Only about $57 billion more to go until the Public Debt tops $11 trillion. Since I last wrote about this on January 12 http://lacunaemusing.blogspot.com/2009/01/bailout-math-and-implications.html it has soared by some $332 billion, so the $11 trillion mark is just around the corner. Something I failed to notice before: the government gratefully accepts “contributions” to reduce the debt (no kidding) so I include the appropriate information from the government’s web site:
How do you make a contribution to reduce the debt?
Make your check payable to the Bureau of the Public Debt, and in the memo section, notate that it is a Gift to reduce the Debt Held by the Public. Mail your check to:
Attn Dept G
Bureau Of the Public Debt
P. O. Box 2188
Parkersburg, WV 26106-2188
http://www.treasurydirect.gov/govt/resources/faq/faq_publicdebt.htm#DebtOwner
.
Showing posts with label US Debt. Show all posts
Showing posts with label US Debt. Show all posts
Wednesday, March 4, 2009
Monday, January 12, 2009
Bailout Math and Implications
In an effort to try to understand the more than $8 trillion guarantee our government has made to bailout our financial mess, I tried to assemble a spreadsheet and before long I was drowning in acronyms and conflicting information that was beginning to remind me of an elaborate shell game a Bernie Madoff might have constructed. How can we manage to make transparency so confusing?
To the rescue, though, is a magnificent, clear summary published by Bianco Research which came to my attention through the From Behind the Headlines blog by Michael Kahn http://quicktakespro.blogspot.com/. While the details can be seen from what was published in SFO Magazine http://sfomag.com/images/charts/012009/GettingTech_fig1_0109.jpg here is a summary of Bianco's work (figures are in billions):
Measuring the Size of the Bailouts
THE FEDERAL RESERVE (Net Portfolio Commercial Paper Funding,
Term Auction Facility, Other Assets, Money Market Investor Funding Facility, MBS/FHLB Agency in Reverse Auctions, Term Securities Lending Facility, AIG Loan, Primary Credit Discount, Asset Backed Commercial Paper Liquidity, Primary Dealers and Others, Bear Stearns Assets, Securities Lending Overnight, Secondary Credit)
FEDERAL RESERVE TOTAL $5,065.0 Maximum / $1,839.5 Current
THE FDIC (FDIC Liquidity Guarantees, Loan Guarantee to GE)
FDIC TOTAL $1,539.0 Maximum / $139.0 Current
TREASURY DEPARTMENT (Fannie/Freddie Bailout, Spring 08 Stimulus Package, Treasury Exchange Stabilization Fund, Tax Break for Banks, Citibank Asset Backstop, Tem Asset-Backed Securities Loan Facility)
TREASURY DEPT TOTAL $1,803.0 Maximum / $597.0 Current
FHA (Hope for Homeowners) $300 Maximum / $300 Current
DEPT ENERGY (Auto Loans) $25 Maximum / $25 Current
GRAND TOTAL $8,707.0 Maximum / $2,875.5 Current
Here is a translation of how this looks in “real dollars:”
$8,707,000,000,000/$2,875,500,000,000
These staggering figures are before the Obama infrastructure / jobs programs get into full swing, so we can be talking about more than $9 trillion. To put this in perspective, according to the Congressional Budget Office GDP in 2009 will be $14.2 trillion, while outlays will be $3.5 trillion and total revenues $2.3, a deficit of some $1.2 trillion.
This assumes we can have confidence in government projections. Looking at the real world in a rear view mirror, this is how the budget deficits have been ramping up the National Debt since the Bush administration took office:
9/30/2000 $5,674,178,209,887
9/30/2001 $5,807,463,412,200
9/30/2002 $6,228,235,965,597
9/30/2003 $6,783,231,062,744
9/30/2004 $7,379,052,696,330
9/30/2005 $7,932,709,661,724
9/30/2006 $8,506,973,899,215
9/30/2007 $9,007,653,372,262
9/30/2008 $10,024,724,896,912
1/8/2009 $10,608,325,323,173
I include the latest figure (more than a $½ trillion increase in only 100 days) from the following handy calculator http://www.treasurydirect.gov/NP/BPDLogin?application=np as it shows a parabolic trend. The extent to which the bailouts work is going to enormously impact the budget projections, both on the revenue and outlay sides of the ledger. Tweaking the former down because of the severity of the recession and the latter upwards because of more bailouts puts us on an irreversible course. It was not long ago that the main discussion concerning the long-term budget centered on the ticking time bombs of Social Security, Medicare, and Medicaid. These threats have not disappeared, but they become even more formable as our precious resources have to be spent on surviving today to wage that war tomorrow.
