The Financial Crisis Inquiry Commission today held hearings with former Lehman Brothers Chairman Dick Fuld. They are trying to figure out why Lehman Brothers was allowed to collapse, with the belief that the failure of Lehman Brothers caused the financial crisis of 2008. The truth is, the failure of Lehman Brothers was a result of the crisis and allowing them to fail was the only correct decision the government made during the crisis.

The pain that was felt after the collapse of Lehman Brothers is nothing compared to the pain that will come when we begin to feel the effects of bailing out the rest of Wall Street. U.S. second quarter GDP growth was revised down on Friday from 2.4% to 1.6%. In order to get this 1.6% GDP growth, the U.S. government had to spend $3.7 trillion on bailouts, stimulus bills, the buying of mortgage backed securities, and other commitments.

General Motors reported today that their August deliveries fell 25% from one year ago to 185,176 vehicles. The U.S. government used “cash for clunkers” to buy GDP growth in 2009, but that growth stole from future automobile sales. NIA believes that GM’s sales decline is a sign that the U.S. will likely see a sharp contraction in GDP beginning in the third-quarter, which will lead to the Federal Reserve implementing the mother of all quantitative easing and cause a massive sell off in the U.S. dollar.

Christina Romer, outgoing Chairwoman of Obama’s Council of Economic Advisers, today called for more government spending and less taxes as a way to bring down unemployment. The combination of more government spending and less taxes equals massive inflation, but this represents the state of mind in Washington today. Inflation is still the last thing on their minds because they don’t see it yet.

Even though we might not see massive across the board price inflation at this time, gold and silver prices have been surging ever since NIA released its article “Gold and Silver Capitulation is Near” on July 28th. Gold is very close to breaking its all time nominal high of $1,264.90 per ounce set during June and silver is getting ready to test the critical $20-$21 per ounce resistance level.

Rising gold and silver prices indicate that the U.S. is headed for an explosion in budget deficits that will rise far beyond what it can pay for through borrowing. Leading Chinese economists are now calling Japanese debt less risky than U.S. debt and with the Japanese savings rate in decline, the U.S. will soon have nobody left to borrow from. The only option will be monetization and already the Federal Reserve is getting ready to buy $10 billion to $30 billion per month in U.S. treasuries to keep its balance sheet at inflated levels.

There are now 50 million Americans on Medicaid, with annual Medicaid costs rising 36% over the past two years to $273 billion. The recently enacted health care bill will add 16 million more Americans to Medicaid beginning in 2014, but the U.S. government will likely go bust by then. It is impossible to have an economic recovery when jobless benefits are encouraging Americans to stay unemployed. U.S. unemployment insurance spending has nearly quadrupled since 2007 to $160 billion annually. Even food stamp costs have surged 80% over the past two years to $70 billion annually.

Once Americans get used to receiving and relying on government entitlement programs, it is hard to wean them off of them. NIA has been hearing reports from members with friends who say they will only “come out of retirement” if they can find a job that pays $25 per hour or more, because with anything less it wouldn’t be worth losing their jobless and food stamp benefits. Americans expect to receive their jobless benefits forever and we are sure Obama will continue to extend them leading up to the 2012 election.

There are now countless warning signs all around us on a daily basis that the U.S. is headed for a complete societal collapse. NIA received an overwhelming response from its members when we asked you to submit any signs you see that a societal collapse is near. The response we received was so strong that we are now beginning to produce a documentary about America’s upcoming collapse of society. The documentary will be over an hour long and we are hoping to release it by the end of October. It will go beyond the economic facts and statistics that were discussed in ‘Meltup’ and help expose the upcoming collapse from a real life perspective. NIA believes this documentary will appeal to a very mainstream audience and help open up the world’s eyes to the truth about the path this country is on.

You can’t open a newspaper or watch a business news network without seeing or hearing that consumers and businesses have been de-leveraging. The storyline as portrayed by the mainstream media is that consumers and corporations have seen the light and are paying off debts and living within their means. Austerity has broken out across the land. Bloomberg peddled this line of bull last week:

US Household Debt Shrank 1.5% in the Second Quarter

American households pared their debts last quarter, closing credit card accounts and taking out fewer mortgages as unemployment persisted near a 26-year high, a survey by the Federal Reserve Bank of New York showed Consumer indebtedness totaled $11.7 trillion at the end of June, a decline of 1.5 percent from the previous three months and down 6.5 percent from its peak in the third quarter of 2008, according to the New York Fed’s first quarterly report on household debt and credit. The report reinforces forecasts for a slowing economy in the second half of 2010 as consumers hold back on spending and rebuild savings.

