Government debt

There Is No Way Out

It is nearly impossible for the average person to comprehend the damage the US government has done to the economy. Regulations have harmed business (and consumers). The welfare state is sapping the energy from the productive sector. Growth is below par and will continue to under-perform in terms of historic norms. The standard of living has slowed and will soon turn negative. Per capita income and wealth are stagnant or down. Unemployment is grossly and deliberately understated. It is difficult for the layman to grasp what has happened or that the future will get worse.

Easier to understand is the debt burden imposed on citizens. The numbers themselves are not comprehensible. Few understand what a billion dollars is. Even fewer have any understanding of what a trillion is. Nevertheless, the rate of deterioration is apparent as these debt numbers accelerate. Regardless of how much you understand, there is one thing that can be stated unequivocally: There is no way out of the debt problem other than massive defaults.

No economic theories or policies are able to avoid this ending. The rules of mathematics now control outcomes.

There is one possible solution which would require immediate and drastic cuts in government spending. Simpson-Bowles $4 Trillion target over a ten-year period is meaningless. It doesn’t alter the spending curve. Cutbacks of a trillion or two every single year, starting today, are required. The budget must be balanced and surpluses generated to have any hope of avoiding sovereign bankruptcy.

No politician is able or willing to address this problem. Attempting to solve the problem would be political suicide for the politician or party that tried. Civil unrest would break out everywhere. Hence we get lip-service or BS solutions which are meaningless. They only extend the game a bit longer while ultimately producing more pain.

To understand the magnitude of the debt, this list from Economic Collapse is useful. Read it to understand the hopelessness of the situation:

#1 It took more than 200 years for the U.S. national debt to reach 1 trillion dollars.  In 1986, the U.S. national debt reached 2 trillion dollars.  In 1992, the U.S. national debt reached 4 trillion dollars.  In 2005, the U.S. national debt doubled again and reached 8 trillion dollars.  Now the U.S. national debt is about to cross the 16 trillion dollar mark.  How long can this kind of exponential growth go on?

#2 If the average interest rate on U.S. government debt rises to just 7 percent, the U.S. government will find itself spending more than a trillion dollars per year just on interest on the national debt.

#3 If right this momentRead More »There Is No Way Out

The Tragedy of Ben Bernanke

Sometimes a seminal event passes unnoticed.  Subsequent developments and hindsight eventually place it in proper perspective. Just such an event may have happened or be in the process of playing out regarding Ben Bernanke, Chairman of the Federal Reserve.

Ben Bernanke’s Warning

Mr. Bernanke expressed the following regarding the precariousness of our economic and financial situation (my emboldening):

By definition, the unsustainable trajectories of deficits and debt that the CBO outlines cannot actually happen, because creditors would never be willing to lend to a government with debt, relative to national income, that is rising without limit. One way or the other, fiscal adjustments sufficient to stabilize the federal budget must occur at some point. The question is whether these adjustments will take place through a careful and deliberative process that weighs priorities and gives people adequate time to adjust to changes in government programs or tax policies, or whether the needed fiscal adjustments will come as a rapid and painful response to a looming or actual fiscal crisis.

This statement could have been issued by innumerable internet pundits. Warnings like these are commonplace from so-called internet whack-jobs. But this one came from Ben Bernanke in recent remarks to Congress. Gentle Ben is not one to exaggerate (unless it is toward the positive). His track record for forecasting has consistently erred on the side of optimism, whether it was the housing crisis, the spread of financial contagion or the condition of the economy.

Something’s Changed

These comments differ so sharply from Bernanke’s past pronouncements that one must wonder whatRead More »The Tragedy of Ben Bernanke

A Year Ago — Spiraling to Bankruptcy

A year ago (November 28), a very popular article was published under the title of “Spiraling to Bankruptcy.”

The article understates the financial obligations of the Federal government only one year later. Some estimates range as high as $200 Trillion. The real number is somewhere between $100 and $200 Trillion. No matter, the mathematics were impossible a year ago and are now worse. If the US government was dead a year ago, it is now deader than dead.

Spiraling to Bankruptcy

If the Government confiscated everything, the social programs would still be $50 trillion short and the Government would still be bankrupt. Furthermore, no company or individual would be left with anything.

