S&P warning shows Britain is out of credit

On the other side of the pond...

From Telegraph.co.uk

One of the reasons we know this crisis is no ordinary recession is the prodigious amount by which it is likely to push up the national debt. Before the collapse of Northern Rock, Britain's net public debt to gross domestic product ratio was down at below 40pc – the level widely considered to be consistent with a well-managed economy. In a couple of years' time it is likely to be rather closer to 100pc, thanks to the extra debt incurred in the bank bail-outs, the tax foregone because of the recession and the cost of trying to keep the economy afloat.

But as threatening as this is, it is nothing in comparison with the effect of ageing on our economy. We have committed to paying generations set imminently to retire pensions more generous than we ought to have; providing healthcare more expensive than we anticipated. Tie this to the fact that the population is greying, meaning there are ever fewer taxpayers to support those in retirement, and you have the recipe for a full-scale fiscal disaster.

Americans' savings rate jumps, but there's a catch

From Latimes.com

The government's measure of Americans' savings rate soared in May to the highest level in 15 years, but the number isn't quite what it seems.

The Commerce Department measures total personal income, then deducts personal spending to arrive at what was saved.

That isn't a very reliable way to determine whether or how much people actually are saving, because a single month's data can be skewed by unusual items.

That's what happened in May: One-time federal stimulus payments of $250 each to retirees and others receiving government aid -- so-called transfer income -- drove total personal income up 1.4% from April, while spending rose a modest 0.3%.

That boosted what the government calculates was left in people's pockets. Savings as a percentage of total disposable income jumped to 6.9% from 5.6% in April.

Whither the Dollar?

From Thenewamerican.com

As the fallout from the global financial crisis continues, the burning question in international financial circles is whether the U. S. dollar, the world’s reserve currency since the Second World War, can retain its status. Chinese and Russian leaders have already signaled their distaste for continued dollar hegemony, and the latter have even taken the extraordinary step of publicly seeking assurances that their dollar-denominated assets — U.S. government debt — will be protected.

Pessimism Rising Despite Obama's Popularity

From Nationaljournal.com

Three new polls are out, and all convey the same message: Progress in Washington has stalled, partly because President Obama is more popular than his policies.

Take the CBS News/New York Times poll, which gave the president an overall approval rating of 63 percent. Obama gets just shy of 60 percent approval on foreign policy and terrorism, his strongest issues. His economic rating is holding up reasonably well (57 percent approval), even though the prevailing sentiment is that the president's economic policies have not yet had much effect.

On health care, Obama's ratings are less than 50 percent. Many Americans are not yet familiar with his health care proposals.

The president gets his worst marks on his handling of the auto industry (41 percent approval). The public doesn't like bailouts. "Some of those things are popular; some of those things are not popular," White House press secretary Robert Gibbs commented in response to the poll. "I think the president would tell you that he's going to do what he thinks is in the best interest of the American economy."

Bottom line? In the NBC News/Wall Street Journal poll, three-quarters of Americans said they like Obama. But only about half (51 percent) said they support his policies.

People think that the economic recovery may be slowing. From February to May, more Americans began to think that the economy was getting better (5 percent in February, 26 percent in April, 32 percent in May), according to the CBS/Times poll. But now the number of optimists has dwindled a bit -- to 27 percent.

The Pew Research Center poll? From January to May, the number of people who said they were satisfied with the way things are going in the country increased from 20 percent to 34 percent. Now the number has sagged to 30 percent.

Swelling Deficit Could Slow Recovery

From Forbes.com

In the midst of the worst U.S. economic recession in the post-war period, President Barack Obama in February presented Congress with a budget blueprint that packaged an exceptionally expansionary policy with the rhetoric of fiscal responsibility. However, the prospect of the budget deficit remaining in excess of $1 trillion per year over the next decade raises a number of concerns about longer-term interest rates and the value of the dollar.

1. Inflation danger. The prospective rise in the federal debt-to-GDP ratio to 82% by 2019 raises the likelihood of high long-term interest rates that would be harmful for longer-term economic growth. Large public borrowing requirements would require the Federal Reserve to follow a more restrictive monetary policy approach to contain inflation, while a large rise in the public debt-to-GDP ratio could put the U.S. government's AAA debt rating in jeopardy.

