In thrall to a long-dead experiment

By Patrick McIlheran

Milwaukee Journal Sentinel

We are all Keynesians now, Richard Nixon is said to have said. Too true, says Hunter Lewis, who's got a new book on how the famous British economist is still messing with your life.

And he is. We are all followers of John Maynard Keynes in the sense that lab rats, learning a maze by electric shocks, are disciples of some psychologist's theory. We no more benefit from this than do the rats.

Keynes, who died in 1946, is fashionable again. Politicians pray for his blessing on their stimulus plans, since Keynes preached that the way out of a slump was for government to spend lots of money. It should borrow vastly, said Keynes, and spend it on anything. He's the guy who first suggested paying some to dig ditches and others to refill them.

Nor just in slumps, said Keynes: Governments should print money, loads of it, to drive interest rates toward zero. This would cause a permanent boom, if only we also tax away money hoarded uselessly by rich people.

Sound familiar? Of course, says Lewis, who explains the doctrine precisely in "Where Keynes Went Wrong." Washington's embrace of Keynes went uninterrupted through Clinton to Bush to Obama. Fannie Mae's loose loans, the Fed's giveaway rates, bailouts, the porkulus: all Keynes, no matter the party.

How has that worked? "There's just no evidence" that this ever cured a recession, Lewis told me. Keynes "wasn't particular interested in evidence."

History suggests he should have been. Keynes was embraced by Franklin Roosevelt in the Depression; this stalled the mid-1930s recovery. Keynes' ideas in the 1970s led to stagflation. Japan stimulated crazily in the 1990s, giving itself the Lost Decades. The cure for the 2001 slump set up the 2008 crash.

Whereas recessions without stimulus - America in 1921, Southeast Asia in the 1990s - were sharp but swiftly over.

When governments pump stimulating rivers of money, they manipulate prices, the economy's gauges. By juking interest rates, the price of money, you're messing with the most critical gauge. The ensuing unreality leads to inflation, dot-com bubbles or foreclosed subdivisions. Stimulus is like curing a hangover with Thunderbird.

Lewis feels Keynesianism, an intellectual bubble, is nearing a pop, if only because Washington is running out of willing lenders. About time, he says. It has punished thrift and encouraged profligacy. It has led government to turn swaths of the economy into federal protectorates. "That's the single thing that worries me most," he said, the way bonds between government and business make the two indistinguishable. It sickens democracy.

Keynes wasn't a clear writer, says Lewis. He was self-contradictory: The solution to bad debt is more debt, for instance. The more you spend, the more you have. Deficits are a kind of savings. Lewis becomes grimly hilarious when he compiles the Keynesian paradoxes now being spouted. You realize our leaders aren't making sense.

Keynesians argue that it does make sense, only you rabble aren't equipped to comprehend. Keynes believed the economy couldn't be left up to rabble, who were ruled by "animal spirits." It had to be run by the wise - by people like him.

"He said, 'If things go too far in the wrong direction, I'll just step in and fix it,' " said Lewis. "Then he died."

We since have learned that governments are ruled by spirits as animal as anyone's, only with bigger paws. No one is so short-term as politicians, thinking of re-election and seduced by an urge to be in charge. This is why Keynesianism has triumphed among them, said Lewis: "It's a rationalization for policies that they'd like to pursue anyway."

So we all live in a $24 trillion experiment in whether, this time, stimulus will work. Two questions from one of the rats:

First, if the government rigs reality by messing with the value of money, how can we expect any other part of the economy to not be distorted and dishonest?

Second, if we abandon simple, comprehensible rules and rely on constant tinkering by wise leaders, what happens when we instead get leaders who, having done no work but rabble-rousing among Chicago's poor, have not the least clue about running an economy?

Revered, Keynes has no answer.

Patrick McIlheran is a Journal Sentinel editorial columnist. E-mail pmcilheran@journalsentinel.com

Record US deficit stokes concern

By Martin Crutsinger Washington

What is $1.42 trillion (R10.4 trillion)? It is more than the US's total national debt for its first 200 years and more than $4 700 for every American man, woman and child.

It is also the 2009 US federal budget deficit, three times more than any other deficit before. Some economists warn that unless the government start to cut spending or raise taxes, it could sow the seeds of another economic crisis.

Treasury figures released on Friday showed that the government spent $46.6 billion more than it received in September, a month that normally records a surplus. That boosted the shortfall for the full fiscal year that ended last month to $1.42 trillion. The previous year's deficit was $459 billion.

As a percentage of US economic output, it's the biggest deficit since World War II.

Forecasts of more red ink mean the federal government is heading toward spending 15 percent of its money by 2019 just to pay interest on the debt, up from 5 percent this year.

President Barack Obama has pledged to reduce the deficit once the great recession ends and the unemployment rate starts falling, but economists worry that the government lacks the will to make the hard political choices to get control of the imbalances.

Friday's report showed that the government paid $190bn in interest over the last 12 months on Treasury securities sold to finance the federal debt. Experts say this tab could quadruple in a decade as the size of the government's total debt rises to $17.1 trillion by 2019.

Without significant budget cuts, that would crowd out government spending in such areas as transport, law enforcement and education.

Already, interest on the debt is the third-largest category of government spending, after the government's entitlement programmes and the military.

As the biggest borrower in the world, the government has been the prime beneficiary of record low interest rates. The new budget report showed that interest payments fell by $62bn this year even as the debt was soaring.

