate America can grow its way out of this debt hole are not being realistic.  Problem resolution will require revenue increases and significant cuts in spending, especially to entitlement programs.

Political realities will make the required actions for problem resolution impossible to implement without strong leadership from the White House.  Such leadership will not come while Barack Obama is president.  Unfortunately, the current Republican candidates running for their Party’s nomination have also shown limited skills in this area.

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Standard & Poors Threatens U.S. Credit Rating

Posted by Steve Markowitz on July 15, 2011

Standard & Poors announced yesterday that it may place United States debt on its Credit Watch list, tantamount to a downgrade.  The reason for the downgrade?  According to CNN it is because of the battle in Washington over the debt ceiling.

It seems bizarre that S&P would be more comfortable with America’s credit viability if Washington would just raise more debt, rather than bring the deficits under control.  Such is the “new norm” under a world build on debt and fiat currencies.

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US Treasury Tapping Pensions to Help Pay Debt

Posted by Steve Markowitz on May 17, 2011

In theory, the U.S. government is about to run out of money and needs to barrow more to keep running at its current spend rate.  However, Washington is using finance gimmicks to keep on spending.  Treasury Secretary Timothy F. Geithner announced that he is taking “special measures” to keep up the spending spree.  The government is tapping federal retirees’ pension funds as a source of funding.  In other words the government is barrowing from its own workers to circumvent the barrowing restrictions places on it by Congress.  Yikes; Enron on steroids!

U.S. government debt will soon hit the $14.3 trillion debt ceiling, the legal limit it can currently borrow.  This ceiling has been little more than a joke since Congress has raised this limit dozens of times, as the chart indicates.

The Obama Administration, Geithner and some in Congress are using scare tactics to get the debt limit raised.  They claim that if Congress does not vote by August 2 to raise it, that all sorts of calamities wall occur including suspension of all government services, as well as defaulting on US debt obligations.  However, these issues can be resolved up front by Congress passing legislation that prioritizes payments, first repaying US debt obligations and maintaining essential services like the military and Social Security payments.  The government’s tax receipts could fund these priorities without additional barrowing.

The reason the Obama Administration and others in Washington want to raise the debt limit is to avoid making the tough decisions required to bring federal spending under control.  At the current revenue and spending rates, the government is required to barrow $125 billion per month, something that is not sustainable.

If Congress is not successful limiting government barrowing (i.e. spending) at this crucial juncture, prior increasing the debt limit, we will lose the ability to control how the unwinding of the America federal debt crisis will unfold.  We will then be at the mercy of the bond markets (free market) who will show no mercy for out of balance finances.

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Washington’s Budget Trickery

Posted by Steve Markowitz on April 9, 2011

This morning we woke up to the wonderful news that our government will not shut down.  We have once again been saved by our politicians.  Headlines included:

Wall Street JournalAfter days of haggling and tense hours of brinksmanship, congressional leaders at the last gasp reached an agreement late Friday to avert a shutdown of the federal government.

New York Times – Deal Said to Be Reached to Avoid Government Shutdown.  Lawmakers reached a last-minute budget deal Friday night, a Democratic source close to the negotiations said, averting a government shutdown shortly before a midnight deadline that would have shuttered federal facilities and forced hundreds of thousands of workers to be furloughed without pay.

CNNHouse Speaker John Boehner says Democratic and Republican negotiators reached a budget deal that will avoid a government shutdown.  Boehner said the House will pass a short-term measure that will keep the government funded through the middle of next week, when a longer-term package is expected to be enacted.

Common in these reports is the statement that the politician’s “avoided” a government shutdown.  This is both laughable and a ruse.  It is laughable because it was the incompetence of the last session of Congress that the 2011 budget was not completed before the New Year, thus causing this “Chinese fire drill”.  Further, these same politicians on both sides of the isle purposely got the public’s attention on the potential government shutdown and a few billion in cuts, thus avoiding discussion on the real problem, the huge deficit that can only be tackled by cutting entitlement programs.

The chart below tells this sad story.  With a 2010 deficit alone being $1.3 trillion, bragging about a $39 billion cuts in spending is a slight of hand.  Imagine what this chart would look like if the $100 trillion of unfunded U.S. government liabilities were added?


Posted in Debt, Deficits, United States Debt | Tagged: , , , , | 1 Comment »

Fed Threatens More Quantitative Easing

Posted by Steve Markowitz on September 29, 2010

Last week Federal Reserve (Fed) Chairman Ben Bernanke and company made some startling comments at the Federal Open Market Committee meeting that included:

Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to remain subdued for some time before rising to levels the Committee considers consistent with its mandate.

The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.”

