The “deficit gamble”

It’s Time to Start Worrying About the National Debt - Expecting economic growth to rescue the U.S. from unprecedented federal deficits is a dangerous gamble, as history shows.

$20 trillion in debt: Fighting wars, big tax cuts and economic stimulus packages have all added to the debt burden

Here’s how the U.S. got to $20 trillion in debt

Excerpt:

The U.S. is approaching $20 trillion in national debt — the nation is a cool $19.85 trillion in the red as of Friday — and when it crosses that mark, get ready for some finger pointing over who’s to blame. If history shows anything, it’s that both parties share responsibility for boosting the debt. Fighting wars, big tax cuts and economic stimulus packages have all added to the burden over the years.

Comment: Article is worthwhile. Virtually no one seems to care or be concerned about this.

The National Debt - The Real National Security Threat

The Real National Security Threat: America’s Debt

Excerpt (Note: The date of this article is May 2012):

Drones, kill lists, computer viruses and administration leaks are all the rage in the current political debate. They indeed merit serious scrutiny at a time when the rules of war, and technologies available for war, are changing fast.

That said, these issues are not the foreign policy centerpiece of the 2012 presidential race. Economic renewal and fiscal reform have become the preeminent issues, not only for domestic and economic policy but for foreign policy as well.

As the former chairman of the Joint Chiefs of Staff, Adm. Michael G. Mullen, was fond of saying, national debt has become perhaps our top national security threat.

And neither major presidential candidate is doing enough about it. This issue needs to be framed as crucial not just for our future prosperity but for international stability as well. The United States has been running trillion-dollar deficits, resulting in a huge explosion in the country’s indebtedness.

Publicly held debt now equals 70% of gross domestic product, a threshold many economists consider significant and highly worrisome. Making matters worse, half of our current deficit financing is being provided by foreigners. We are getting by with low interest rates and tolerable levels of domestic investment only because they find U.S. debt attractive, which may not last.

According to the nonpartisan Committee for a Responsible Federal Budget, President Obama’s long-term budget plan would allow publicly held debt as a fraction of GDP to rise further, up to 75%, within a decade. Mitt Romney’s proposal, featuring tax cuts and defense spending increases and as-yet-unspecified (and thus less than fully credible) entitlement reform, appears worse. It would probably drive publicly held debt to 95% of GDP over the same period.

Put differently, though both are serious and pragmatic men, neither major party’s presidential candidate is adequately stepping up to the plate, with Romney’s plan the more troubling of the two.

Why is this situation so serious? First, we are headed for a level of debt that within a decade could require us to spend the first trillion dollars of every year’s federal budget servicing that debt. Much less money will be left for other things. That is a prescription for a vicious cycle of underfinancing for our infrastructure, national education efforts, science research and all the other functions of government that are crucial to long-term economic growth. Robust defense spending will be unsustainable too. Once we get in this rut, getting out will be very hard.

National security experts sound alarm on long-term debt

Excerpt:

A bipartisan group of prominent national security figures on Tuesday [May 2016] will call on U.S. leaders to reduce the country's long-term debt, which they consider the greatest threat to the nation's security. "As individuals who have served the nation in both international and domestic leadership roles, we continue to believe that our long-term debt is the single greatest threat to our national security," the group said in a statement, first obtained by The Hill.

The group warns that federal debt is projected to climb to 131 percent of the nation's GDP over the next 25 years. "This debt burden would slow economic growth, reduce income levels, and harm our national security posture,” the statement says. “It would inevitably constrain funding for a strong military and effective diplomacy, and draw resources away from the investments that are essential for our economic strength and leading role among nations.”

The group, Coalition for Fiscal and National Security, is chaired by retired Navy Adm. Mike Mullen, former chairman of the Joint Chiefs of Staff, and includes former Secretaries of State Madeleine Albright and Henry Kissinger, former Defense Secretaries Robert Gates and Leon Panetta, and former National Security Advisers Zbigniew Brzezinski and Brent Scowcroft.