The Congressional Budget Office projects that the debt held by investors both in the US and abroad will increase by $9.1 trillion over the next decade, pushing the total to $17.1 trillion under Obama's spending plans.

The $1.42 trillion deficit for 2009 - which was less than the $1.75 trillion projection that Obama made February - includes the cost of the government's financial sector bailout and the economic stimulus programme. Income taxes also dwindled as a result of the recession. Coupled with the impact of the tax cuts under former president George W Bush earlier in the decade, tax revenues fell 16.6 percent.

"We should be desperately worried about deficits of this size," says Mark Zandi, the chief economist at Moody's Economy.com. "The economic pain will be felt much sooner than people think, in the form of much higher interest rates and much higher rates of inflation." This could result in stagflation - a mix of inflation and economic stagnation.

The administration has pledged to include a deficit-reduction plan in its 2011 budget, which will go to Congress in February.

Newest National Debt Statistics Posted September 2009

Here are the newest National Debt statistics courtesy of www.Treasurydirect.gov (U.S. Treasury Department) effective Sept. 11, 2009.

Debt Held by the Public
$7,488,352,210,282.27

Intragovernmental Holdings
$4,306,343,094,699.45

Total Debt (9/11/09)
$11,794,695,304,981.72

Interest payments
August 2009
$27,374,808,039.95

Fiscal Year 2009
$367,837,472,521.29

Gifts to reduce the public debt
July 2009
$65,591.69

Fiscal Year 2009
$3,008,736.87

Increase in the past year (since 9/11/08)
$2,112,578,308,687.88

Increase since President Obama's inauguration (234 days ago)
$1,165,813,819,471.49

Daily rate of increase
$4,982,110,339.62/day

Area residents travel to D.C. to protest increasing national debt

The Herald Mail
Hagerstown, Md.

September 12, 2009

HAGERSTOWN — More than 400 people from four states traveled Saturday from Hagerstown to Washington, D.C., joining thousands of others for the March on Washington, a rally protesting big government, both in spending and control.

“It was truly amazing,” said Nancy Allen of Hagerstown.

Allen said she never felt the need to take part in a political demonstration before in her life.

“It is the control the government is trying to exercise over the people, To me, it is very threatening,” Allen said. “I do see this as a (peaceful) revolution. I really do.”
Allen said she left the demonstration “with a great sense of optimism.”

Neil Parrott, organizer of the Hagerstown TEA (Taxed Enough Already) Party, said a caravan of eight buses stopped to pick up people in LaVale, Md., Chambersburg, Pa., Martinsburg, W.Va., Winchester, Va., and Frederick, Md., as well as Hagerstown

Before the buses departed Saturday morning from Hagerstown, a press conference was held featuring U.S. Rep. Roscoe Bartlett, R-Md. Parrott also spoke to the group.

“Today, we will tell elected officials, we will tell the nation and we will tell the world that we care about our freedoms and we care about our nation,” Parrott said in prepared remarks.

“We want our elected officials to listen and to turn their destructive fiscal policies around,” Parrott said. “We want them to quit increasing the national debt and devaluing the dollar. We want to be heard and we want action.”

While acknowledging past deficits and growth of the national debt in previous administrations, Parrott said the rate of the increase in spending in the last two years has been much more alarming to him.

“Our debt has just increased tenfold,” Parrott said Saturday afternoon after the rally.

Harold Carbaugh of Clear Spring said he never had experienced anything like Saturday’s rally.
“I’m on cloud nine,” Carbaugh said after the rally, where he met people from Florida, Louisiana, Texas, Mississippi and other states.

Carbaugh said he began asking people where they were from after realizing the demonstration wasn’t simply by people from the Washington area.

“Basically, what our founding fathers gave us is being eroded,” Carbaugh said of his concerns. “Our Constitution is being stripped out from under us one piece at a time.”

Carbaugh, a dairy farmer, said it was time for good men and women to do something or risk losing what the founding fathers established.

Anne Gray of Frederick, Md., said House Speaker Nancy Pelosi’s criticism of people attending the town hall meetings on health care as being “un-American” inspired her to join the protest.
“It was the biggest summer reunion picnic you ever had,” Gray said of the event’s atmosphere. “I definitely want to become more involved.”

The march was the third event Parrott has participated in since April 15, when TEA Party events were held across the nation.

Earlier this summer, Parrott expressed interest in running for Subdistrict 2B seat in the Maryland General Assembly. The seat currently is held by Republican Christopher B. Shank, who is considering running for the Maryland State Senate seat held by Republican Donald F. Munson.

China alarmed by US money printing

The US Federal Reserve's policy of printing money to buy Treasury debt threatens to set off a serious decline of the dollar and compel China to redesign its foreign reserve policy, according to a top member of the Communist hierarchy.

By Ambrose Evans-Pritchard, in Cernobbio, Italy
UK Telegraph

Cheng Siwei, former vice-chairman of the Standing Committee and now head of China's green energy drive, said Beijing was dismayed by the Fed's recourse to "credit easing".

"We hope there will be a change in monetary policy as soon as they have positive growth again," he said at the Ambrosetti Workshop, a policy gathering on Lake Como.

"If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies," he said.

China's reserves are more than – $2 trillion, the world's largest.

"Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets," he added.

The comments suggest that China has become the driving force in the gold market and can be counted on to
buy whenever there is a price dip, putting a floor under any correction.