While economists are trained to speak in a language that few can understand, the meaning of these statements is clear.  The Fed is suggesting the likelihood of a new round of quantitative easing (“QE2”).  QE is when the Fed prints money to create liquidity in the economy and use this new money to purchase US government debt.  They want to increase liquidity in order to create higher levels of inflation.  While a bit more inflation would be a good thing, once started it is difficult to contain and can quickly spiral out of control.

Already the world has expressed concern over the Fed’s statements by running up the value of gold and depreciating the US dollar.  Should this trend accelerate, the consequences would serious and include higher costs for imported goods and increased interest rates as foreigners refuse to buy U.S. Treasury Notes without higher returns.

In addition, the first round of QE was a failure.  The Fed rolled out QE1 in November 2008 and added to it in the months that followed.  QE1 was supposed to help banks loan more to businesses and homes.  Those goals were not achieved.  But that doesn’t stop the Fed from considering QE2.  Like a drunken gambler, they seem to believe that doubling up on a bad bet somehow mitigates risk.

The recession that started with the meltdown of the financial system more than two years ago was a traumatic jolt to the economy, possible without precedent.  While this reality may have justified the radical steps attempted by the Fed initially, the failure of these actions demands a different approach going forward.  Repeating the same failed policies will not result in a different outcome.  Expecting otherwise is the simplest form of insanity.

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Debt Bubble Has Popped-II

Posted by Steve Markowitz on June 14, 2010

On June 8 this Blog posted an article titled “The Debt Bubble Has really Popped” that included Germany’s response Europe’s growing debt problems.  Germany committed itself to serous debt reduction to avoid future economic problems like Greece currently faces.

More recently France, another major European Union (EU) “player”, announced its own steps for debt reduction that included:

  • Cutting public spending by about $54 billion over three years
  • Raising France’s retirement age, an aggressive move in France.
  • Bring France’s governmental deficit down to the EU’s 3% limit.  In other words to play by the EU rules.
  • In addition, Prime Minister François Fillon indicated that France would reduce its public deficit by about $120 billion.

Just as telling as these budget actions is the rhetoric coming from France’s politicians.  Prime Minister François Fillon said: “It would be cowardly of us to tell the French people that their pensions could be maintained without lengthening their working lives and without altering the symbolic retirement age of 60.”  While not a pleasant statement for those who cannot retire when they thought they would, it is refreshingly honest coming from a politician.  Our politicians in Washington are indeed “cowards”, spending as if there were no consequences.

In another moment of honesty, France indicated that it is projecting tax-revenue estimates based on an assumed growth rate 1.4% for this year.  The Obama Administration on the other hand has projected a long-term growth rate of about 3% in coming up with the already massive projected deficits.  Should actual growth rates be lower, as they likely will be, the deficits will be even larger than the $1 trillion plus estimated by the Obama Administration.

Remarkably, the Nanny States of Europe are leading the way in addressing the generational stealing that comes with unsustainable government deficits.  President Obama, who has on occasion expressed admiration for European countries’ policies, would do well to follow the Germans and French on addressing the deficits.  Unfortunately the programs Obama has put in place since taking office add substantially to these deficits and preclude him from making an honest assessment to the American people about the debt problem.

It is ironic that the Europeans join the Tea Party as the drivers for deficit reduction.  It will take a major statement by the electorate in the upcoming November elections to begin repairing the decades of damage done to the United States by the Progressives and their massive entitlement spending.

The winds of change are indeed coming!

Posted in Debt, Deficits, Entitlements, France, United States Debt | Tagged: , , , , , , , , , , , , | Leave a Comment »

It’s the National Debt, Stupid

Posted by Steve Markowitz on October 16, 2009

During the 1992 presidential campaign, Bill Clinton famously said: “It’s the economy, stupid“.  Well, today it’s a bit more complicated than that.  While the economy is a challenge, it is the national debt that is the most pressing problem for us as a country.

Since the 2008 presidential election, the issues raised by the politicians in Washington include the Stimulus Package, the war in Afghanistan, Guantanamo prison, the CIA’s interrogation techniques and healthcare reform.  While important, these issues ignore the 80-pound gorilla in the room, maybe purposely; our ever-increasing national debt.  This problem will dictate America’s economic future and our national security.

For decades, with the exception of a few years during the Clinton Administration, our government has been using credit like a drunken sailor thereby raising the national debt to an astronomic level.  While some have argued for years that this is not a serious problem, they are no longer credible.  Let’s look at the numbers. Read the rest of this entry »

Posted in Debt, Deficits, United States Debt | Tagged: , , , , , , , , , , , , , , , , , , | 3 Comments »