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In a CNBC debate last week, former Labor Secretary Robert Reich presented a set of contradictory beliefs that unfortunately reflect the conventional wisdom of modern economists. In a discussion with Wall Street Journal columnist Stephen Moore, Reich correctly and comprehensively listed the reasons why American consumers could spend so lavishly before the crash of 2008 and why they can no longer keep up the pace. But instead of making the logical conclusion that former levels of spending were unsustainable and that spending should now reflect current conditions, he advocated that government take on additional debt so that tapped out consumers can spend like they used to.

To achieve this, Reich called for lowering taxes on working Americans and raising taxes on the rich. He argued that middle-income Americans are more likely to spend additional dollars while the rich are more likely to save and invest. As a “demand-side” economist, Reich made clear that spending is superior to savings and investing as a catalyst for growth.

To put it simply: Reich believes that the cart pushes the horse. In his worldview, businesses produce goods and services simply because consumers spend. Therefore, anything that increases spending fuels growth. Unfortunately, he fails to see what should be strikingly obvious: capital formation must precede production, which then allows for consumption.

In a complex society like ours, those relationships are hard to see. However, if we break it down to a simpler level, it becomes more obvious (as I try to accomplish in my new book: How an Economy Grows and Why it Crashes). For example, let’s take a look at a simple barter-based economy consisting of only three people: a butcher, a baker, and a candlestick maker.

If the candlestick maker wants cake, he can’t simply demand that the baker hand it over. The cake needs to be produced, and the baker has to expend labor and material to produce it. Unless the candlestick maker offers the baker something of value in exchange, the cakes won’t get baked. The ability of the candlestick maker to demand cake from the baker is a function of his ability to supply candles to trade. Without production, consumption can’t occur.

What if the candlestick maker gets sick and produces no candles? As the baker would be unwilling to give his cakes away, he would likely stop baking cakes for the candlestick maker. Economic activity would naturally contract until the candlestick maker recovers.

But according to Reich, if the candlestick maker doesn’t have anything to trade, the government should step in and give him candles. But where will the government get them? It could take them from the candlestick maker; but if he is not making candles, how will he pay the tax? Even if there were a few candles left to tax, any that the government took would simply transfer demand from the candlestick maker to the government. No new demand is created.

Alternatively,if the butcher is still healthy, the government could tax him, and give his steaks to the candlestick maker to buy cakes. However, this doesn’t create new demand either. It simply transfers demand from the butcher to the candlestick maker.

Some may feel that a barter-based metaphor doesn’t hold water because the ability to expand the money supply and create credit gives an economy far more flexibility. This is a deceptive argument. Although money is more efficient than barter, it doesn’t change the dynamic between production and consumption.

But Reich suggests that printed money can stimulate demand just as effectively as real candlesticks. But what good will the paper offer the baker if there are no candlesticks to buy? All the baker can do is bid up the prices of those goods, like steaks, that continue to be produced. Similarly, if the government simply prints money and gives it to people to spend, no new production occurs. Prices merely rise to reflect the increase in the supply of money relative to the supply of consumer goods.

In a more complex economy, the relationship between production (supply) and spending (demand) still holds. Every consumer either lives off his own productivity or the productivity of someone else. When individuals work, the wages earned result from the productivity of labor. The ability to consume is directly related to the production of goods or services that result from one’s efforts. However, if people waste their labor in unproductive jobs, little real demand is created.

In the Soviet Union, everyone had a job, yet workers had to stand in line for hours for basic necessities. Although everyone worked (for the government), production was too low. This lack of production meant wages delivered relativity little in the way of purchasing power.

Since production cannot be created by government stimulus, neither can demand. To the extent that there are savings, demand can be brought forward by stimulus – but only at the cost of future demand, plus interest. If stimulus could produce demand, then no nation would be poor. Taken to its logical end, Reich’s argument suggests that African poverty would be wiped out if African governments simply printed money more freely. In reality, Africans are not poor because they lack currency to spend; they are poor because their corrupt and inept governments inhibit production by soliciting bribes, denying property rights, abrogating contracts, preventing the accumulation of capital, and nationalizing profits.