“The health of the country, the prosperity we care about, and the security we care about are just inextricably linked ... and we keep looking away hoping it will get better, and it gets worse,” said Mullen in an interview with The Hill ahead of the statement's release. “It's about the debt levels, and the inability to pay our own bills, and if we don’t get our fiscal house in order, it’s going to dramatically affect our security of our country,” he said.

The story behind Obama and the national debt, in 7 charts

Excerpt:

Since President Obama took office, the national debt has increased by $7.4 trillion. On January 20, 2009, it stood at $10.6 trillion; on Monday, it was at $18 trillion. That bit of data leapt to the front page of The Drudge Report on Tuesday, linking to an assessment from CNS News.com. The increase, the site's Terence Jeffrey writes, "is $65,443 per household, $70,985 per full-time worker and $84,266 per full-time private-sector worker." Grim.

Comments: Top image = www.usdebtclock.org / 2nd image   The Peterson Foundation is the main group raising awareness of this peril

The National Debt, Visualized https://t.co/aoSiOXQGL6 via @WSJGraphics

— 𝓙𝓲𝓶 𝓟𝓮𝓮𝓽 (@jrpeet) August 5, 2019

Debt Clock hits Inauspicious Milestone

Total US Debt Rises Over $18 Trillion; Up 70% Under Barack Obama

Excerpt:

Last week, total US debt was a meager $17,963,753,617,957.26. Two days later, as updated today, on Black Friday, total outstanding US public debt just hit a new historic level which probably would be better associated with a red color: as of the last work day of November, total US public debt just surpassed $18 trillion for the first time, or $18,005,549,328,561.45 to be precise, of which debt held by the public rose to $12,922,681,725,432.94, an increase of $32 billion in one day. .... And now we wait for the US to become Spain

Comment: Why infants and toddlers cry!

Dirty Harry for President

Eastwood: If DC Doesn't 'Give a Damn,' How Can We?
Excerpt:

Hollywood legend and Republican supporter Clint Eastwood told CNBC that Washington gridlock is sending the nation racing towards another contentious debt deadline. "It's almost like they don't give a damn," he said, in a "Squawk Box" interview that aired Friday. The Oscar-winning director who's also known for his tough-guy roles asked rhetorically, "If they don't give a damn, why did they expect anybody else to?"

Comment: Clint on old-age:

"One thing about getting into the senior status of life, like I am, you don't really care," he joked. "You just say what you say and then you get away with it."

Comment: I'm not even an octogenarian and I feel this way!

Some Dirty Harry quotes:

Get out of the way, Hammerhead.

Who owns our debt?

$14 Trillion in Debt, But Who Owns All That Money?

Comment: Graphics with the article. Worthwhile read to understand the issue

16 Tons of Debt

Comment: Sent to me from our Sr Citizens Pastor. I remember this song from my childhood: Sixteen Tons by Tennessee Ernie Ford

We are a nation of entitlement and debt addicts

Obstacle to Deficit Cutting: A Nation on Entitlements

Excerpt:

Efforts to tame America's ballooning budget deficit could soon confront a daunting reality: Nearly half of all Americans live in a household in which someone receives government benefits, more than at any time in history.

At the same time, the fraction of American households not paying federal income taxes has also grown—to an estimated 45% in 2010, from 39% five years ago, according to the Tax Policy Center, a nonpartisan research organization.

A little more than half don't earn enough to be taxed; the rest take so many credits and deductions they don't owe anything. Most still get hit with Medicare and Social Security payroll taxes, but 13% of all U.S. households pay neither federal income nor payroll taxes.

"We have a very large share of the American population that is getting checks from the government," says Keith Hennessey, an economic adviser to President George W. Bush and now a fellow at the conservative Hoover Institution, "and an increasingly smaller portion of the population that's paying for it."

The dimensions of the budget hole were underscored Monday, when the Treasury reported that the government ran a $1.26 trillion deficit for the first 11 months of the fiscal year, on pace to be the second-biggest on record.

Yet even as Americans express concern over the deficit in opinion polls, many oppose benefit cuts, particularly with the economy on an uneven footing. A Wall Street Journal/NBC News poll conducted late last month found 61% of voters were "enthusiastic" or "comfortable" with congressional candidates who support cutting federal spending in general. But 56% expressed the same enthusiasm for candidates who voted to extend unemployment benefits.