2. Entitlement program concerns. The projected trajectory of the deficit over the next decade is likely to deepen concern about the major challenges to the U.S. public debt outlook in the decades ahead due to the unfunded nature of U.S. social security programs as the baby boom generation reaches retirement. In the absence of policy changes, Social Security (the state pension) and Medicare (government health care for the elderly) outlays will together increase from 8.5% of GDP today to 12.5% of GDP by 2030.

3. Pressure on the dollar. The prospective large public-sector borrowing requirements over the next decade are likely to raise concerns for the dollar. Already foreigners finance close to 50% of the U.S. budget deficit (lumping together central banks, foreign wealth funds, non-U.S. pension and investment funds and non-U.S. corporations) and hold over $3 trillion in U.S. government paper. It would seem implausible to expect foreigners to indefinitely fund such large deficits, especially when they are already voicing concerns about fiscal sustainability.

4. Interest rates. The prospect of large budget deficits is undermining the Federal Reserve's efforts to reduce long-term interest rates as a means to stimulate the economy and stabilize the housing market. In March, after having reduced the federal funds rate to a range between zero and 0.25%, the Fed indicated that it would try to reduce long-term interest rates by:

Fed Douses Purchases Talk, Urges Investors to ‘Relax’

From Bloomberg.com

Federal Reserve officials, encouraged by signs the recession is easing, doused speculation they will pump more money into the economy to hold down interest rates, while indicating they’re not ready to begin a retreat.

Fed policy makers voted yesterday to maintain the size and pace of their $1.75 trillion program to buy mortgage debt and Treasuries. The central bank said it sees a “gradual resumption of sustainable” growth even as “substantial” economic slack holds down inflation pressures.

The statement indicated policy makers need more time to assess the prospects for a recovery starting in the second half of the year before deciding to embark on any exit from their unprecedented credit programs. Complicating their task is an increase in Treasury yields, which yesterday’s message failed to stem: 10-year rates rose five basis points, the most in almost a week, and a further two basis points to 3.71 percent today.

“The Fed is reminding the hyperventilating bond market that it needs to relax,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Inflation will be low for some time because the economic weakness will be with us for a time. They are not about to start to thinking about an exit strategy.”

Decline and Fall:

From Encorepub.com

As inevitable as the rising of the sun in the morning and its descent in the evening, eventually, every great empire in history reaches its summit of outermost expansion, its moment of greatest wealth, power and influence. And then, decline and fall inevitably follow.

Assyria. Persia. Macedonia. Rome. Byzantium. Britain. History is replete with examples of nations that dominated the politics and economies of an era, and, once they reached their zeniths, subsequently returned to a relatively minor status among nations. Through the ill-advised decisions of a nation’s leaders, suffice to say, some fell quicker than others.

America will be no different. The only question is how quickly the nation’s leaders wish to travel down the road to serfdom.

A Nation of Deficit Hawks Or Hypocrites?

From Theatlantic.com

The Journal poll has a solid majority (58%) agreeing that "The President and the Congress should worry more about keeping the budget deficit down, even though it may mean it will take longer for the economy to recover." The Times poll has a majority (52%) siding with the view that the "federal government should NOT spend money to stimulate the national economy and should instead focus on reducing the budget deficit." And YES, all caps in the original.

I find this odd because Americans overwhelming supported the recent effort to ... spent a humongous pile of money stimulating the economy. You can find a rundown of 11 polls on this here. In every poll -- every single poll -- a big plurality of Americans supports the stimulus, and in nine of the polls a majority of the public supports it. Sometimes as much as 70% of the public supports it.

I know public opinion is complicated and preferences can work on many levels and so forth, but I would have thought it would take at least six months to do a complete somersault on this.

Twin Threat: Jobless Rate, Deficit

From Wsj.com

President Barack Obama faces a dilemma as he fights the recession: The public identifies both rising unemployment and soaring budget deficits as its top policy concerns -- but fixing one could worsen the other.