Mr Cheng said the Fed's loose monetary policy was stoking an unstable asset boom in China. "If we raise interest rates, we will be flooded with hot money. We have to wait for them. If they raise, we raise.

"Credit in China is too loose. We have a bubble in the housing market and in stocks so we have to be very careful, because this could fall down."

Mr Cheng said China had learned from the West that it is a mistake for central banks to target retail price inflation and take their eye off assets.

"This is where Greenspan went wrong from 2000 to 2004," he said. "He thought everything was alright because inflation was low, but assets absorbed the liquidity."

Mr Cheng said China had lost 20m jobs as a result of the crisis and advised the West not to over-estimate the role that his country can play in global recovery.

China's task is to switch from export dependency to internal consumption, but that requires a "change in the ideology of the Chinese people" to discourage excess saving. "This is very difficult".

Mr Cheng said the root cause of global imbalances is spending patterns in US (and UK) and China.

"The US spends tomorrow's money today," he said. "We Chinese spend today's money tomorrow. That's why we have this financial crisis."

Yet the consequences are not symmetric.

"He who goes borrowing, goes sorrowing," said Mr Cheng.

It was a quote from US founding father Benjamin Franklin.

Newest National Debt Statistics Posted August 2009

Here are the newest National Debt statistics courtesy of www.TreasuryDirect.gov

As of Aug. 24, 2009

Debt Held by Public
$7,385,932,492,348.44

Intragovernmental Holdings
$4,333,128,433,517.42

Total Debt:
$11,719,060,925,865.86

Interest payments:
July 2009
$19,812,486,187.83

FY 2009
$340,462,664,481.34

Gifts to reduce the public debt:

June 2009
$33,690.42

FY 2009
$2,943,145.18

Increase from previous month:
$113,539,846,023.73

Increase from previous year:
$2,100,326,268,141.77


How much has the National Debt increased in the 216 days of the Obama Administration?
$1,092,183,876,952.78

[$5,056,406,837.74/per day increase]

Washington Times: A Failed Single Term?

By Jeffrey T. Kuhner
Saturday, August 15, 2009

President Obama is on the way to joining an exclusive club. It is the club of failed one-term presidents.

During the presidential campaign, Mr. Obama sold himself as a pragmatic moderate. In fact, he is the very opposite. He is an internationalist socialist whose policies will lead to ruin at home and defeat abroad. They will also doom his re-election efforts. He is flirting with political disaster.

Despite his many flaws, former President Bill Clinton established the model for successful Democratic administrations. Mr. Clinton governed as a liberal centrist. He realized that veering too far to the left early in his presidency was detrimental: His support of Hillarycare and gays in the military resulted in the 1994 Republican takeover of Congress. Mr. Clinton changed course by embracing free trade, welfare reform and balanced budgets -- combining fiscal responsibility and social liberalism. This formula prevented the Republican Party from recapturing the White House in 1996.

Mr. Obama is the anti-Clinton. He is a leftist ideologue who has surrounded himself with radical and inept advisers. Mr. Clinton had political counselor Dick Morris and Treasury Secretary Robert E. Rubin. Mr. Obama has David Axelrod and Timothy F. Geithner.

As a result, Mr. Obama's presidency is starting to look like the worst in 100 years. His $787 billion fiscal stimulus has failed to restore economic recovery. Unemployment remains high. Growth is anemic.

His massive spending is projected to yield record budget deficits of $1.8 trillion this year and $1.3 trillion next year. Over the next decade, according to the Obama administration's own estimates, the debt will explode by more than $10 trillion. These soaring deficits threaten to cripple our long-term prosperity and economic security. No country has sustained this kind of massive borrowing and spending without becoming a second-class nation. America is going the way of Argentina.

Mr. Obama's government-run health care plan is too expensive: It will saddle taxpayers with more than $1 trillion in costs. If enacted, it will do what socialized medicine has always done: ration care, extend waiting lines to visit a doctor and deny lifesaving, costly treatment to those deemed the weakest and most unproductive members of society -- the elderly. It is why so many seniors rightly oppose Obamacare.

National health care will force Mr. Obama to break his tax pledge. His signature campaign promise was not to raise taxes on families making less than $250,000 a year. However, Mr. Obama has boxed himself in, vowing that any health-insurance overhaul must be paid for without adding to the deficit. Hence, his administration is exploring soak-the-rich schemes such as higher income and capital gains taxes and a "wealth surtax." The problem remains that even these policies can't generate nearly enough revenue to fund Mr. Obama's ambitious expansion of the welfare-entitlement state.

This leaves him with only one option -- raising taxes on the middle and working classes. Already, key administration officials are considering a 10-percent national sales tax, also known as a value-added tax (VAT). In other words, a European-style health care system inevitably leads to European-level taxation -- and, consequently, European-style high unemployment and low growth rates.

Mr. Obama's energy policies will also undermine the economy. If passed, his cap-and-trade initiative will impose huge indirect taxes on businesses. It will punish manufacturing, oil-producing and coal states. Its goal is to increase the costs of gas and electricity, thereby discouraging their use.

Consumers will be paying more not only at the pump but also on everything from food to heating and electric bills. Mr. Obama's green socialism threatens to erode our standard of living, trigger skyrocketing inflation and stunt job creation.

Yet, the biggest danger is in foreign policy. Mr. Obama is pouring another 21,000 U.S. troops into Afghanistan. American forces are bogged down in a protracted guerilla campaign. The Taliban are resurgent. They have reclaimed their stronghold around the southern city of Kandahar. Insurgents are waging bold and deadly attacks even in the northern and western parts of the country -- formerly stable areas. The fighting is spreading, U.S. casualties are soaring, and public support for the war is ebbing.