The foregoing figures come from the Congressional Budget Office. Their published outlook http://www.cbo.gov/ftpdocs/99xx/doc9958/01-08-Outlook_Testimony.pdf is remarkably pointed:
The Budget Outlook for 2009
The federal fiscal situation in 2009 will be dramatically worse than it was in 2008. Under the assumption that current laws and policies remain in place (that is, not accounting for any new legislation), CBO estimates that the deficit this year will total $1.2 trillion, more than two and a half times the size of last year’s. As a percentage of GDP, the deficit this year will total 8.3 percent (as compared with 3.2 percent in 2008)––the largest since 1945.
The deterioration in the fiscal picture results from both increased outlays and decreased revenues. Relative to what they were last year, outlays will rise dramatically— by 19 percent according to CBO’s estimates. Much of that increase is a result of policy responses to the turmoil in the housing and financial markets—particularly spending for the TARP and the conservatorship of Fannie Mae and Freddie Mac. In addition, economic developments have reduced tax receipts (particularly from individual and corporate income taxes) and boosted spending on programs such as those providing unemployment compensation and nutrition assistance as well as those with cost-of-living adjustments.
Without changes in current laws and policies, CBO estimates, outlays will rise from $3.0 trillion in 2008 to $3.5 trillion in 2009 (see Table 5). Mandatory spending is projected to grow by almost $570 billion, or by 36 percent; nearly three-quarters of that growth results from the activities of the TARP and CBO’s treatment of Fannie Mae and Freddie Mac as federal entities. Discretionary spending is projected to grow by $52 billion, or by 4.6 percent. In contrast, net interest is anticipated to decline by 22 percent as a result of lower interest rates and lower inflation. In total, outlays will be equal to 24.9 percent of GDP, a level exceeded only during the later years of World War II.
Spending for certain other mandatory programs is expected to rise sharply this year. The faltering economy has increased outlays for unemployment compensation and the Supplemental Nutrition Assistance Program. Unemployment compensation is projected to nearly double— from $43 billion last year to $79 billion this year— as a result of increased unemployment and legislation to date extending such benefits. Outlays for the nutrition assistance program are expected to grow by 27 percent— from $39 billion to $50 billion—primarily because of increases in caseloads and benefits (resulting from higher food prices).
The three largest mandatory programs—Social Security, Medicare, and Medicaid—are all anticipated to record growth of at least 8 percent this year. Some of that growth stems from the relatively high rate of inflation recorded early in 2008, which boosted cost-of-living adjustments for retirees and the cost of health care. In addition, rising unemployment will add to Medicaid spending by increasing the number of beneficiaries.
Discretionary spending under current laws and policies is projected to grow by 4.6 percent in 2009. In CBO’s baseline, defense outlays rise by 5.0 percent and nondefense outlays by 4.1 percent. However, most programs are currently operating under a continuing resolution, which holds funding for 2009 at the level provided for 2008. Final appropriations and additional funding for operations in Iraq and Afghanistan may increase outlays for 2009 and beyond, and any stimulus package may raisediscretionary spending further.
