The Daily Middle

Archive for the ‘National Debt’ Category

From: Moneynews

By: Julie Crawshaw

The latest forecast from the White House budget office shows the deficit rising to $1.47 trillion this year, forcing the government to borrow 41 cents of every dollar it spends, The Washington Post reports.

Contrary to official projections, the budget gap will not begin to narrow much in 2011 because of an unexpectedly big drop in tax receipts, a circumstance Obama administration opponents are using to political advantage.

In its semiannual fiscal outlook, the White House budget office acknowledged that “the U.S. economy still faces strong headwinds,” that include tight credit markets, a huge housing inventory, and state governments struggling with budget deficits.

Christina Romer, chairman of the president’s Council of Economic Advisers, said economic turbulence in Europe has also had an impact, “ever so slightly dampening growth prospects in 2011.”

The new forecast had a mixed impact on deficit projections.
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From: Moneynews

By: Julie Crawshaw

Economic historian Niall Ferguson says Keynesian economists are stuck in the 1930s, completely unaware that a US debt crisis could come quite suddenly.

“All it takes is one piece of bad news — a credit rating downgrade, for example — to trigger a sell-off,” Ferguson writes in the Financial Times.

“And it is not just inflation that bond investors fear. Foreign holders of US debt — and they account for 47 percent of federal debt in public hands — worry about some kind of future default.”

Yet some economists “seem not to have noticed that the big academic winners of this crisis have been the proponents of behavioral finance, in which the ups and downs of human psychology are the key,” says Ferguson.

As evidence, he points to a recent poll showed that 45 percent of Americans “think it likely that their government will be unable to meet its financial commitments within 10 years.”
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From: Europac
By: David Galland of Casey Research

Watching my children grow older, now heading into the treacherous shoals of the teenage years, has been a visceral reminder of how the human mind develops. As young children, we see the world with fresh eyes and wonderment, and then quickly begin testing the physical and societal bounds as part of morphing into our more mature selves.

As we age into our teens and beyond, the testing of boundaries evolves into a series of calculations. If I do “A,” we wonder, will it lead to “B” or maybe “Z”?

From a young age, most of us are told to advance our education and otherwise better ourselves so that we will be able to find a good job, or a succession of good jobs, that will provide sustenance and security lasting most of a lifetime before retiring to dawdle about in our golden years.

At least that is the modern view of life pursued by the vast majority of the citizenry in the developed world.
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The U.S. is Greece, but a hundred times bigger. Basically, they also will have financial problems especially with regard to the government debt and in the bond market we have to distinguish between government bonds and corporate bonds. Now, some corporate bonds, I think, are still okay although the grade values that we had a year ago when the corporate bonds market had collapsed and the spreads had widened, that is no longer available. Spreads have narrowed a lot again but there may be a reason for that in the sense that some corporations deserve a higher credit rating than the government because they have a business that generates income so they can pay interest on their bonds and eventually repay the bonds. I’m not sure the U.S. government will always be able to pay the interest on it’s debt and to repay the debt is out of the question.

The following article was a guest post by one of our writers, M.W. Larsson, for Frugaldad.com posted yesterday on their site.

There was a time – and it wasn’t all that long ago – when a Middle Class lifestyle wasn’t just obtainable; it was downright easy to be a member. Really, all you needed was an “average” job, and you were in – a home, a nice car, occasional dinner out, color TV, an annual vacation, and a pension for when you got older.

Obviously, those days are gone, so I don’t want to wax poetically about nostalgia and why can’t we bring them back, etc. But I do want to point out the two reasons those days have left us, and I’d like to expand on one of those reasons:

• The most obvious reason for the end of the “one average job’s paycheck can raise a family” is that the economy changed. Expenses outpaced wages, and many of those jobs (manufacturing, etc) are gone. And they won’t come back. Forget relying on the government and waiting for “good times” to come back – they aren’t.
• The second reason, however, is one that doesn’t get as much play, because it’s personal, and it “hurts” a little. And that reason is simply this: WE’VE changed, and we want more, because there is more. Many families cannot “make it” on their salary not because food and shelter cost too much – it’s because of all the other stuff.

I’d like to expand on this last point somewhat, and discuss how a return to frugality can help.

To start, what really changed in terms of what we buy and what’s available? Well, the answer is, everything changed. There’s so much more available to us now, and more importantly, many “more” things that are an almost expected part of everyday life (cellphones for the entire family, anyone? There’s something a 1970’s era family never had to pay for.)
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From: National Inflation Association

In NIA’s May 26th article entitled, “Don’t Doubt Bernanke’s Ability to Create Inflation”, we said, “The U.S. Dollar Index has rallied only because it is heavily weighted against the Euro. The Euro is now overdue for a huge bounce”. NIA was right, the Euro was $1.22 at the time and it has since bounced to $1.30. Meanwhile, the U.S. dollar index has declined from a high of 88 down to 82.50.