Mr. Obama can ill afford to lose public support on the cusp of the biggest political fights of his presidency, over health care, energy and financial reregulation. Three separate polls this week, including one from the Wall Street Journal/NBC News, have raised red flags at the White House that the president, though still personally popular, is losing some ground with the public on his economic policies.

Officials concede there is little the president can do to please everyone, given the economic Catch-22. If he heeds concerns on the deficit and pulls back on economic stimulus, he risks choking off the "green shoots" of what may be a fledgling recovery.

Polls Show Americans Don't Like Deficits

From Cbsnews.com

The latest CBS News/New York Times Poll found that by 52 percent to 41 percent, Americans would prefer the federal government focus on reducing the budget deficit rather than spending to stimulate the economy.

Americans have never liked deficits -- they've been viewed as serious problems, and when the government has run a deficit, polls have often shown that lowering it was a priority.

Our nation's elected leaders need to "begin planning now" to control the federal budget deficit

From Messengernews.net

Our nation's elected leaders need to "begin planning now" to control the federal budget deficit, Federal Reserve Chairman Ben Bernanke told members of the House Budget Committee Wednesday. After Bernanke issued his warning, members of Congress went back to "planning now" - to increase, not reduce, the deficit.

During the administration of former President George W. Bush, the nation's debt was allowed by the White House and Congress to expand dramatically.

But worse - much, much worse - is to come.

The dollar amount of our national debt - $11.4 trillion as of Wednesday - is not as significant as the ratio of debt to gross domestic production, which is the total amount of goods and services produced by our economy each year. The higher the debt in relation to the GDP, the worse off our economy will be in the future.

Bernanke told lawmakers that the debt stood at about 40 percent of GDP last year. By 2011 - in just two years - it is expected to hit 70 percent. Another analysis, by the Congressional Budget Office, is that the debt will be 82 percent of GDP by 2019.

10-year yield at 4% snarls recovery

From Cnn.com

The 10-year Treasury yield soared to 4% for the second day in a row Thursday - before backing off later in the session -- heightening inflation fears and threatening to upset the nascent signs of an economic recovery.

Just six months ago, the yield on the 10-year note hovered around the 2% level, as investors opted to park money in government-backed debt rather than higher risk equities.

The bond market typically takes a back seat to the stock market, which offers higher rewards but also higher risk. As the economy slogged through the recession, investors have remained cautious and plugged into bonds.

Prior to Wednesday, the benchmark yield had not reached 4% since mid-October. But Wall Street's tectonic plates have started to shift.

White House Sends Signals on Deficit

From Wsj.com

But the deficit also is becoming a significant short-term psychological problem that the administration has to deal with now. Put simply, if the administration can't convince the financial markets, the Congress and the public that it really, truly will cut into the deficit over time, even if it can't do so for a while, the long-term economic and political problems get a lot worse.

SOCIAL SECURITY AND MEDICARE PROJECTIONS: 2009

From Ncpa.org

The 2009 Social Security and Medicare Trustees Reports show the combined unfunded liability of these two programs has reached nearly $107 trillion in today's dollars! That is about seven times the size of the U.S. economy and 10 times the size of the outstanding national debt, says Pamela Villarreal, a senior policy analyst with the National Center for Policy Analysis.

The unfunded liability is the difference between the benefits that have been promised to current and future retirees and what will be collected in dedicated taxes and Medicare premiums. Last year alone, this debt rose by $5 trillion. If no other reform is enacted, this funding gap can only be closed in future years by substantial tax increases, large benefit cuts or both, says Villarreal.

Currently, a 12.4 percent payroll tax on wages funds Social Security and a 2.9 percent payroll tax funds Medicare Part A. But if payroll tax rates rise to meet unfunded obligations:

• When today's college students reach retirement (about 2054), Social Security alone will require a 16.6 percent payroll tax, one-third greater than today's rate.
• When Medicare Part A is included, the payroll tax burden will rise to 25.7 percent -- more than one of every four dollars workers will earn that year.
• If Medicare Part B (physician services) and Part D are included, the total Social Security/Medicare burden will climb to 37 percent of payroll by 2054 -- one in three dollars of taxable payroll, and twice the size of today's payroll tax burden!