The economy is in bad shape. Some say it is worse than any time since the Great Depression. I believe it is actually worseRead More »A Year Ago — Spiraling to Bankruptcy

U.S. Government’s Road to Perdition

Washington Capitol, DC
Image by Francisco Diez via Flickr

James Quinn has posted another very informative piece.

It is especially useful for those who don’t comprehend the degrees of financial chicanery and deceit to which our politicians have resorted . The article will also enable you to understand the mathematical impossibility of the Federal Government honoring its social promises and debt obligations. There will be major defaults!

Understanding the criminal irresponsibility of our politicians might also provide you with your own Howard Beale moment:

[youtube]http://www.youtube.com/watch?v=QMBZDwf9dok&feature=related[/youtube]

The article is highly recommended. While I would propose a somewhat different solution to altering the situation (not tar, feathers and rope, although they are deserved), Quinn’s proposal would be a vast improvement over what we currently have. READ THE ENTIRE ARTICLE

Christmas is a time when kids tell Santa what they want and adults pay for it. Deficits are when adults tell the government what they want – and their kids pay for it.

Richard Lamm

Decade after decade, Americans have voted for intellectually and morally bankrupt dullards that promise them more goodies under the tree. Every day is Christmas in Washington DC. Long-term means the next election cycle to these traitors of the Republic. I have written ad nauseum about the impending financial cataclysm that awaits our nation. I have spent countless hours documenting the unsustainable path of our politicians’ financial decisions and lack of courage in addressing the forthcoming tragedy that grows closer by the day. Our political system is so corrupt and dysfunctional that there is absolutely no chance that our path will be altered at the voting booth. Government programs are fashioned, but never finished. The IRS tax code consists of 3.4 million words covering 7,500 pages of payoffs to business lobbyists. Simplicity is a virtue. The politicians who are bought and sold by corporate interests prefer complexity and obscuring the truth. Everyone knows that the government cannot fulfill the fiscal promises they have already made. Instead of dealing with this reality using intelligence, courage and conviction, the weak kneed politicians that slither the halls of Congress have chosen to add a brand new bloated entitlement program guaranteed to detonate in our faces. This is the existing reality. There is nothing I can do that will change this reality. Instead, I will propose a new model.

Road to Perdition Scenario

‘Government help’ to business is just as disastrous as government persecution… the only way a government can be of service to national prosperity is by keeping its hands off.
Ayn Rand

Politicians do not care about budgets, inflation, or the value of the U.S. dollar. They care about power, personal enrichment and being re-elected. In fiscal 2000, the US government had $1.545 trillion of receipts and $1.458 trillion of expenses, resulting in a surplus of $87 billion that year. A mindless government bureaucrat doesn’t conclude that the surge in receipts was due to the internet bubble resulting in billions of one time capital gains revenues. They should have expected reduced revenues in future years. Nine years later government receipts were $1.51 trillion, while expenditures had reached $3.5 trillion. Total government outlays never go down. Obama’s FY10 budget projects $1.649 trillion of receipts and $3.042 trillion of expenditures, resulting in a deficit of $1.393 trillion. Deficits in the range of $1 trillion per year are projected for the next 10 years. Instead of addressing this budget gap that will absolutely lead to economic disintegration, politicians add new entitlements, expand our interventionist foreign wars, and dole out pork to their corporate backers.

Year On-Budget
Receipts Outlays Surplus or Deficit(−)
2000 $1,544,873 $1,458,451 $86,422
2001 $1,483,907 $1,516,352 -$32,445
2002 $1,338,074 $1,655,491 -$317,417
2003 $1,258,690 $1,797,108 -$538,418
2004 $1,345,534 $1,913,495 -$567,961
2005 $1,576,383 $2,069,994 -$493,611
2006 $1,798,872 $2,233,366 -$434,494
2007 $1,933,150 $2,275,303 -$342,153
2008 $1,866,280 $2,508,130 -$641,850
2009 estimate $1,501,784 $3,479,621 -$1,977,837
2010 estimate $1,649,422 $3,041,947 -$1,392,525

In the early 1980s, before the three decade long debt induced frat party, the National Debt was between $900 billion and $1.6 trillion. Today, the National Debt is $12.3 trillion, up 1,250% in three decades. Read More »U.S. Government’s Road to Perdition

Economic Summit Insult to the Intelligence of Citizens or Revelation of Obama’s IQ

obama-economic-planobama-hat-magicAny Econ 101 student would flunk the course if he showed the aptitude of this Administration regarding basic economics. It is likely most Americans have never taken an economics course, yet would be able to discern why recent economic policies, either proposed or already implemented, destroy jobs. Simple common sense or a modicum of “street smarts” is all that is required.