To the rescue, though, is a magnificent, clear summary published by Bianco Research which came to my attention through the From Behind the Headlines blog by Michael Kahn http://quicktakespro.blogspot.com/. While the details can be seen from what was published in SFO Magazine http://sfomag.com/images/charts/012009/GettingTech_fig1_0109.jpg here is a summary of Bianco's work (figures are in billions):
Measuring the Size of the Bailouts
THE FEDERAL RESERVE (Net Portfolio Commercial Paper Funding,
Term Auction Facility, Other Assets, Money Market Investor Funding Facility, MBS/FHLB Agency in Reverse Auctions, Term Securities Lending Facility, AIG Loan, Primary Credit Discount, Asset Backed Commercial Paper Liquidity, Primary Dealers and Others, Bear Stearns Assets, Securities Lending Overnight, Secondary Credit)
FEDERAL RESERVE TOTAL $5,065.0 Maximum / $1,839.5 Current
THE FDIC (FDIC Liquidity Guarantees, Loan Guarantee to GE)
FDIC TOTAL $1,539.0 Maximum / $139.0 Current
TREASURY DEPARTMENT (Fannie/Freddie Bailout, Spring 08 Stimulus Package, Treasury Exchange Stabilization Fund, Tax Break for Banks, Citibank Asset Backstop, Tem Asset-Backed Securities Loan Facility)
TREASURY DEPT TOTAL $1,803.0 Maximum / $597.0 Current
FHA (Hope for Homeowners) $300 Maximum / $300 Current
DEPT ENERGY (Auto Loans) $25 Maximum / $25 Current
GRAND TOTAL $8,707.0 Maximum / $2,875.5 Current
Here is a translation of how this looks in “real dollars:”
$8,707,000,000,000/$2,875,500,000,000
These staggering figures are before the Obama infrastructure / jobs programs get into full swing, so we can be talking about more than $9 trillion. To put this in perspective, according to the Congressional Budget Office GDP in 2009 will be $14.2 trillion, while outlays will be $3.5 trillion and total revenues $2.3, a deficit of some $1.2 trillion.
This assumes we can have confidence in government projections. Looking at the real world in a rear view mirror, this is how the budget deficits have been ramping up the National Debt since the Bush administration took office:
9/30/2000 $5,674,178,209,887
9/30/2001 $5,807,463,412,200
9/30/2002 $6,228,235,965,597
9/30/2003 $6,783,231,062,744
9/30/2004 $7,379,052,696,330
9/30/2005 $7,932,709,661,724
9/30/2006 $8,506,973,899,215
9/30/2007 $9,007,653,372,262
9/30/2008 $10,024,724,896,912
1/8/2009 $10,608,325,323,173
I include the latest figure (more than a $½ trillion increase in only 100 days) from the following handy calculator http://www.treasurydirect.gov/NP/BPDLogin?application=np as it shows a parabolic trend. The extent to which the bailouts work is going to enormously impact the budget projections, both on the revenue and outlay sides of the ledger. Tweaking the former down because of the severity of the recession and the latter upwards because of more bailouts puts us on an irreversible course. It was not long ago that the main discussion concerning the long-term budget centered on the ticking time bombs of Social Security, Medicare, and Medicaid. These threats have not disappeared, but they become even more formable as our precious resources have to be spent on surviving today to wage that war tomorrow.
The foregoing figures come from the Congressional Budget Office. Their published outlook http://www.cbo.gov/ftpdocs/99xx/doc9958/01-08-Outlook_Testimony.pdf is remarkably pointed:
The Budget Outlook for 2009
The federal fiscal situation in 2009 will be dramatically worse than it was in 2008. Under the assumption that current laws and policies remain in place (that is, not accounting for any new legislation), CBO estimates that the deficit this year will total $1.2 trillion, more than two and a half times the size of last year’s. As a percentage of GDP, the deficit this year will total 8.3 percent (as compared with 3.2 percent in 2008)––the largest since 1945.
The deterioration in the fiscal picture results from both increased outlays and decreased revenues. Relative to what they were last year, outlays will rise dramatically— by 19 percent according to CBO’s estimates. Much of that increase is a result of policy responses to the turmoil in the housing and financial markets—particularly spending for the TARP and the conservatorship of Fannie Mae and Freddie Mac. In addition, economic developments have reduced tax receipts (particularly from individual and corporate income taxes) and boosted spending on programs such as those providing unemployment compensation and nutrition assistance as well as those with cost-of-living adjustments.
Without changes in current laws and policies, CBO estimates, outlays will rise from $3.0 trillion in 2008 to $3.5 trillion in 2009 (see Table 5). Mandatory spending is projected to grow by almost $570 billion, or by 36 percent; nearly three-quarters of that growth results from the activities of the TARP and CBO’s treatment of Fannie Mae and Freddie Mac as federal entities. Discretionary spending is projected to grow by $52 billion, or by 4.6 percent. In contrast, net interest is anticipated to decline by 22 percent as a result of lower interest rates and lower inflation. In total, outlays will be equal to 24.9 percent of GDP, a level exceeded only during the later years of World War II.