Reich is correct about one thing: Americans are indeed broke. But rather than encouraging the country to spend itself deeper into debt, he should call for greater savings so that we have the means to invest in new businesses and new industries. That is the true road back to solvency, but it will only work if we have less government spending, fewer regulations, lower taxes (particularly on those with the highest propensity to save and invest), and higher interest rates.

Unfortunately, Reich and his allies are calling the shots in Washington. The country cannot recover until the only thing politicians stimulate is demand for new economic leadership.

On July 28th, NIA released an article entitled, “Gold and Silver Capitulation is Near”. In this article NIA said, “The sentiment on gold and silver has abruptly changed to the negative like nothing we have ever seen before and to us this means the big move to the upside is right around the corner.” It turns out that July 28th was the exact bottom for gold and silver prices. Since then, gold prices have risen 12 out of 15 days for a gain of 5.8% and silver prices have risen 11 out of 15 days for a gain of 5.2%.

It was just announced that China cut their long-term U.S. treasury holdings by $21.2 billion in June to $839.7 billion, their largest cut in U.S. treasury holdings in history. China’s holdings of U.S. debt are now at their lowest level in a year. Meanwhile, China has more than doubled their holdings of South Korean debt. It speaks volumes that things have gotten so bad in the U.S. that China sees the need to diversify out of U.S. debt to buy the debt of a third-world nation.

China just surpassed Japan as the second biggest economy in the world and is now stepping up its efforts to internationalize the yuan by allowing foreign financial institutions to participate in their interbank bond market. This is being done as the Federal Reserve begins to once again monetize our debt with the purchasing of $2.551 billion in U.S. treasuries. At this time last year, mainstream economists thought that the Federal Reserve would be exiting its low interest rate policy by now. The truth is, it will be impossible for the Federal Reserve to ever raise interest rates to a level that is higher than the real rate of price inflation.

It is unbelievable to us that most mainstream economists believe that deflation is the biggest threat facing the U.S. economy. In order to believe that U.S. deflation is possible, you need to believe that the U.S. government will default on its national debt and Social Security obligations and that the U.S. dollar will rally in the process. In our opinion, there is zero chance of the U.S. government formally defaulting on its debts and Social Security obligations when it has a printing press. But for conversation’s sake let’s say the U.S. outright defaults and refuses to pay its debt. Why on earth would the U.S. dollar rally in the process? Why do deflationists believe the world will flock to the safety of paper? Look outside, unless you live in a desert, you will see plenty of trees.

During the Great Depression, the U.S. experienced deflation because the U.S. dollar was backed by gold. As the rest of the world defaulted on their debts, they flocked to the dollar as a safe haven because the dollar was gold, not paper. The deflationists like to point to the financial crisis of 2008 when the U.S. dollar rallied as asset prices collapsed, as an indication that the world believes paper is a safer asset than gold. Clearly in 2008, the markets acted irrationally. There is very little chance of the markets acting irrationally in this same way again, especially when the financial crisis of 2008 is still fresh in investors’ minds and most people on Wall Street mistakenly believe the dollar will rally.

The markets usually act in the exact opposite of the way most people think. Just like we knew gold and silver were at or near a bottom on July 28th because everybody had become negative, we know that precious metals will be the safe haven during the upcoming fiscal crisis, because most people today feel that U.S. treasuries are the safest asset. The U.S. is currently experiencing the greatest bubble in world history, the U.S. bond/dollar bubble. When this bubble bursts, real unemployment will rise back to Great Depression levels of 35% because our nation’s number one employer, the U.S. government, will no longer have the resources to pay its employees.

Question: “What is it going to take for business to get back more actively into play?”

William Bonner: “My guess it’s going to take a depression. What’s happening now is that people are afraid, and they’re afraid justly so because we’re in this stage of de-leveraging. People, businesses, and individuals in the government now ran up too much debt. And when you run up too much debt you eventually reach a point where you can no longer service the debt and then you’re getting into a position where everybody gets scared all at once. They call this a liquidity crisis but it’s not really liquidity that’s the problem, the problem is that there’s too much debt.”