Thus, more than one-third of the wages workers earn in 2054 will need to be committed to pay benefits promised under current law. That is before any bridges or highways are built and before any teachers' or police officers' salaries are paid.

The Social Security and Medicare deficits are on a course to engulf the entire federal budget. If our policymakers wait to address these growing debts until they are out of control, the solutions will be drastic and painful, says Villarreal.

Obama's Paygo

From Washingtonpost.com

With the budget deficit soaring toward a record $1.8 trillion, the Obama administration is planning to propose tough new rules that would require lawmakers to pay for new initiatives -- including an overhaul of the health system -- or face automatic spending cuts.

The new rules, which could be rolled out as soon as today, come amid growing anxiety among the nation's foreign creditors and some of its top economic policymakers about the tide of red ink. Surveys show ordinary citizens, too, are growing concerned, with the public divided in a new Gallup poll on President Obama's handling of the deficit.

Obama: It's OK to borrow to pay for health care

From AP:

President Barack Obama on Tuesday proposed budget rules that would allow Congress to borrow tens of billions of dollars and put the nation deeper in debt to jump-start the administration's emerging health care overhaul. The "pay-as-you-go" budget formula plan is significantly weaker than a proposal Obama issued with little fanfare last month.

It would carve out about $2.5 trillion worth of exemptions for Obama's priorities over the next decade. His health care reform plan also would get a green light to run big deficits in its early years. But over a decade, Congress would have to come up with money to cover those early year deficits.

Obama's latest proposal for addressing deficits urges Congress to pass a law requiring lawmakers to pay for new spending programs and tax cuts without further adding to exploding deficits projected to total about $10 trillion over the next decade.

Can U.S. afford trillion more in debt?

From Cnn.com

• John Feehery: Health care reform plan would cost more than a trillion dollars
• He says U.S. already spends more on health care than anyone else
• Spending on defense also leads the world, Feehery says
• He says U.S. can't afford to keep spending and borrowing

China and the Fed will tame Obama spending

From Timesonline.co.uk

No, Republicans in Congress have not produced a coherent alternative to the president’s deficit spending programmes, or his plan to move the boundary between the public and private sectors to the left. And no, the economic data do not suggest that the president’s stimulus package has failed.

Indeed, the housing market is showing signs of bottoming out. Pending house sales (deals signed but not yet completed) rose 6.7% in April, the biggest jump in more than seven years. Consumer confidence, personal disposable income and construction spending are all up, and monthly job losses have halved. Builders are more active. The index of manufacturing activity is rising. As Federal Reserve Board chairman Ben Bernanke told Congress last week: “We continue to expect overall economic activity to bottom out, and then to turn up later this year.” Finally, the banks are raising new capital ($85 billion in the past month alone) so they can repay the government bail-out loans.

So if it is indeed, “the economy, stupid”, as Bill Clinton’s adviser James Carville once contended, the president’s popularity ratings should remain stratospheric, at least in the near term. The long-term challenge to the president (leave aside a possible fiasco in Afghanistan) comes from two related places: the bond markets and China.

Fed’s Fisher Says U.S. Will Not ‘Monetize’ Deficit

From Bloomberg.com

Dallas Federal Reserve Bank President Richard Fisher said the U.S. has no intent to “monetize” its growing deficit as it seeks to stem the credit crisis.

“We have to be very clear we will not monetize deficits,” Fisher said today in a speech in Lubbock, Texas.

Rising U.S. government spending and forecasts for a record fiscal deficit have fueled investor concerns that inflation will rise and confidence in the dollar will fall. The U.S. budget gap is projected to reach $1.75 trillion in the year ending Sept. 30 from last year’s $455 billion shortfall, according to the Congressional Budget Office.

Climate bill to cut US deficit

From Businessmirror.com.ph

US climate legislation approved by a House committee would raise more revenue than it would cost in federal spending through 2019, the Congressional Budget Office said in a report.