'Hi. My Name Is America, and I'm a Deficit Addict.'

Excerpt:

The U.S. doesn't have a system that can fund the government the country wants. The Tax Foundation says the levies paid by the top 1% of taxpayers now exceed those paid by all of those in the bottom 95%. And the Tax Policy Institute says almost half of all filers will pay no 2009 income taxes at all, because of various exclusions and credits—up, by some estimates, from a quarter in 1990.

Comment: A giant disconnect: get the government out of our lives, but keep giving us benefits

“Debt super cycle”

U.S.’s $13 Trillion Debt Poised to Overtake GDP

Excerpt:

President Barack Obama is poised to increase the U.S. debt to a level that exceeds the value of the nation’s annual economic output, a step toward what Bill Gross called a “debt super cycle.”

The CHART OF THE DAY tracks U.S. gross domestic product and the government’s total debt, which rose past $13 trillion for the first time this month. The amount owed will surpass GDP in 2012, based on forecasts by the International Monetary Fund.

Comment: www.usdebtclock.org

In the above image I boxed the 2 elements.

Fiscal "Pearl Harbor" coming?

A Greek crisis is coming to America

Excerpt:

It began in Athens. It is spreading to Lisbon and Madrid. But it would be a grave mistake to assume that the sovereign debt crisis that is unfolding will remain confined to the weaker eurozone economies. For this is more than just a Mediterranean problem with a farmyard acronym. It is a fiscal crisis of the western world. Its ramifications are far more profound than most investors currently appreciate.

There is of course a distinctive feature to the eurozone crisis. Because of the way the European Monetary Union was designed, there is in fact no mechanism for a bail-out of the Greek government by the European Union, other member states or the European Central Bank (articles 123 and 125 of the Lisbon treaty). True, Article 122 may be invoked by the European Council to assist a member state that is “seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control”, but at this point nobody wants to pretend that Greece’s yawning deficit was an act of God. Nor is there a way for Greece to devalue its currency, as it would have done in the pre-EMU days of the drachma. There is not even a mechanism for Greece to leave the eurozone.

That leaves just three possibilities: one of the most excruciating fiscal squeezes in modern European history – reducing the deficit from 13 per cent to 3 per cent of gross domestic product within just three years; outright default on all or part of the Greek government’s debt; or (most likely, as signalled by German officials on Wednesday) some kind of bail-out led by Berlin. Because none of these options is very appealing, and because any decision about Greece will have implications for Portugal, Spain and possibly others, it may take much horse-trading before one can be reached.

Yet the idiosyncrasies of the eurozone should not distract us from the general nature of the fiscal crisis that is now afflicting most western economies. Call it the fractal geometry of debt: the problem is essentially the same from Iceland to Ireland to Britain to the US. It just comes in widely differing sizes.

What we in the western world are about to learn is that there is no such thing as a Keynesian free lunch. Deficits did not “save” us half so much as monetary policy – zero interest rates plus quantitative easing – did. First, the impact of government spending (the hallowed “multiplier”) has been much less than the proponents of stimulus hoped. Second, there is a good deal of “leakage” from open economies in a globalised world. Last, crucially, explosions of public debt incur bills that fall due much sooner than we expect

For the world’s biggest economy, the US, the day of reckoning still seems reassuringly remote. The worse things get in the eurozone, the more the US dollar rallies as nervous investors park their cash in the “safe haven” of American government debt. This effect may persist for some months, just as the dollar and Treasuries rallied in the depths of the banking panic in late 2008.

Yet even a casual look at the fiscal position of the federal government (not to mention the states) makes a nonsense of the phrase “safe haven”. US government debt is a safe haven the way Pearl Harbor was a safe haven in 1941.

Even according to the White House’s new budget projections, the gross federal debt in public hands will exceed 100 per cent of GDP in just two years’ time. This year, like last year, the federal deficit will be around 10 per cent of GDP. The long-run projections of the Congressional Budget Office suggest that the US will never again run a balanced budget. That’s right, never.