NIA has consistently said that the U.S. economic recovery is phony. With recently released Fed minutes indicating that our phony economic recovery is fading, the focus on Wall Street has shifted from the debt crisis in Europe to the risk of a double-dip recession and possible deflation in the U.S. However, NIA believes the threat of a double-dip recession and worries of deflation actually increase the risk of hyperinflation arriving a lot sooner than anybody thinks is possible.

There has been a severe plunge in stock market trading volume during the past month, but this is the calm before the storm. NIA believes the Federal Reserve is quietly getting ready to implement “The Mother of All Quantitative Easing”. After all, the Federal Reserve’s quantitative easing in 2009 was “successful” in causing the Dow Jones to bounce by 74% from its low of 6,469.95 in March of 2009 to a high of 11,257.93 in April of 2010. Sure, the broadest measure of unemployment also rose during this time period from 19.8% to 22%, but according to the Federal Reserve, unemployment is a lagging indicator and meaningless.

NIA believes there is no chance in hell that Time Magazine’s Person of the Year Ben Bernanke is going to admit his destructive policies of artificially low interest rates aren’t working. In fact, with the CPI showing a year-over-year U.S. price inflation rate in June of only 1.05%, the coast is now clear for Bernanke to raise his dosage of quantitative easing. NIA fears that come this October, Bernanke is likely to shoot up his largest ever dose of quantitative easing. If our fears come true, NIA will be forced to change our projection as to when U.S. hyperinflation will occur from the years 2014-2015 to as soon as year 2012.
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“2 months ago the U.S. had a wake up call of what hyperinflation in this country will look like. The mainstream media largely ignored this story, but the NIA believes it is one of the most important stories of 2010 so far because it provides a window to what will occur nationwide during hyperinflation. On May 1st, 2010, a water-pipe burst ruptured in western Massachusetts, 15 miles west of Boston and 8 million gallons of water flooded into the Charles River… Millions of residents immediately rushed to buy bottled water at local stores and within hours, all retail stores in Boston were out of bottled water…”

From: Europac

Despite several quarters of rising GDP, and the upbeat exertions of Administration spokespeople, the National Bureau of Economic Research (NBER) has yet to announce the recession is over. Their reluctance is well-founded. It is beginning to dawn on even the more optimistic analysts that the tepid growth we have seen over the past three quarters is only an interlude in an otherwise grave and prolonged recession. Moreover, the respite will cost dearly as the United States has racked up a generation worth of debt for dubious benefit.

The paltry number of new jobs currently being created still fall far short of the 375,000 per month needed to offset the 125,000 new entrants to the job market due to population growth and to erode the 8 million people laid off in the past year alone. Meanwhile, house prices continue to fall and credit continues to contract. With retail sales dropping in June and the Leading Economic Index (LEI) standing at minus 7.7 per cent, it should be clear that the US economy is heading back towards recession, following a temporary distortion created by some $1.3 trillion in federal stimulus. In short, the stimulus has failed.

While there can be no doubt that an increase in government spending will result in a boost to GDP figures, the evidence of history shows that such growth is short-lived. Unfortunately as leaders around the world look to tighten the reins on out of control spending, President Obama and his Democratic supporters in Congress believe that their stimulus actions have succeeded and should be redoubled. Armed with nothing more than faith in government and a belief that spending is both a means and an end, it appears that the US stimulus policy will continue. The net result of these efforts will not be a more vibrant economy, but the perpetuation of fear and confusion in the business community and the continuing expansion of deficits that will lead inevitably to higher taxes.
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From: Newsmax

Election watchdogs have directed Joe Biden’s 2008 presidential campaign to pay the U.S Treasury more than $219,000 to resolve issues caused by sloppy bookkeeping and accepting excessive contributions, including a discounted flight on a private jet.

The audit was released Friday by the Federal Election Commission.

It determined that the Biden campaign accepted an improper corporate contribution in the form of a round-trip flight between New Hampshire and Iowa in June 2007 for three people. The Biden campaign paid GEH Air Transportation $7,911 for the first-class airfare, but regulators say the campaign should have paid the charter rate of $34,800.

The FEC also found that the Biden campaign could not document repaying at least $106,000 in donations that were over the limit, and the campaign was ordered to pay the U.S. Treasury more than $85,000 for stale-dated checks.

The Biden campaign also failed to disclose more than $3.7 million in payments and roughly $870,000 in debts.

The audit was conducted in part as a condition of Biden’s accepting taxpayer funds for his campaign through the presidential public financing system.
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From: Yahoo! Finance

Ferguson notes that his dispute with Krugman isn’t even so much about economics — it’s about history. Ferguson is a history professor. And history says pretty clearly that countries with this level of sovereign debt eventually go bust.

Ferguson isn’t convinced we’re totally doomed just yet. And he’s not calling for overly violent cuts that will leave us eating cat food. Instead, he just wants to see credible commitments to get spending under control down the road to assure investors that our debt is good, and to convince businesses that they can hire and invest today without worrying about massive tax hikes down the road.

Thus in a sense, his call for more austerity is also stimulative.