The budget estimate says the legislation, to cap greenhouse-gas emissions and create a system to trade pollution permits, would raise $845.6 billion, while adding $821.2 billion to federal spending, a $24.4 billion net gain.

President Obama, during a visit to Germany, expressed optimism about the legislation, saying the process “is moving forward” in ways that “would have seemed impossible two or three months ago.”

Bernanke Urges Deficit Reduction

From Wsj.com

Federal Reserve Chairman Ben Bernanke warned Congress and the White House that the U.S. economy will suffer if they don't move soon to rein in the federal budget deficit, which the Fed chief blamed for helping to push long-term interest rates higher.

Mr. Bernanke, who offered an important voice of support earlier this year to the Obama administration's $787 billion fiscal stimulus plan, told Congress Wednesday, "Even as we take steps to address the recession and threats to financial stability, maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance."

Yields on long-term Treasury bonds have been rising despite the Fed's efforts to push them down by purchasing Treasury securities. The Fed wants Treasury yields lower because they are a benchmark for many other private-sector interest rates -- such as rates on mortgages or corporate bonds.

"Concerns about large federal deficits," Mr. Bernanke said, are one cause of the unwanted rise in yields. The wider the deficits, the more the Treasury borrows and the higher rates go. Wider deficits also stir inflation fears, which also push Treasury yields up.

Treasury prices move higher after Fed's purchase operation

From Money.cnn.com

Treasury prices rose Wednesday after the Federal Reserve's purchase of government debt and Fed Chairman Ben Bernanke's comments about the national deficit.

The rally gained steam as stocks sold off in afternoon trading.

The benchmark 10-year note rose 19/32 to 96 17/32 and its yield fell to 3.55%. Bond prices and yields move in opposite directions. The 30-year bond edged up 23/32 to 96 29/32 and its yield dipped to 4.44%

We can bear neither our shortcomings nor the remedies for them

From Humanevents.com

The Roman historian Livy famously described the terminal plight of the late Roman Republic: "Nec vitia nostra nec remedia pati possumus" ("We can bear neither our shortcomings nor the remedies for them"). As I reread this phrase in Christian Meier's biography of Julius Caesar this past weekend, I couldn't help thinking of America's current fiscal profligacy -- which has been growing for years at an ever-accelerating rate.

Of course, since last fall's financial/economic crisis, the rate of profligacy has become supercharged. Like the Roman Republic's lament, we think we can't survive without deficit spending -- but we soon won't be able to survive with deficit spending, either.

1 Trillion A Year Deficit Interest Rate Payment

From 247wallst.com

Like the Texas Hold’em player who pushes every last dime into the center of a poker table, the federal government is now “all in” with its commitment to push the national debt to 50% of GDP. The Congressional Budget Office believes that the Treasury will have to borrow nearly $2 trillion this year. None of that is new news, but what is beginning to emerge is a picture of a government which has narrowed its options for improving the economy down to one. Either GDP turns sharply up next year or the deficit will become an unmanageable burden. The Treasury will have to default on interest payments if sharply raising taxes in 2010 and 2011 does not bring IRS receipts to historic highs. That would not appear to be likely with unemployment moving toward 10% and American corporate earnings badly crippled.

Since the government has left itself no room to maneuver because of its massive commitment to spending, the focus will become what the carrying costs of the debt will be. The Congressional Budget Office predicts that the interest payments on government debt this year will be $172 billion in 2010 and will rise to $806 billion in 2019. Those forecasts are optimistic. If the economy has a sluggish recovery, GDP will not rise at anywhere close to the rate of interest coverage, leaving the burden of government debt at a level which will be both unimaginable and unsustainable. Interest due on the debt could easily be $1 trillion toward the end of the next decade.

Most of the conversation about American borrowing has focused on whether the Chinese and other large buyers of Treasuries will continue to have an appetite for US paper. Very soon the focus of the debate will move to whether the government will find that it does not have the ability to cover the service on the outstanding debt balance.

The possibility of a default on US paper was raised publicly when S&P made negative comments about the balance sheet of the UK. Another ratings agency, Moody’s, said its confidence in the quality of Treasuries had not changed even with the rising US deficit. That leaves people looking at the Moody’s opinion to deduce that the ratings agency sees either a surge in US GDP over the next three or four years or a super-normal capacity of individual and corporate taxpayers to take on a growing burden.