This is Part 2 of 3. Stay tuned for 3 tomorrow. Please note, there is advertising in this video from 7:43 through the end of the clip in case you want to skip it. If you missed Part 1, click here.

The United States by every measure is hanging on by a thread to its First World status. Saddled by debt, engaged in wars on multiple fronts with a rising police state at home, declining economic productivity, and wild currency fluctuations all threaten America’s future.

The general designations of the ranking system for world status date back to the 1950s, and have included countries at various stages of economic development. Since the Cold War, the definition has come to be synonymous with repressive countries where a wealthy class of ruling elites segment society into the haves and have-nots, many times capitalizing on the conditions that follow an economic crisis or war.

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“Just this last month in July the United States government paid $20 billion in interest. We accumulated $165 billion dollars of deficit spending for just one month. And so far for fiscal year 2010, we have already reached a $1.2 trillion dollar deficit. You can imagine how much debt the Federal Reserve will eventually have to monetize. And remember, this is the worst kind of inflation. This is absolute inflation where the Federal Reserve is literally printing money, creating it out of thin air in order to fund the U.S. governments’ budget.”

Let’s get real. The U.S. is bankrupt. Neither spending more nor taxing less will help the country pay its bills.

What it can and must do is radically simplify its tax, health-care, retirement, and financial systems, each of which is a complete mess. But this is the good news. It means they can each be redesigned to achieve their legitimate purposes at much lower cost and, in the process, revitalize the economy.

Last month, the International Monetary Fund released its annual review of U.S. economic policy. Its summary contained these bland words about U.S. fiscal policy: “Directors welcomed the authorities’ commitment to fiscal stabilization, but noted that a larger than budgeted adjustment would be required to stabilize debt-to-GDP.”

But delve deeper, and you will find that the IMF has effectively pronounced the U.S. bankrupt. Section 6 of the July 2010 Selected Issues Paper says: “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It adds that “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”

The fiscal gap is the value today (the present value) of the difference between projected spending (including servicing official debt) and projected revenue in all future years.

Double Our Taxes

To put 14 percent of gross domestic product in perspective, current federal revenue totals 14.9 percent of GDP. So the IMF is saying that closing the U.S. fiscal gap, from the revenue side, requires, roughly speaking, an immediate and permanent doubling of our personal-income, corporate and federal taxes as well as the payroll levy set down in the Federal Insurance Contribution Act.

Such a tax hike would leave the U.S. running a surplus equal to 5 percent of GDP this year, rather than a 9 percent deficit. So the IMF is really saying the U.S. needs to run a huge surplus now and for many years to come to pay for the spending that is scheduled. It’s also saying the longer the country waits to make tough fiscal adjustments, the more painful they will be.

Is the IMF bonkers?

No. It has done its homework. So has the Congressional Budget Office whose Long-Term Budget Outlook, released in June, shows an even larger problem.

‘Unofficial’ Liabilities

Based on the CBO’s data, I calculate a fiscal gap of $202 trillion, which is more than 15 times the official debt. This gargantuan discrepancy between our “official” debt and our actual net indebtedness isn’t surprising. It reflects what economists call the labeling problem. Congress has been very careful over the years to label most of its liabilities “unofficial” to keep them off the books and far in the future.

For example, our Social Security FICA contributions are called taxes and our future Social Security benefits are called transfer payments. The government could equally well have labeled our contributions “loans” and called our future benefits “repayment of these loans less an old age tax,” with the old age tax making up for any difference between the benefits promised and principal plus interest on the contributions.

The fiscal gap isn’t affected by fiscal labeling. It’s the only theoretically correct measure of our long-run fiscal condition because it considers all spending, no matter how labeled, and incorporates long-term and short-term policy.

$4 Trillion Bill

How can the fiscal gap be so enormous?

Simple. We have 78 million baby boomers who, when fully retired, will collect benefits from Social Security, Medicare, and Medicaid that, on average, exceed per-capita GDP. The annual costs of these entitlements will total about $4 trillion in today’s dollars. Yes, our economy will be bigger in 20 years, but not big enough to handle this size load year after year.

This is what happens when you run a massive Ponzi scheme for six decades straight, taking ever larger resources from the young and giving them to the old while promising the young their eventual turn at passing the generational buck.