The President’s jobs summit to address the soaring unemployment issue was embarrassing. Apparently Obama is unable to pass Econ 101 and needed outside advice. Why we have Tim Geithner and Larry Summers and a host of other “experts” that could not educate the man is beyond comprehension. Is he so unbelievably ignorant? Perhaps it is his incredible arrogance that leads him to believe his silver-tongued teleprompter will enable him to “talk-over” his failed policies. Regardless, this “summit” was either an insult to the intelligence of the American public or a revelation of Obama’s intelligence.

The other possible hypothesis is that the President is so ideologically opposed to markets that he believes that all direction must come from Washington, more specifically him. If so, his knowledge of history is as bad as his knowledge of economics. This hypothesis takes us beyond the possibility of ignorance into the realm of stupidity.

The accompanying chart from Heritage indicates the gap between the Administration’s plan versus actual on the jobs front. It is not encouraging.

obamanomicschart1The Heritage article that follows came via email and should be required reading for every politician in Washington. Even if they are incapable or unwilling to understand, they should remember the Hippocratic oath: “Do no harm.” The article concludes with a similar caution: “If the President is truly concerned about jobs, both he and the Congress should abandon their reckless policies and instead consider alternatives like Cantor’s. Unfortunately, as Foster points out, ‘the best we can hope from government is that it keeps to a minimum the jobs it prevents and the income and wealth it destroys.'”

December 4, 2009 | By Amanda Reinecker

Taxes kill jobs. They don’t create them.

Yesterday, the White House hosted a “Forum on Jobs and Economic Growth” to address the soaring unemployment rate and to discuss new ways and policies to promote job growth. This is not the first time President Obama has attempted to address the nation’s job crisis, and there are real doubts whether he’ll be more successful this time around.

When President Obama took office in January, the unemployment rate was 7.6 percent. He quickly called for action and in March he signed into law a $787 billion “stimulus” package that would allegedly create 3.3 million net jobs and “save” millions more.

“Since then,” Heritage’s Conn Carroll writes, “3.4 million more net jobs have been lost, pushing the unemployment rate above 10 percent.”

Read More »Economic Summit Insult to the Intelligence of Citizens or Revelation of Obama’s IQ

Stansberry: Bankruptcy of the US is Now Certain

uncle-sam-brokeThis article concludes, as did my recent post Spiraling to Bankruptcy. that the bankruptcy of the United States is now inevitable. Porter Stansberry approaches the topic from a different angle, using cash flows and borrowing capacity, to support his conclusion.

Stansberry  has a great sense of urgency believing “the odds are very high you’ll be wiped out over the next 12 months.” Whether he is correct in this prediction, only time will tell. Timing is impossible to predict with any degree of reasonableness. Bankruptcy could happen this week or not for many years.

The bankruptcy of the United States is now certain

Tuesday, November 24, 2009
From Porter Stansberry in the S&A Digest:

It’s one of those numbers that’s so unbelievable you have to actually think about it for a while… Within the next 12 months, the U.S. Treasury will have to refinance $2 trillion in short-term debt. And that’s not counting any additional deficit spending, which is estimated to be around $1.5 trillion. Put the two numbers together. Then ask yourself, how in the world can the Treasury borrow $3.5 trillion in only one year? That’s an amount equal to nearly 30% of our entire GDP. And we’re the world’s biggest economy. Where will the money come from?

How did we end up with so much short-term debt? Like most entities that have far too much debt – whether subprime borrowers, GM, Fannie, or GE – the U.S. Treasury has tried to minimize its interest burden by borrowing for short durations and then “rolling over” the loans when they come due. As they say on Wall Street, “a rolling debt collects no moss.” What they mean is, as long as you can extend the debt, you have no problem. Unfortunately, that leads folks to take on ever greater amounts of debt… at ever shorter durations… at ever lower interest rates. Sooner or later, the creditors wake up and ask themselves: What are the chances I will ever actually be repaid? And that’s when the trouble starts. Interest rates go up dramatically. Funding costs soar. The party is over. Bankruptcy is next.

Read More »Stansberry: Bankruptcy of the US is Now Certain