The problem in Afghanistan is that terrorists are able to blend in with the native population. American soldiers find it increasingly difficult to distinguish civilians from combatants. The administration does not have a coherent counterinsurgency strategy. Hence, the Taliban are winning, and Washington is clueless on how to change the grim results on the ground.

Mr. Obama is frequently portrayed as the heir to Franklin D. Roosevelt. The more apt analogy, however, is Lyndon Baines Johnson. Just like Mr. Obama, President Johnson believed he could have guns and butter. He sought to implement the Great Society while escalating America's military involvement in Southeast Asia. Unable to choose, Mr. Johnson lost both: His domestic agenda and prosecution of the Vietnam War proved to be disastrous. His reckless ambition reduced his administration to political rubble, costing him any chance for re-election in 1968. This is why he (smartly) decided not to run again.

Social democracy and interventionist nation-building do not work. They destroyed the Johnson presidency and are on the verge of destroying Mr. Obama's as well.

Jeffrey T. Kuhner is a columnist at The Washington Times and president of the Edmund Burke Institute, a Washington-based think tank.

Newest National Debt Statistics posted July 2009

Here are the newest National Debt Statistics for July 2009 as reported at www.treasurydirect.gov

As of July 23, 2009

Publicly held debt:
$7,264,963,795,966.75

Intragovernmental holdings:
$4,340,557,283,875.38

Total Debt:
$11,605,521,079,842.13

June 2009 Interest payment
$106,612,310,280.24

Fiscal Year 2009 Interest
$320,650,178,293.51

Gifts to reduce the public debt
May 2009: $51,546.51
FY 2009: $2,909,454.76

Increase in the debt since President Obama's Inauguration:
$978,644,030,929.05

Rate of increase each day in the 184 days of the Obama Administration:
$5,318,717,559.40

Money and kids: Raising responsible spenders in a debt-driven world

by Jamie Richardson
www.examiner.com

The national debt is now about $11.4 trillion, according to USA Today. That is about $37,000 per person. And the number is rising quickly.

How can parents teach their kids to do better than the deep-pocketed politicians?

Here are 3 tips on teaching kids fiscal responsibility.

1. Teach the values of money early. Consider a rewards bank for good behavior. Like an earned allowance for an older child, this is the perfect starting point to let younger ones understand that things are earned, not just given freely. Give a dime for each good act, take one away for misbehavior. When the child has earned enough, take them to a dollar store and let them pick out their own reward. Let them pay the cashier to allow them the full experience of earning and buying.

2. Let them make some choices at the grocery store. For older kids, let them know how much money is allotted for the things on their breakfast or lunch table. With that money they can choose either their favorite chips, cookie, or cereal, but they only have that much money to spend on "fun" food. If the children are not old enough to read price tags, that does not eliminate them from the smart shopping experience. Give them options. Timmy can have either the name brand cereal OR the fruity candy, but not both. Or Timmy can get the store brand of both for the same price. The package may not have his favorite cartoon character on it, but he will learn to make decisions based more on flavor than advertising.

3. Cash is king. The movie Confessions of a Shopaholic gave me a whole new perspective on credit cards. The star is remembering back to her childhood and watching all the well-off ladies in the stores. She thought they were princesses and they did not even need "real money" because they had magic cards. As an adult, she chose to have 12 of those magic cards and she did not have full respect for their power until she wracked up thousands of dollars in debt that she could not afford.

And while the credit card debt per household is holding steady at about $10,000, Americans really are passing along this impression of a magic card to the next generation. For a child to truly respect money, kids need to see the power of actual money. If they see that the same money is spent on groceries and lunches, and toys and treats and that there is a limited supply of money, they catch on much faster to having a finite amount to spend.

MOUNTAIN OF DEBT: Rising debt may be next crisis

By TOM RAUM

WASHINGTON (AP) - The Founding Fathers left one legacy not celebrated on Independence Day but which affects us all. It's the national debt.

The country first got into debt to help pay for the Revolutionary War. Growing ever since, the debt stands today at a staggering $11.4 trillion - equivalent to about $37,000 for each and every American. And it's expanding by over $1 trillion a year.

The mountain of debt easily could become the next full-fledged economic crisis without firm action from Washington, economists of all stripes warn.

"Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth," Federal Reserve Chairman Ben Bernanke recently told Congress.

Higher taxes, or reduced federal benefits and services - or a combination of both - may be the inevitable consequences.

The debt is complicating efforts by President Barack Obama and Congress to cope with the worst recession in decades as stimulus and bailout spending combine with lower tax revenues to widen the gap.

Interest payments on the debt alone cost $452 billion last year - the largest federal spending category after Medicare-Medicaid, Social Security and defense. It's quickly crowding out all other government spending. And the Treasury is finding it harder to find new lenders.

The United States went into the red the first time in 1790 when it assumed $75 million in the war debts of the Continental Congress.

Alexander Hamilton, the first treasury secretary, said, "A national debt, if not excessive, will be to us a national blessing."

Some blessing.

Since then, the nation has only been free of debt once, in 1834-1835.

The national debt has expanded during times of war and usually contracted in times of peace, while staying on a generally upward trajectory. Over the past several decades, it has climbed sharply - except for a respite from 1998 to 2000, when there were annual budget surpluses, reflecting in large part what turned out to be an overheated economy.