In reality, the future of the deficit and the interest due on it to come down to two things which would have to happen almost simultaneously. The tax burden in America would have to be raised and the economy would have to return to a period of 4% GDP growth. One without the other would not be adequate given the size of the hole that must be filed.
The capacity of the US to shoulder a tax burden, the likes of which it has never seen, and simultaneously create a rapid and sharp reversal in falling GDP put the government back into the role of the poker player who is “all in.” If the economic stimulus package is not having phenomenal success before the end of the year, the federal government will not have any options other than to learn to live with a budget much smaller than the one it envisions now.

European Nations ‘as Bad as Argentina,’ Ferguson Says

From Bloomberg.com

Many European governments’ finances are as risky as Argentina’s were at the height of its worst financial crisis, and the U.K. gives cause to be “extremely nervous,” Harvard University professor Niall Ferguson said.

“It is a myth that countries don’t go bust, you only have to look at the history of Latin America to see that they do,” Ferguson told Bloomberg Television today. “When you look at the financial position of many European countries today, especially east European countries but also some west European countries, it’s every bit as bad as Argentina was in 2002.”

The average euro region budget deficit will swell to 6.5 percent of output this year, more than double the European Union’s limit, the European Commission forecasts. In the U.K., Prime Minister Gordon Brown’s government predicts an annual shortfall almost twice that size because of the cost of bank bailouts and a slump in tax receipts from the recession.

“One has to be extremely nervous about the situation in the United Kingdom, borrowing on the same scale as the U.S. but without a reserve currency,” Ferguson said.

6 options for stabilizing Social Security

From Dallasnews.com

Come up with your own plan to stabilize Social Security. Try mixing and matching these six options to close the funding gap.

Most analysts expect lawmakers to approve a combination of tax changes and benefit changes so that workers and beneficiaries share the cost of stabilizing Social Security over the next 75 years.

TAX CHANGES

Increase the payroll tax.

Social Security gets most of its money from a payroll tax on covered workers' earnings – up to $106,800 in 2009. The current tax rate is 12.4 percent – 6.2 percent from employees and 6.2 percent from employers. Raising the rate by one-quarter of 1 percentage point on both employees and employers would close 23 percent of Social Security's shortfall. 23%

Raise the limit on taxable earnings.

Historically, Social Security has taxed 90 percent of all earnings in covered jobs, but that share has slipped to 83 percent over the last 25 years. If the share had remained constant, taxable maximum income would be $213,000 in 2009. Phasing in a taxable maximum that again covered 90 percent of all wages by 2020 would close 39 percent of Social Security's gap. 39%

Include newly hired state and local government workers.

About 5 million state and local government workers aren't covered by Social Security. Bringing newly hired employees into the system would produce revenue in the short term and close 10 percent of Social Security's shortfall, though the measure's impact would diminish as those covered workers started claiming benefits. 10%

BENEFIT CHANGES

Raise the full retirement age to 68 or 70.

Because of Social Security reforms approved in 1983, the full retirement age is scheduled to increase to 67 for workers born in 1960 or later. Further increasing the full retirement age to 68 by 2028 would close 25 percent of Social Security's gap, while raising the

age to 70 by 2040 would close 61 percent of the shortfall. 25%

Reduce cost-of-living adjustments.

Some analysts say Social Security's annual automatic cost-of-living adjustments should be cut because they overstate price increases. Using a more accurate inflation index that accounts for consumers' changing their purchasing habits in response to price hikes would close 17 percent of Social Security's gap. 17%

Change the initial benefit formula.

Social Security pays retirement benefits based on the highest 35 years of a worker's earnings. Some analysts propose using 38 or 40 years, which would scale back benefits for workers with shorter careers. The 38-year proposal would eliminate 18 percent of Social Security's deficit; the 40-year proposal would eliminate 29 percent. 18%

Geithner to Reassure China U.S. Will Control Deficits

From Bloomberg.com

Treasury Secretary Timothy Geithner arrived in Beijing with a pledge that the Obama administration will control its borrowing as he sought to reassure China its holdings of U.S. government debt are safe.