Spending for certain other mandatory programs is expected to rise sharply this year. The faltering economy has increased outlays for unemployment compensation and the Supplemental Nutrition Assistance Program. Unemployment compensation is projected to nearly double— from $43 billion last year to $79 billion this year— as a result of increased unemployment and legislation to date extending such benefits. Outlays for the nutrition assistance program are expected to grow by 27 percent— from $39 billion to $50 billion—primarily because of increases in caseloads and benefits (resulting from higher food prices).
The three largest mandatory programs—Social Security, Medicare, and Medicaid—are all anticipated to record growth of at least 8 percent this year. Some of that growth stems from the relatively high rate of inflation recorded early in 2008, which boosted cost-of-living adjustments for retirees and the cost of health care. In addition, rising unemployment will add to Medicaid spending by increasing the number of beneficiaries.
Discretionary spending under current laws and policies is projected to grow by 4.6 percent in 2009. In CBO’s baseline, defense outlays rise by 5.0 percent and nondefense outlays by 4.1 percent. However, most programs are currently operating under a continuing resolution, which holds funding for 2009 at the level provided for 2008. Final appropriations and additional funding for operations in Iraq and Afghanistan may increase outlays for 2009 and beyond, and any stimulus package may raisediscretionary spending further.
Saturday, March 29, 2008
“He that goes a-borrowing goes a-sorrowing”
Here is another maligned minority ready to blame others for its own actions, and expecting the taxpayer to foot the bill: “FORECLOSURE VICTIMS INVADE BEAR STEARNS HQ, PICKET JP MORGAN.” It’s not that our hearts do not go out to those people, but why should those not in foreclosure pay for another person’s poor judgment or even avarice?
Lost in the recent high stakes financial shenanigans are the savers, people who did not avail themselves of “easy money,” to buy homes beyond their economic reach. Or those who refused to be seduced by home equity loans to buy into the American dream of vacations, new cars, the easy, beautiful life which assaults us in an continuous loop on the media. Or those in retirement who are dependent on their savings and social security to see them through. They are everything our government is not: responsible, truthful, balancing their budgets at all costs.
How can we punish savers? Let’s start by giving them investment options based on chimerical ratings that are established by rating agencies paid by the very institutions they are rating. Then let’s ratchet down their income from CDs as we try to bail out an economy of credit excesses. Let helicopter dollars rain down on all [http://lacunaemusing.blogspot.com/2008/02/tautological-economics.html] to encourage more spending! But, that’s not enough; let their government take an unprecedented $29 billion dollar risk, ultimately at the taxpayer’s expense, to bail out the bond and equity holders of Bear Stearns (an action rationalized as needed to save our entire financial system). Let’s also talk about eliminating a more progressive graduated income tax in favor of a flat tax so, when savers spend their savings, which have already been taxed once when they were first earned, let’s tax them again via a national sales tax. While we’re at it, let’s also undermine the dollar and introduce inflation so their savings buy less. Then, finally, as social security benefits are adjusted by inflation, let’s artificially understate the real inflation rate to further erode their benefits!
What would Ben Franklin say today, “he that goes a-saving goes a-slaving?”
Lost in the recent high stakes financial shenanigans are the savers, people who did not avail themselves of “easy money,” to buy homes beyond their economic reach. Or those who refused to be seduced by home equity loans to buy into the American dream of vacations, new cars, the easy, beautiful life which assaults us in an continuous loop on the media. Or those in retirement who are dependent on their savings and social security to see them through. They are everything our government is not: responsible, truthful, balancing their budgets at all costs.
How can we punish savers? Let’s start by giving them investment options based on chimerical ratings that are established by rating agencies paid by the very institutions they are rating. Then let’s ratchet down their income from CDs as we try to bail out an economy of credit excesses. Let helicopter dollars rain down on all [http://lacunaemusing.blogspot.com/2008/02/tautological-economics.html] to encourage more spending! But, that’s not enough; let their government take an unprecedented $29 billion dollar risk, ultimately at the taxpayer’s expense, to bail out the bond and equity holders of Bear Stearns (an action rationalized as needed to save our entire financial system). Let’s also talk about eliminating a more progressive graduated income tax in favor of a flat tax so, when savers spend their savings, which have already been taxed once when they were first earned, let’s tax them again via a national sales tax. While we’re at it, let’s also undermine the dollar and introduce inflation so their savings buy less. Then, finally, as social security benefits are adjusted by inflation, let’s artificially understate the real inflation rate to further erode their benefits!