The debt soared with the wars in Iraq and Afghanistan and economic stimulus spending under President George W. Bush and now Obama.

The odometer-style "debt clock" near Times Square - put in place in 1989 when the debt was a mere $2.7 trillion - ran out of numbers and had to be shut down when the debt surged past $10 trillion in 2008.

The clock has since been refurbished so higher numbers fit. There are several debt clocks on Web sites maintained by public interest groups that let you watch hundreds, thousands, millions zip by in a matter of seconds.

The debt gap is "something that keeps me awake at night," Obama says.

He pledged to cut the budget "deficit" roughly in half by the end of his first term. But "deficit" just means the difference between government receipts and spending in a single budget year.
This year's deficit is now estimated at about $1.85 trillion.

Deficits don't reflect holdover indebtedness from previous years. Some spending items - such as emergency appropriations bills and receipts in the Social Security program - aren't included, either, although they are part of the national debt.

The national debt is a broader, and more telling, way to look at the government's balance sheets than glancing at deficits.

According to the Treasury Department, which updates the number "to the penny" every few days, the national debt was $11,518,472,742,288 on Wednesday.

The overall debt is now slightly over 80 percent of the annual output of the entire U.S. economy, as measured by the gross domestic product.

By historical standards, it's not proportionately as high as during World War II, when it briefly rose to 120 percent of GDP. But it's still a huge liability.

Also, the United States is not the only nation struggling under a huge national debt. Among major countries, Japan, Italy, India, France, Germany and Canada have comparable debts as percentages of their GDPs.

Where does the government borrow all this money from?

The debt is largely financed by the sale of Treasury bonds and bills. Even today, amid global economic turmoil, those still are seen as one of the world's safest investments.

That's one of the rare upsides of U.S. government borrowing.

Treasury securities are suitable for individual investors and popular with other countries, especially China, Japan and the Persian Gulf oil exporters, the three top foreign holders of U.S. debt.

But as the U.S. spends trillions to stabilize the recession-wracked economy, helping to force down the value of the dollar, the securities become less attractive as investments. Some major foreign lenders are already paring back on their purchases of U.S. bonds and other securities.

And if major holders of U.S. debt were to flee, it would send shock waves through the global economy - and sharply force up U.S. interest rates.

As time goes by, demographics suggest things will get worse before they get better, even after the recession ends, as more baby boomers retire and begin collecting Social Security and Medicare benefits.

While the president remains personally popular, polls show there is rising public concern over his handling of the economy and the government's mushrooming debt - and what it might mean for future generations.

If things can't be turned around, including establishing a more efficient health care system, "We are on an utterly unsustainable fiscal course," said the White House budget director, Peter Orszag.

Some budget-restraint activists claim even the debt understates the nation's true liabilities.
The Peter G. Peterson Foundation, established by a former commerce secretary and investment banker, argues that the $11.4 trillion debt figures does not take into account roughly $45 trillion in unlisted liabilities and unfunded retirement and health care commitments.

That would put the nation's full obligations at $56 trillion, or roughly $184,000 per American, according to this calculation.

Newest National Debt Statistics posted June 2009

The newest National Debt Statistics are as follows. My apologies for the late posting, I usually try to get these posted as soon as the report is made public.

According to www.TreasuryDirect.gov, the National Debt on June 23, 2009 is as follows:

Publicly held: $7,127,688,946,496.39
Intragovernmental Holdings: $4,280,284,814,654.63
Total: 11,407,973,761,151.02

This represents a per capita debt of approximately $37,159.52 for each man, woman and child in the United States (using a U.S. Population of 307,000,000 as a variable).

In May 2009, taxpayers paid $20,600,287,859.26 in interest payments alone, and $214,037,868,013.27 for the entire fiscal year to-date.

In April 2009, the bureau of the public debt received $2,857,908.25 in gifts to reduce the public debt.

Since President Obama took office, the debt has grown by $779,092,275,640.79. This represents a daily growth of $5,059,040,750.91 increase per day during the 154 days he's been in office.

Could US Debt Reach 100% Of GDP?

by Douglas A. McIntyre
www.247wallst.com

Bill Gross, the chief investment officer of bond management firm Pimco, makes the case in a letter to investors that the US national debt could easily reach 100% of GDP, perhaps as quickly as in five years. His calculations are that the Treasury would have to pay 5% or 6% on the national debt to attract enough investors to fund it.

The consequences of the debt being that high could be that foreign governments including China would slow their purchases of America debt due to concerns about the US eventually defaulting.

China will probably find that there is nowhere other than Treasury-issued debt to put its money, even if the rating on that debt goes below “AAA.” The hundreds of billion of dollars that the US will borrow over the next several years will likely be the only pool of bonds large enough to accommodate China’s need to put its capital somewhere outside its own borders. America will have to pay a higher yield. The Chinese will take it, viewing Treasury debt as still by far the safest place that it can invest what may become its growing surplus.

It is obvious what the American government will have to do as the deficit balloons. It could hope to rely on its stimulus package to accelerate the economy to the point where GDP growth is routinely above 4%. That is the assumption of the Administration and Congress has gone along with it to the extent that it has approved the funds for the $787 billion investment in turning around the US economy.

There are a number of skeptics who believe that at sharp rebound in GDP is nearly impossible because the American economy has been so terribly weakened in the last two years. Lack of access to credit and rising unemployment may have crippled the chance for consumer spending to improve.