Comment: See yesterday's post Timeline of Europe's debt crisis

What I see coming:

• Inflation ... hyperinflation
  
• Government backing away from "commitments" to retirees (eg. social security)
• Means testing benefits
  

Timeline of Europe's debt crisis

Europe's Debt Crisis


Comment: Timeline of Europe's debt crisis (Greece, Spain, Portugal). Ours (the US) is soon to come!

“dress rehearsal” for US debt crisis

Race To Ruin: PIIGS vs. U.S.

Excerpt:

An analyst at Deutsche Bank created some buzz the other day when he said that the PIIGS’ (Portugal, Ireland, Italy, Greece, Spain) debt crisis could be a “dress rehearsal” for a U.S. one.

...

‘The problems currently faced by peripheral Europe could be a dress rehearsal for what the U.S. and U.K. may face further down the road,’ Jim Reid, a strategist at Deutsche Bank in London, wrote in a research note today.

Comment: Keep your eye on the debt clock!

War bonds? Would they work?

Buying a Share of Victory. Or Not

Excerpt:

Economists and others who have studied the war bonds programs say America’s economy has matured in ways that would make such an effort possibly harmful to today’s economy. For decades, Americans have been urged to consume. Encouraging people to set aside money for the war could slow the economic recovery.

“With war bonds, we would be effectively saving this money and taking it out of circulation,” said James J. Kimble, a professor at Seton Hall University and author of “Mobilizing the Home Front: War Bonds and Domestic Propaganda.” “War bonds in effect limit our spending. It could be that that ends up shooting our economy in the foot because our economy was more built on spending today.”

Consider the economic logic behind war bonds. In World War II, the secretary of the Treasury, Henry Morgenthau Jr., weighed three options for financing the war: printing money, raising taxes or issuing war bonds. But printing money can cause inflation, and imposing taxes would not offer Americans the opportunity to give to the war effort. (In the end, the government ended up printing money and raising taxes, but the bonds limited the extent of those actions.)

War bonds in 1941 translated into sacrifice. Indeed, in 1942, Mr. Morgenthau initiated the door- to-door drives to encourage Americans to buy the bonds. “I am not thinking of a token contribution,” he said.

But can Americans make a real investment in war bonds today without hurting the economy? Mr. Nelson suggested the bonds as an alternative to a war tax, which he said would be more damaging to the economy. Taxes and war bonds would both take money out of the system that might otherwise be spent at the shopping mall.

But today, the economic recovery looms as a greater concern to many people than war costs. Spending on Iraq and Afghanistan is significantly less, proportionately, than spending on World War II. That war accounted for about a third of the nation’s economic output; the wars in Iraq and Afghanistan add up to just over 5 percent of gross domestic product today, according to Hugh Rockoff, an economics professor at Rutgers University who has studied war bonds programs.

Another difference, economists point out, is that World War II was a boon to the economy, creating jobs, mainly in manufacturing. The war against terrorism has not provided similar benefits for the American economy.

“Back then you had all these people who suddenly had a lot of extra cash because they were working two shifts for the war,” said Mr. Kimble. “This war is not contributing in the same way. This war is an outflow, if you will. Some people have described this as more of a spectator’s war. We just get to watch.”

Of course, the United States today has a fourth option to pay for the war that Mr. Morgenthau lacked in the 1940s: borrowing from other countries. During World War II, America was a creditor nation, lending out money to others. Today, the United States is a debtor nation — a point Senator Nelson has seized on in pushing his idea. “War bonds allow us to borrow from ourselves, rather than other countries,” he said.

But Professor Rokoff is doubtful that war bonds are the answer. (A program by the Treasury Department to sell Patriot Bonds, begun after 9/11 to contribute to the government’s “overall effort to fight the war on global terrorism,” has raised only $10.9 billion in eight years.)

“We are financing all of these deficits with debt,” Mr. Rokoff said. “A bond campaign might be a morale booster. But it’s a different world now. I could see people protesting outside of the bond rallies. In the long run, they’re going to have to raise taxes.”

