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.
Monday, June 1, 2009
Geithner to Reassure China U.S. Will Control Deficits
U.S. Debt $668,621 Per Household
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: $36,603Scenario #2: 3%
30 years: $34,092
50 years: $25,971Scenario #3: 0%
30 years: $22,274
50 years: $13,364So in the
hopelessly optimisticbest 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
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?
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
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
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
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
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
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
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.