“No one is going to be more concerned about future deficits than we are,” Geithner told reporters on the way to two days of meetings that start today in China’s capital.

Geithner will meet with Premier Wen Jiabao, who in March called for the U.S. to “guarantee the safety of China’s assets.” China is the largest foreign holder of U.S. government debt, which so far this year has handed investors the worst loss since at least 1977 on forecasts for ballooning federal budget deficits.

“I hope Geithner’s visit can soothe our nerves,” said Yu Yongding, a senior researcher at the government-backed Chinese Academy of Social Sciences and a former central bank adviser. “The Chinese public is worried about the safety of its foreign- exchange reserves,” Yu said in an e-mail.

U.S. Debt $668,621 Per Household

From Theatlantic.com

No that's not a typo: that's the statistic according to USA Today. The folks over there have done some really great work this week with another interesting interactive chart attached to an article about the nation's debt. If they keep this up, I'll have to stop considering it a useless free newspaper I step over when leaving a hotel room. The numbers it reports are staggering.

Again, I wish I could include the interactive chart it shows, but it breaks down the $668,621 by various components of federal government debt ($546,668) and personal debt ($121,953). Presumably that means this astronomical figure does not even include state and local government debt. I thought it might be fun to put this number into perspective.

Because it's pretty hard to identify what the weighted-average interest rate is for this debt, I show a few different scenarios. That way you can decide for yourself which scenario you find most plausible. The interest rate is shown, along with two different time horizons for each scenario. I then provide the amount of money that would be needed to pay off the debt per household, per year.

Scenario #1: 5%
30 years: $43,469
50 years: $36,603

Scenario #2: 3%
30 years: $34,092
50 years: $25,971

Scenario #3: 0%
30 years: $22,274
50 years: $13,364

So in the hopelessly optimistic best case scenario, each American household would have to pay $13,364 per year for 50 years. That is, of course, assuming that the federal government closes the deficit (fat chance), and each household does not incur additional debt (doubtful). And recall: it does not include state and local debt. According to U.S. Census Bureau data, the 2007 median household income was $50,233 -- before taxes. So you can kind of imagine how impossible even the best case scenario of $13,364 per household, per year would be anyway.

I admit this is a gross oversimplification. It does not consider inflation, which is sure to happen, and which will help a bit. But if you assume the above interest rates are real interest rates (nominal interest rate minus inflation), then this might make the 0% scenario a little more likely -- but probably not for 30 or 50 years, I hope. My scenarios also do not consider U.S. population growth, which there undoubtedly will be.

Despite its simplicity, I think this analysis shows just how dire a situation the nation's debt poses. I know there's a popular argument that we've always been in debt, so it's nothing to worry about. As these numbers continue to grow, however, I think the plausibility of that argument wanes.

Jittery Bond Market Threatens President's Agenda

From Online.wsj.com

Senior Obama administration officials said Friday that policy adjustments necessary to contain soaring budget deficits would be made once an economic recovery takes hold, in response to growing concerns about a run-up in long-term interest rates.

Treasury Secretary Timothy Geithner, National Economic Council chief Lawrence Summers and Office of Management and Budget director Peter Orszag said in separate interviews that the administration was acutely aware that rising interest rates pose a threat to the improving U.S. economy.

You think Social Security has troubles?

From Smartbrief.com

Far from being the solution to the problems with government-funded retirement and health care problems, the private sector has even bigger problems of its own, writes Daniel Gross. "We could be in for a couple of years of slow growth, cost-cutting, and a weak employment market, which would only accelerate the trends of companies shedding health care and slashing 401(k) benefits. And we haven't even discussed the crisis surrounding old-style defined-benefit pension plans." Slate (05/28)

The Recession May Be Causing Baby Boomers to Claim Social Security Early

From Usnews.com

Most baby boomers say they plan to work during the traditional retirement years. But that doesn’t mean they’re able to find work. The Social Security Administration reports a surge in early retirement claims this year.