Herb Stein, chairman of the Council of Economic Advisers under U.S. President Richard Nixon, coined an oft-repeated phrase: “Something that can’t go on, will stop.” True enough. Uncle Sam’s Ponzi scheme will stop. But it will stop too late.

And it will stop in a very nasty manner. The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills.

Worse Than Greece

Most likely we will see a combination of all three responses with dramatic increases in poverty, tax, interest rates, and consumer prices. This is an awful, downhill road to follow, but it’s the one we are on. And bond traders will kick us miles down our road once they wake up and realize the U.S. is in worse fiscal shape than Greece.

Some doctrinaire Keynesian economists would say any stimulus over the next few years won’t affect our ability to deal with deficits in the long run.

This is wrong as a simple matter of arithmetic. The fiscal gap is the government’s credit-card bill and each year’s 14 percent of GDP is the interest on that bill. If it doesn’t pay this year’s interest, it will be added to the balance.

Demand-siders say forgoing this year’s 14 percent fiscal tightening, and spending even more, will pay for itself, in present value, by expanding the economy and tax revenue.

My reaction? Get real, or go hang out with equally deluded supply-siders. Our country is broke and can no longer afford no-pain, all-gain “solutions.”

(Laurence J. Kotlikoff is a professor of economics at Boston University and author of “Jimmy Stewart Is Dead: Ending the World’s Ongoing Financial Plague with Limited Purpose Banking.” The opinions expressed are his own.)

To contact the writer of this column: Laurence Kotlikoff at kotlikoff@bu.edu.

Today is a sad day for America. Last night, Peter Schiff lost the Republican primary for U.S. Senate in the State of Connecticut. Linda McMahon was the winner of the primary with 49% of the vote compared to Rob Simmons at 28% and Peter Schiff at 23%. Peter Schiff received 53% more votes than what the latest Quinnipiac poll had indicated, which showed his support at only 15%.

NIA believes that Peter Schiff understands the upcoming hyperinflationary crisis better than any other candidate who was running for office this year nationwide. He was perhaps our nation’s last and only hope to prevent U.S. hyperinflation. It won’t take long for the true nature of our country’s dollar bubble to become apparent to all and when this time comes, Americans will sadly regret not electing Peter Schiff to the U.S. Senate.

America’s tea party movement started out as a libertarian movement but it has recently been hijacked by FOX News and others in the mainstream media. On June 21st, thousands of NIA members wrote to FOX News asking for Glenn Beck, Sean Hannity, and Bill O’Reilly to feature Peter Schiff on their respective shows. All three of them decided to completely ignore Peter Schiff’s senate campaign, despite the fact that Peter Schiff’s credentials are stronger than any of the tea party candidates they are supporting.

Glenn Beck previously had Peter Schiff as a guest on his show on several occasions and obviously knew he was running for senate. It appears as though Glenn Beck wants to have Peter Schiff on only when it is supporting his agenda. Glenn Beck doesn’t care about helping the public become educated about a true libertarian candidate who would actually make a difference in Washington.

Glenn Beck is not our friend. This is not the first time he has showed his true colors. Back when Ron Paul was running for President, Ron Paul raised a record $4.3 million in a single day “money bomb” all from grassroots supporters. Rather than praising Ron Paul and his supporters for their tremendous accomplishment, Glenn Beck questioned the use of the word “bomb” in “money bomb” and said that Americans who were supporting the “Ron Paul Revolution” were taking the word “revolution” way too seriously. Glenn Beck even said that he feared the U.S. military would one day need to be used domestically against Ron Paul donors.

On one occasion, Glenn Beck had Ron Paul on as a guest during his Presidential campaign. Instead of highlighting how Ron Paul was the only candidate running for President who has a perfect voting record for protecting the U.S. constitution and reducing government spending, Glenn Beck did everything he possibly could to sabotage Ron Paul’s campaign. Glenn Beck asked Ron Paul bizarre questions on the air including “No plane hit the Pentagon on September 11th instead it was a missile fired by elements from inside the American state apparatus, yes or no?” and “Were the planes that hit the World Trade Towers remotely controlled, yes or no?”. Glenn Beck unfairly smeared Ron Paul and his supporters as terrorist sympathizers.