The 1981/1982 recession drove unemployment to over 10% for two quarters, but by 1983 and 1984, GDP was growing at a healthy rate again. A great deal of this was due to inflation and the US may end up “inflating” itself out of the current recession as well. That will cause the costs of goods and services to rise, but it will also probably increase corporate revenue and personal income. The extent to which the economy suffers inflation-based damage will be based on whether inflation is at modest 5% or at a much, much higher rate. The Fed can hope to mitigate inflation by manipulating rates, but that is based on a very inexact science, the application of which has not always been successful in the past.

The Treasury’s only other real alternative to bringing down debt is to sharply increase taxes to both individuals and businesses. Most economists believe that high taxes suck so much capital out of the private sector that business and consumer spending cannot recover. That pushes GDP down further.

The odds are high that the Treasury can rely on the fact that the economy will get some benefit from the huge stimulus package and that taxes will have to go up. Those two factors would have to work nearly perfectly in tandem to stop the increase in the national debt. “Perfect” sets that bar very high, perhaps too high to clear.

LTTE: Time to start paying down national debt

The following Letter to the Editor appeared in the May 24, 2009 edition of the Bellingham Herald in Bellingham, Washington.

In eight years in office George W. Bush acquired a national debt of $5 trillion. Not to be outdone, Barack Obama has indebted us to the tune of $1.375 trillion.

I believe this is totally unacceptable. We are giving economic stimulus packages to different businesses when we should be thinking of possibly raising taxes to pay off this enormous debt.
It is estimated that if each person in America was taxed to pay the debt it would amount to four hundred thousand dollars each.

Michael Coleman
Bellingham

When to plug Fed's flow?

By Tom Raum • The Associated Press • May 17, 2009

This item appeared in the Cincinnati Enquirer

WASHINGTON - The federal government has committed trillions of dollars to domestic bailouts and propping up the recessionary economy, much of it borrowed, much created out of thin air by the Federal Reserve.

How much longer can all this go on? That's the pressing question facing policymakers, and one without a clear answer.

At some point, "You have to take away the punchbowl, as someone once said, in order to avoid the inflation risk," said Federal Reserve Chairman Ben Bernanke, paraphrasing William McChesney Martin Jr., who served as Fed chairman in the 1950s and '60s under five presidents.

But change course too soon, and it could nip a fragile recovery in the bud. Wait too long, and runaway inflation and gargantuan federal debt could be the sequel to the worst downturn since the 1930s.

While nobody thinks the current combination of near-zero interest rates, bank and auto bailouts and trillion-dollar annual deficits is a sustainable economic model, knowing just when to take away the punchbowl is the problem.

For now, the Bernanke Fed is still filling the punchbowl. And President Barack Obama and the Democratic-controlled Congress are doing the same with government spending.

One reason the Fed has been so aggressive in slashing rates and taking unconventional recession-fighting steps is because "we are trying to avoid another form of price instability, which is deflation," Bernanke told a Fed financial conference last week.

The risk of deflation - a widespread and prolonged decline in retail prices, wages and real estate and other asset values - is "receding, but it certainly needs not to be ignored," Bernanke said.

Despite some recent glimmers of hope, evidence is mixed on whether things are getting better or still worse. Disappointing reports Wednesday on falling retail sales and a jump in foreclosures fueled continuing uncertainties and helped push stocks down.

"You've got to take the stimulus off at some point. I don't think that point is this year," said David Wyss, chief economist at Standard & Poor's in New York. He said Wednesday's reports on weak retail sales for April point to a continuing recession, despite some recent encouraging signs.

Government and most private economists expect the recession, which began in December 2007, to end later this year, although they expect high levels of joblessness to continue beyond.

In the meantime, recent developments are complicating efforts to tame the deficit once the recession does end:

White House budget officials said recently that the deficit would widen to a record $1.8 trillion this year, $89 billion more than their estimate in February. They blamed the recession.

With nearly 80 million baby boomers nearing retirement, the government reported that Medicare and Social Security will face insolvency sooner than previously projected because of the recession - for Medicare in 2017 and for Social Security in 2037.

A potential $90 billion shortfall opened up in paying for Obama's health care proposal. The gap comes from congressional reluctance to go along with his proposal to help pay for the plan by limiting high-income families' charitable-giving and other tax deductions. House Speaker Nancy Pelosi said the health care bill will be on the House floor before the August recess.

The administration asked Congress on Tuesday to add $100 billion in new U.S. contributions to the International Monetary Fund as part of a war-spending bill.

Obama proposed just $17 billion in new spending cuts earlier this month, representing savings of less than one-half of 1 percent in his $3.4 trillion budget. Republicans scoffed - and some top Democrats criticized him for targeting popular programs in recessionary times.

By some accounts, the sum of all the U.S. grants, loans, guarantees and new money created electronically by the Fed since the financial crisis began totals some $11 trillion - roughly equal to the country's national debt.

That sum does include loan guarantees that might not be needed, money that hasn't been spent, various revolving accounts and U.S. investments in bad mortgages and other toxic, hard-to-value securities that could someday return money to taxpayers. Still, staggering amounts are involved.

"We are creating a government debt bubble that we're going to have to deal with in a massive way," suggested Rep. Kevin Brady of Texas, the senior Republican on the Congressional Joint Economic Committee.

History shows the dangers of calling the end of economic downturns too soon.