Applications for retired worker benefits are up 25 percent so far this year compared to fiscal year 2008. The Social Security Administration was expecting a 15 percent boost in applications this year due to aging baby boomers and women claiming based on their own working record and not a spouses. SSA attributes the rest of the increase to the economy. “So far in fiscal year 2009, retired worker benefit applications are about 8 to 9 percent higher than had been expected in the absence of a recession,” says Stephen Goss, chief actuary of the Social Security Administration. “It is likely that total retired worker benefit applications will turn out to be about 5 to 10 percent higher during fiscal year 2009 than had been expected in the absence of a recession.”

Treasuries Head for Second Monthly Loss on U.S. Borrowing Spree

From Bloomberg.com

Treasuries headed for their second monthly loss, pushing 10-year yields up the most in almost six years, as President Barack Obama’s record borrowing spree overwhelmed Federal Reserve efforts to cap interest rates.

Notes, little changed today, also tumbled this week on speculation the worst of the economic recession is over. A private report today will show confidence among U.S. consumers gained in May for a third month, economists said. South Korea’s National Pension Service, the nation’s largest investor, plans to reduce the weighting of U.S. bonds in its holdings, the government said in a statement.

Dollar falls towards 5-mth low on US debt worries

From Reuters.com

The dollar fell towards a five-month low against a basket of major currencies on Friday as signs the global recession may have passed its worst and concern about ballooning U.S. government debt prompted investors to sell the safe-haven currency.

The dollar was under pressure again a day after strong U.S. durable goods data reduced the need for investors to hold the world's most liquid currency. [ID:nN28317740]

The greenback extended losses yesterday on worries about whether the United States could keep attracting enough funds to finance its programmes to support the financial industry and stimulate the economy.

South Korea's National Pension Service (NPS), which is expected to manage 432 trillion won ($343.7 billion) by the end of 2014, would reduce its exposure to equities and U.S. bonds, its overseeing ministry said on Friday. [ID:nSEO14390]

"The main focal point in the forex market continues to be the U.S. Treasury market," said a senior trader at a big Japanese bank. "Given its huge size, people just cannot take their mind off the possible impact the market could have on exchange rates and share prices if things get ugly."

The Real US Federal Debt Has Ballooned to More than $100 Trillion

From Ibtimes.com

According to Richard W. Fisher, the president and CEO of the Federal Reserve Bank of Dallas, the unfunded liabilities of the US Social Security and Medicare system stand at $99.2 trillion today. That figure is not a misprint. If the US government plans to keep operating the Social Security system and the Medicare system, then the official federal debt really is $11.3 trillion plus $99.2 trillion, or $110.5 trillion. Why does our government state that its federal deficit is only slightly north of $11 trillion (with the term "only" a relative term, given that the true US deficit is about ten times greater than the "official" government figure)? Over the years, the US government has stated several reasons why they don't include unfunded obligations in their official debt figures, with one of the most common reasons being that these programs are optional and can be cut at any time.

Stimulus Spending Overstated by Obama Officials

From thecaucus.blogs.nytimes.com

When the Obama administration issued its first quarterly report on the $787 billion stimulus package earlier this month, prompting questions about the rate of stimulus spending, it overstated how much money had been actually been spent by roughly a third.

U.S. Deficits Stir Financing Worries

From Businessweek.com

Rates for long-term Treasuries are rising, which could drive up both mortgage rates and business borrowing costs. Could stagflation result?

The federal government is being forced to greatly expand its sales of Treasury bills, notes, and bonds to cover a deficit that is projected to soar this year to eye-popping levels. So far, the new debt has been selling at low interest rates because investors prefer the safety of Treasury securities in uncertain times. But what would happen if that changed?

If China and other foreign investors suddenly stopped buying U.S. debt, the cost of borrowing for consumers and businesses could rise—and the value of the dollar could fall, raising the threat of inflation.

Chances of that outcome still remain remote, but analysts worry about what might happen if Congress and the Obama Administration don't do a better job of curbing deficit spending. Here are questions and answers examining the links between the government's borrowing needs and the economy.