NIA believes that both Democrats and Republicans are equally responsible for the debt crisis the U.S. has today. In the last Presidential election, Americans had a choice between two candidates, Barack Obama and John McCain, both who supported our country’s destructive bailouts of Wall Street. At the same time that Ron Paul raised a record $4.3 million in his money bomb, John McCain’s campaign was completely broke. The only reason John McCain came back to win the Republican nomination was because the mainstream media did everything possible to marginalize Ron Paul and support a candidate who was exactly the same as Obama on every important issue.

Glenn Beck is working tirelessly to set Sarah Palin up as the leader of the tea party movement. FOX News clearly wants Sarah Palin to take on Obama in the 2012 Presidential election. NIA considers Sarah Palin to be a neocon who doesn’t support libertarian principles. If tea partiers embrace Sarah Palin as the leader of the tea party movement, NIA will have no choice but to officially write the tea party movement off as being useless.

The U.S. is in such bad financial shape that we currently have a budget deficit from Social Security, Medicare, and Medicaid alone. If Americans were taxed 100% of their income it still wouldn’t be enough to balance the budget. With the phony economic recovery beginning to lose steam and the Federal Reserve getting ready to unleash the mother of all quantitative easing, Americans will soon experience a major decline in the purchasing power of their savings and income.

When Linda McMahon was asked on the campaign trail about entitlement spending, her response was, “I can certainly tell you I’m not adverse to talking in the right time or forum about what we need to do relative to our entitlements. I mean, Social Security is going to go bankrupt. Clearly, we have to strengthen that.” Linda McMahon chose to avoid the topic of entitlement spending completely, saying she would only talk about it in the right “forum”. The right forum would obviously be a debate, yet she outright refused to attend all of the Republican primary debates leading up to yesterday’s vote and the mainstream media did nothing to call her out on this.

By saying that we clearly have to “strengthen” Social Security, Linda McMahon is outright deceiving and misleading the American public. There is no way to strengthen a program that has $14.5 trillion in unfunded liabilities. The only choice the U.S. has is to either default on its Social Security obligations or print the money to pay for them and create hyperinflation. Either way, millions of babyboomers who are getting ready to retire and planning to live off of their Social Security benefits will soon find out that they don’t have the financial means to support themselves.

NIA’s movies ‘Meltup’, ‘The Dollar Bubble’, ‘Hyperinflation Nation’, ‘Japan: America’s Lost Decade’, ‘Empty Store Shelves Coming to America’, and ‘Debt Slave’ have now received a total of over 2.4 million views. This represents only a small percentage of the U.S. that NIA has been able to reach with the facts and truth about the U.S. economy. The mainstream media has chosen to completely ignore our documentaries. The only time the mainstream media covered our work extensively is when we wrote an article about the effects inflation will have on Lebron James’ new contract.

NIA has proven through a countless number of facts and statistics how hyperinflation in the U.S. is inevitable. It’s a shame that the majority of America is too distracted by ‘American Idol’ and the ‘Jersey Shore’ to take an interest in the U.S. economy and politics. Education is the most important key to America’s survival. The only way our country will have the resources to rebuild after hyperinflation is if enough Americans become educated to the truth by watching documentaries like ours.

It is important for NIA members not to be discouraged by Peter Schiff’s failed senate run. In NIA’s latest documentary ‘Meltup’, Gerald Celente spoke about the “20% solution”. According to Gerald Celente, if we can get just 20% of America to understand the truth and think for themselves, and if this 20% of the population moves in a focused direction, we can one day have an America far greater than we ever imagined. With 23% of the Republican primary voters in Connecticut voting for Peter Schiff, we at least have some reason to believe that our message is getting out there and resonating with people.

Please continue to spread the word about NIA by telling your friends and family to subscribe for free.

By: David A. Patten

The 50 states have racked up a record $2.4 trillion in bond debt during the economic downturn — the highest level of state and local indebtedness in history, economic analysts warn.

State and local bond debts now consume 22 percent of the nation’s annual gross domestic product (GDP) — a bigger slice of the economic pie than ever before, according to Manhattan Institute senior fellow and City Journal senior editor Steven Malanga.

Based on an analysis of federal data on state indebtedness, Malanga calculates that state and local debt has skyrocketed from 12 percent of GDP in 1980, to 15 percent of GDP in 2000, to an estimated 22 percent in 2010. That’s the highest it has ever been, and those figures do not include the estimated $3 trillion in state and local pension obligations.

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