What would Ben Franklin say today, “he that goes a-saving goes a-slaving?”
Friday, February 8, 2008
Tautological Economics
After the Federal Reserve successfully contributed to a real estate bubble which has yet been allowed to completely unwind, Congress could not resist scoring political points, approving a $168 billion economic “rescue” package, the majority of which will be given to taxpayers as rebate checks. The political tag team of President Bush and House Speaker Nancy Pelosi said the following:
Bush: “This plan is robust, broad based, timely, and it will be effective.”
Pelosi: “We are making history. What has passed the Congress in record time is a gift to the middle class and those who aspire to it in our country.”
While the part of the package that increases the level of expenses that businesses can immediately write off would seem to make sense, as this incentive is almost certain to guarantee investments in new capital equipment and is sure to stimulate job creation, the “gift” part is tantamount to handing a drunk a cheap bottle of wine.
True, it is in keeping with Keynesian economics, the theory being that this handout will be spent by the consumer and will reverberate throughout the economy. As noted in a footnote in a speech given by Ben Bernanke in 2002 before he was Chairman of the Federal Reserve, “Keynes once semi-seriously proposed, as an anti-deflationary measure, that the government fill bottles with currency and bury them in mine shafts to be dug up by the public.” Of course, that was before helicopters so we now have a better method of distributing money to the masses without having to haul our sorry butts off to a mine shaft.
At least Keynes might have been referring to currency already earned, but where is this $168 billion coming from? We’re going to print it or borrow it at the expense of future generations. We will simply increase the deficit. Where will the money go? Maybe we’ll buy some plasma TVs or other electronics at our local Wal-Mart, most of which is made in China, the country that will be lending us the money so we can make those purchases. This would seem to be a form of tautological economics but if it works, why not borrow $1.68 trillion instead of a mere $168 billion? We can use the larger refund as down payments on new mortgages to buy some depressed real estate. Everybody wins!
But getting back to reality, most of the money will probably go to pay off debt, but given the extent of sub prime and foreclosure issues, the rebates will only briefly push back the inevitable. In the 1980s we were able to deal with The Savings and Loan Crisis through the formation of the Resolution Trust Corporation. Shouldn’t Congress be busy addressing our fragile economic system with a more permanent solution than just throwing money at the problem, a temporary fix at best?
Bush: “This plan is robust, broad based, timely, and it will be effective.”
Pelosi: “We are making history. What has passed the Congress in record time is a gift to the middle class and those who aspire to it in our country.”
While the part of the package that increases the level of expenses that businesses can immediately write off would seem to make sense, as this incentive is almost certain to guarantee investments in new capital equipment and is sure to stimulate job creation, the “gift” part is tantamount to handing a drunk a cheap bottle of wine.
True, it is in keeping with Keynesian economics, the theory being that this handout will be spent by the consumer and will reverberate throughout the economy. As noted in a footnote in a speech given by Ben Bernanke in 2002 before he was Chairman of the Federal Reserve, “Keynes once semi-seriously proposed, as an anti-deflationary measure, that the government fill bottles with currency and bury them in mine shafts to be dug up by the public.” Of course, that was before helicopters so we now have a better method of distributing money to the masses without having to haul our sorry butts off to a mine shaft.
At least Keynes might have been referring to currency already earned, but where is this $168 billion coming from? We’re going to print it or borrow it at the expense of future generations. We will simply increase the deficit. Where will the money go? Maybe we’ll buy some plasma TVs or other electronics at our local Wal-Mart, most of which is made in China, the country that will be lending us the money so we can make those purchases. This would seem to be a form of tautological economics but if it works, why not borrow $1.68 trillion instead of a mere $168 billion? We can use the larger refund as down payments on new mortgages to buy some depressed real estate. Everybody wins!
But getting back to reality, most of the money will probably go to pay off debt, but given the extent of sub prime and foreclosure issues, the rebates will only briefly push back the inevitable. In the 1980s we were able to deal with The Savings and Loan Crisis through the formation of the Resolution Trust Corporation. Shouldn’t Congress be busy addressing our fragile economic system with a more permanent solution than just throwing money at the problem, a temporary fix at best?
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