Comment: I have a hunch .... Americans are much less patriotic today than during WW II.

Raising the debt ceiling (again)

U.S. Treasury Confident Congress Will Increase Debt Ceiling

Excerpt:

The Obama administration is confident Congress will raise the country’s debt limit by year end to avert a showdown similar to the one that shuttered parts of the government in 1995, administration officials said.

The White House wants an increase of at least $1 trillion to $1.5 trillion, according to a person familiar with the deliberations between lawmakers and the administration. Record budget deficits are pushing the national debt closer to the $12.1 trillion statutory limit.

Comment: Kinda like owing Bank of America $ 14,000 and asking them to raise your credit limit to $ 15,000.

How much government debt is too much?

Robert J. Samuelson: Up Against a Wall of Debt - How much can governments borrow?

Excerpts:

The idea that the government of a major advanced country would default on its debt—that is, tell lenders that it won't repay them all they're owed—was, until recently, a preposterous proposition. Argentina or Russia might stiff their creditors, but surely not the likes of the United States, Japan, or Great Britain. Well, it's still a very, very long shot, but it's no longer entirely unimaginable. Governments of rich countries are borrowing so much that it's conceivable that one day the twin assumptions underlying their burgeoning debt (that lenders will continue to lend and that governments will continue to pay) might collapse. What happens then?

...

Deprived of domestic or international credit, defaulting countries in the past have suffered deep economic downturns, hyperinflation, or both. The odds may be against a wealthy society tempting that fate, but even the remote possibility underlines the precariousness and novelty of our present situation.

Comment: Sounds like the answer is "we don't know but we don't want to find out".

Is "the Zimbabwe option" in our future?

Why Default on U.S. Treasuries is Likely

Excerpts:

We all know that there is a limit to how much debt an individual or institution can pile on if future income is rigidly fixed. We have seen why federal tax revenues are probably capped between 20 and 25 percent of GDP; reliance on seigniorage is no longer a viable option; and public-choice dynamics tell us that politicians have almost no incentive to rein in Social Security, Medicare, and Medicaid. The prospects are, therefore, sobering. Although many governments around the world have experienced sovereign defaults, U.S. Treasury securities have long been considered risk-free. That may be changing already. Prominent economists have starting considering a possible Treasury default, while the business-news media and investment rating agencies have begun openly discussing a potential risk premium on the interest rate that the U.S. government pays. The CBO estimates that the total U.S. national debt will approach 100 percent of GDP within ten years, and when Japan's national debt exceeded that level, the ratings of its government securities were downgraded.

...

Still unconvinced that the Treasury will default? The Zimbabwe option illustrates that other potential outcomes, however unlikely, are equally unprecedented and dramatic. We cannot utterly rule out, for instance, the possibility that the U.S. Congress might repudiate a major portion of promised benefits rather than its debt. If it simply abolished Medicare outright, the unfunded liability of Social Security would become tractable. Indeed, one of the current arguments for the adoption of nationalized health care is that it can reduce Medicare costs. But this argument is based on looking at other welfare States such as Great Britain, where government-provided health care was rationed from the outset rather than subsidized with Medicare.

Comment: My sister and mother flew in Friday for a surprise visit. I showed my sister a 100 Trillion Zimbabwean bill and tried to explain hyper-inflation to my mother. When my Mother was 13 (1933) she and her friend found $ 81 beside the road. They turned it into the police. After a number of months no one claimed it and my mother received her half of the $ 81. I asked her what she did with it. She bought an Elgin watch, a new dress, and gave the rest to her parents. My son did a little Consumer Price Index lookup. $ 81 in 1993 is the equivalent of $ 1,342 today! Thats' inflation! Check out the BLS inflation calculator here: http://www.bls.gov/data/inflation_calculator.htm

More on! AND Here.

The Obama Trillion Bill

A wise and frugal government, which shall leave men free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned -
this is the sum of good government. (Thomas Jefferson)

Comment: We've come a long way since Jefferson!