President Franklin D. Roosevelt made this mistake in 1936 when, believing the Depression largely over, he sought to pare back public spending and to balance the federal budget. It torpedoed a fragile recovery and pushed the economy back under water in 1937.

Japanese leaders made a similar mistake in the 1990s when they prematurely - and temporarily - withdrew government stimulus spending, helping to prolong Japan's recession to one that lasted a full decade.

At the White House, presidential spokesman Robert Gibbs dismissed suggestions by some, including Liz Ann Sonders, chief investment strategist for brokerage Charles Schwab, that the recession may have ended.

"I can report nobody has intoned that message" at daily White House economic briefings, Gibbs said. "There's much work to be done."

Veteran budget analyst Stanley Collender said increases in public spending are an important fiscal tool and that "a bigger deficit is justified in the current economic environment."
Furthermore, Collender added, if Obama doesn't push his agenda for more health care, energy and education spending now, when will he?

"He's got a 60-percent-plus approval rating. And Democrats are willing to work with him. He should go for it now. He's never going to get a better chance," Collender said.

Obama's Risky Debt

By Robert J. Samuelson
Washington Post
Monday, May 18, 2009

Just how much government debt does a president have to endorse before he's labeled "irresponsible"? Well, apparently much more than the massive amounts envisioned by President Obama. The final version of his 2010 budget, released last week, is a case study in political expediency and economic gambling.

Let's see. From 2010 to 2019, Obama projects annual deficits totaling $7.1 trillion; that's atop the $1.8 trillion deficit for 2009. By 2019, the ratio of publicly held federal debt to gross domestic product (GDP, or the economy) would reach 70 percent, up from 41 percent in 2008. That would be the highest since 1950 (80 percent). The Congressional Budget Office, using less optimistic economic forecasts, raises these estimates. The 2010-19 deficits would total $9.3 trillion; the debt-to-GDP ratio in 2019 would be 82 percent.

But wait: Even these totals may be understated. By various estimates, Obama's health plan might cost $1.2 trillion over a decade; Obama has budgeted only $635 billion. Next, the huge deficits occur despite a pronounced squeeze of defense spending. From 2008 to 2019, total federal spending would rise 75 percent, but defense spending would increase only 17 percent. Unless foreign threats recede, military spending and deficits might both grow.

Except from crabby Republicans, these astonishing numbers have received little attention -- a tribute to Obama's Zen-like capacity to discourage serious criticism. Everyone's fixated on the present economic crisis, which explains and justifies big deficits (lost revenue, anti-recession spending) for a few years. Hardly anyone notes that huge deficits continue indefinitely.

One reason Obama is so popular is that he has promised almost everyone lower taxes and higher spending. Beyond the undeserving who make more than $250,000, 95 percent of "working families" receive a tax cut. Obama would double federal spending for basic research in "key agencies." He wants to build high-speed-rail networks that would require continuous subsidy. Obama can do all this and more by borrowing.

Consider the extra debt as a proxy for political evasion. The president doesn't want to confront Americans with choices between lower spending and higher taxes -- or, given the existing deficits, perhaps both less spending and more taxes. Except for talk, Obama hasn't done anything to reduce the expense of retiring baby boomers. He claims to be containing overall health costs, but he's actually proposing more government spending (see above).

Closing future deficits with either tax increases or spending cuts would require gigantic changes. Discounting the recession's effect on the deficit, Marc Goldwein of the Committee for a Responsible Federal Budget puts the underlying "structural deficit" -- the basic gap between the government's spending commitments and its tax base -- at 3 to 4 percent of GDP. In today's dollars, that's roughly $400 billion to $600 billion.

It's true that since 1961 the federal budget has run deficits in all but five years. But the resulting government debt has consistently remained below 50 percent of GDP; that's the equivalent of a household with $100,000 of income having a $50,000 debt. (Note: Deficits are the annual gap between government's spending and its tax revenue. The debt is the total borrowing caused by past deficits.) Adverse economic effects, if any, were modest. But Obama's massive, future deficits would break this pattern and become more threatening.

At best, the rising cost of the debt would intensify pressures to increase taxes, cut spending -- or create bigger, unsustainable deficits. By the CBO's estimates, interest on the debt as a share of federal spending will double between 2008 and 2019, to 16 percent. Huge budget deficits could also weaken economic growth by "crowding out" private investment.

At worst, the burgeoning debt could trigger a future financial crisis. The danger is that "we won't be able to sell [Treasury debt] at reasonable interest rates," says economist Rudy Penner, head of the CBO from 1983 to 1987. In today's anxious climate, this hasn't happened. American and foreign investors have favored "safe" U.S. Treasurys. But a glut of bonds, fears of inflation -- or something else -- might one day shatter confidence. Bond prices might fall sharply; interest rates would rise. The consequences could be worldwide because foreigners own half of U.S. Treasury debt.

The Obama budgets flirt with deferred distress, though we can't know what form it might take or when it might occur. Present gain comes with the risk of future pain. As the present economic crisis shows, imprudent policies ultimately backfire, even if the reversal's timing and nature are unpredictable.

The wonder is that these issues have been so ignored. Imagine hypothetically that a President McCain had submitted a budget plan identical to Obama's. There would almost certainly have been a loud outcry: "McCain's Mortgaging Our Future." Obama should be held to no less exacting a standard.

Newest National Debt Statistics posted May 2009

Here is the newest National Debt report courtesy of www.TreasuryDirect.gov - the website of the U.S. Treasury Department.

As of May 7, 2009:

Publicly Held Debt:
$6,955,434,473,527.65

Intragovernmental Holdings:
$4,300,832,166,522.55

Total:
$11,256,266,640,050.20

Interest paid, April 2009:
$24,846,792,476.82

Interest paid, Fiscal Year 2009:
$193,437,580,154.01

Gifts to reduce the public debt March 2009:
$431,181.21

Gifts to reduce the public debt FY09:
$2,232,641.09

Amount of increase in the debt since Obama began presidency:
$627,385,154,539.97

Daily increase since Obama began presidency:
$5,809,121,801.30 per day

HOUSE TO VOTE ON FINANCE COMMISSION WED

From Domenico Montanaro and Abby Livingston
www.msnbc.com

The House will act likely on Wednesday on legislation that would include a commission to examine the financial meltdown, according to Democratic and Republican Capitol Hill sources.

"The details of the commission language are still being worked out between the Judiciary Committees between the House and the Senate," said Nadeam Elshami, spokesman for House Speaker Nancy Pelosi. "That language could be similar to the Senate, but it is in the process of intensive legislative discussions."

The options for the bill are either:
1. The House passes its own House version, and then go to conference with the Senate, or
2. Pass essentially the same bill between the House and Senate that would be ready quickly for the president to sign, which is what they're working on.

Both sides want to move quickly and negotiations are centering on "working off the Senate version."

The way the commission could work, according to preliminary details, is as follows:
(1) It would be bipartisan,
(2) Members of Congress would be excluded
(3) There would be at least eight people on the committee, and perhaps one to two more. (Each leader would get one person on the committee. There are four leaders. And each financial committee chair -- Banking in Senate, Financial Services in House -- and ranking member would get a pick. That's four more for a total of eight and maybe one to two others.

The office of Congressman Darrell Issa (R-CA) said the legislation would be identical to the Senate-passed (S. 386) and according to an Issa spokesman, the House will pass Wednesday. Issa's office contends that the commission will be comprised of 10 members, precludes elected officials from serving on the board and would have subpoena power.

Issa's office also described the development as a "rare case where everyone set aside partisan measures."

For historical context, there was a commission in the early 1930s called "the Pecora Commission" that investigated the 1929 Crash. The revelations uncovered led to many reforms, including Glass-Steagall Act of 1933. With that context, in March, First Read questioned why in this town that loves its bipartisan blue-ribbon panels, there wasn't a greater movement for a financial panel.

Stalking The Fed

King Banaian of SCSU Scholars just posted a very informative post regarding H.R. 1207, a bill that would instruct the General Accounting Office to audit the Federal Reserve. As an economist, he argues against it. You can find out why by clicking here.

Treasury needs record $361B April-June borrowing

By MARTIN CRUTSINGER

WASHINGTON (AP) — The Treasury Department said Monday it will need to borrow $361 billion in the current April-June quarter, a record amount for that period.

It's the third straight quarter the government's borrowing needs have set records for those periods.

Treasury also estimated it will need to borrow $515 billion in the July-September quarter, down slightly from the $530 billion borrowed during the year-ago period. The all-time high of $569 billion was set in the October-December period.

The huge borrowing needs reflect the soaring costs of the $700 billion financial rescue program and the recession, which is nearing a record as the longest in the post World War II period.

The slump has cut sharply into tax revenue and boosted government spending for benefit programs such as unemployment insurance and food stamps.

The administration is projecting the federal deficit for the entire budget year ending Sept. 30, will total a record $1.75 trillion. A deficit at that level would nearly quadruple the previous record of $454.8 billion set last year.

To cover the government's heavy borrowing needs, Congress in February boosted the limit for the national debt to $12.1 trillion as part of the legislation that enacted President Barack Obama's $787 billion economic stimulus program. The national debt now stands at $11.1 trillion.

The government released its estimate of borrowing needs for the quarter before a news conference Wednesday when officials are scheduled provide exact details of how much debt the government plans to sell next week and in what maturity levels as part of Treasury's regular quarterly debt auctions.

The $361 billion estimate for borrowing this quarter compared with borrowing needs of just $13 billion in the year-ago period. Normally the government's borrowing needs shrink sharply in the April-June quarter because of all the tax revenue being collected.

The government announced in February that it was bringing back the seven-year note and doubling the number of 30-year bond auctions it would hold each year to help finance the surging borrowing needs.

Debt Day Comes Sooner This Year

by Congresswoman Michele Bachmann

For Americans from coast to coast, Sunday, April 26 marked our nation's Debt Day. Debt Day is the day during the fiscal year – which runs from October 1, 2008 to September 30, 2009 this year – on which government spending exceeds revenue for the first time during the year.

Last year's Debt Day fell more than three months later, on Aug. 5.

Judging by the penchant for spending we've seen from Congress and the White House, I think it's safe to say that this infamous day will be creeping earlier and earlier for the next several years. It's simply another symptom of a government that spends too much, borrows too much, and taxes too much.

I come from the strong Minnesota culture of thrift, spending only what I truly can and eschewing debt. But, the trend in Washington is just the opposite. It’s very much a “spend now, and our children will pay later” attitude. That’s why I voted against the trillion-dollar-plus so-called stimulus bill, the nearly-half-a-trillion “omnibus” spending bill, and the multi-hundred billion-dollar Wall Street bailouts.

It’s high-time your family budget took priority here in Washington – and that means not just looking out for your finances today, but also looking out for your children’s futures.