Mountain of Debt

MOUNTAIN OF DEBT: Rising debt may be next crisis

Excerpt:

The country first got into debt to help pay for the Revolutionary War. Growing ever since, the debt stands today at a staggering $11.4 trillion - equivalent to about $37,000 for each and every American. And it's expanding by over $1 trillion a year.

The mountain of debt easily could become the next full-fledged economic crisis without firm action from Washington, economists of all stripes warn.

"Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth," Federal Reserve Chairman Ben Bernanke recently told Congress.

Higher taxes, or reduced federal benefits and services - or a combination of both - may be the inevitable consequences.

The debt is complicating efforts by President Barack Obama and Congress to cope with the worst recession in decades as stimulus and bailout spending combine with lower tax revenues to widen the gap.

Interest payments on the debt alone cost $452 billion last year - the largest federal spending category after Medicare-Medicaid, Social Security and defense. It's quickly crowding out all other government spending. And the Treasury is finding it harder to find new lenders.

Comment: No escape from facing this crisis. Higher taxes? Lower benefits? Sinking dollar? Inflation? Image is Pyramid of Capitalist System (1911).

Debt clock is ticking faster than ever

Worries Rise on the Size of U.S. Debt

Excerpts:

The nation’s debt clock is ticking faster than ever — and Wall Street is getting worried.

...

Already, in the first six months of this fiscal year, the federal deficit is running at $956.8 billion, or nearly one seventh of gross domestic product — levels not seen since World War II, according to Wrightson ICAP, a research firm.

Debt held by the public is projected by the Congressional Budget Office to rise from 41 percent of gross domestic product in 2008 to 51 percent in 2009 and to a peak of around 54 percent in 2011 before declining again in the following years. For all of 2009, the administration probably needs to borrow about $2 trillion.

The rising tab has prompted warnings from the Treasury that the Congressionally mandated debt ceiling of $12.1 trillion will most likely be breached in the second half of this year.

Last week, the Treasury Borrowing Advisory Committee, a group of industry officials that advises the Treasury on its financing needs, warned about the consequences of higher deficits at a time when tax revenues were “collapsing” by 14 percent in the first half of the fiscal year.

“Given the outlook for the economy, the cost of restoring a smoothly functioning financial system and the pending entitlement obligations to retiring baby boomers,” a report from the committee said, “the fiscal outlook is one of rapidly increasing debt in the years ahead.”

...

there is the concern that the interest the government must pay on its debt obligations may become unsustainable or weigh on future generations. The Congressional Budget Office expects interest payments to more than quadruple in the next decade as Washington borrows and spends, to $806 billion by 2019 from $172 billion next year.

“You’re just paying more and more interest and having to borrow more and more money to pay the interest,” said Charles S. Konigsberg, chief budget counsel for the Concord Coalition, which advocates lower deficits. “It diverts a tremendous amount of resources, of taxpayer dollars.”

Comment: Watch it spin (out of control) on the right navigation of this blog!

When nobody will lend to America

Soon there may be nobody left to lend to America

Excerpt:

... Chinese premier Wen Jiabao said he was “a little bit worried” that America might cheapen its currency and pay back the $1.2 trillion it owes in depreciated dollars. Now that the Fed has moved, he must be a lot worried.

The Fed’s decision to pump trillions into the money markets comes on top of President Barack Obama’s proposal to drive the federal deficit to 12% of GDP by borrowing trillions to fund a few stimulus projects, universal healthcare, a green energy system and a host of other programmes on his wish list. Obama’s assurance that America will never default on its debt hasn’t completely soothed the markets: The Wall Street Journal reports that it now costs seven times as much to buy insurance against an American government default as it did only a year ago. Besides, America can always inflate its way out of its obligations.

Not to worry, says the president. The economy will soon be growing at an annual rate of about 4%. Along with the tax increases to be imposed on the top 2% of earners, billions from the sale of carbon-pollution permits and reductions in age-related entitlements, the growth will drive the deficit down to 3% of GDP in 2013. Unfortunately, 2% of earners can’t or won’t carry the entire burden, ...

Comment: When nobody will lend to America, we will be like Iceland!