Self-evident Economy

Posts tagged debt

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More on the “bait and switch” our government is taking toward our debt problem, this time from Rick Santelli. Blaming it on the rich not paying enough taxes, or anyone else for that matter, does not address the problem. The problem is that our government is spending far more then it bring in. The solution is to stop spending.

So what do the candidates want to do about this?

Governor Romney: Romney support’s Paul Ryan’s budget plan. Under the Ryan plan, the government would be 46% bigger in real terms then under President Clinton. Paul Ryan’s plan would also freeze spending at 22.2% of GDP. Under President Clinton, spending reached 18.2% of GDP. Paul Ryan proposes to cut spending to $3.4 trillion in FY 2013, but increases it to $3.8 trillion in FY 2017.

President Obama: President Obama thinks limiting government spending to just 22.2% of GDP is "thinly veiled social Darwinism". His budget keeps deficit spending at around $1 trillion a year. Paul Ryan’s deficit spending is $300 billion a year.

Ron Paul: The Ron Paul budget would cut $1 trillion from the budget THE FIRST YEAR! Which would pretty much balance the budget, THE FIRST YEAR! Not over five years, not over ten years, not over 50 years. One year. He would do it by eliminating 5 government departments and using our military to defend the United States instead of every other country on the planet.

If you are concerned about the debt, you have one choice. Vote for Ron Paul. Voting for Romney or Obama will not solve the debt problem. The only difference between Obama and Romney is the amount of time until the next financial crisis. Voting for Romney because Ron Paul “doesn’t stand a chance” and because Obama is the “worse of two evils” still puts “evil” in the oval office.

Politicians will never get the message that we want change until they start losing votes to someone who will actually make the changes we want.

Filed under debt ron paul Romney Obama politics

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Fed Now Largest Owner of U.S. Gov’t Debt—Surpassing China

( - At the close of business on Tuesday, the debt of the federal government exceeded $15 trillion for the first time—with the largest single owner of the publicly held portion of that debt being the Federal Reserve.

Over the past year, as the Federal Reserve massively increased its holdings of U.S. Treasury securities and entities in China marginally decreased theirs, the Fed surpassed the Chinese as the top owner of publicly held U.S. government debt.

In its latest monthly report, the Federal Reserve said that as of Sept. 28, it owned $1.665 trillion in U.S. Treasury securities. That was more than double the $812 billion in U.S. Treasury securities the Fed said it owned as of Sept. 29, 2010.

Meanwhile, as of the end of this September, entities in mainland China owned $1.1483 trillion in U.S. Treasury securities, according to data published todayby the U.S. Treasury Department. That was down slightly from the $1.1519 trillion in U.S. Treasury securities the Chinese owned as of the end of September 2010, according to the same Treasury Department report.

Thus, at the end of September 2010, the Chinese owned about $339.9 billion more in U.S. Treasury securities than the Fed owned at that time. By the end of September 2011, the Fed owned about $516.7 billion more in U.S. Treasury securities than the Chinese owned.

The U.S. Treasury Department divides the federal government’s debt into two general categories: debt held by the public—the type owned by the Chinese and the Federal Reserve—and “intragovernmental debt,” which consists of what essentially are IOUs the Treasury gives to government trust funds such as the Social Security trust when it takes and spends their money on other things.

The current total national debt of $15.0336 trillion, reported by the Treasury today, consists of approximately $10.3145 trillion in debt held by the public and $4.7191 trillion in intragovernmental debt.

The combined $2.8133 trillion in U.S. government debt held by the public that is now owned by the Federal Reserve and the Chinese equals more than 27 percent of all U.S. government debt held by the public.

Currently, foreign entities, including those in China, own $4.6603 trillion of the U.S. government debt held by the public. These foreign entities, together with the Federal Reserve, own a combined $6.3253 trillion of the U.S. government’s debt held by the public.

That $6.3253 trillion in Federal Reserve-and-foreign-held debt equals more than 61 percent of the U.S. government’s publicly held debt.

This is how the Federal Reserve can claim to be a “profit center”. They buy government debt, receive interest payments, pay their expenses, and return “profits” to the treasury. It’s obviously a shell game. It would be like me borrowing money from my wife, paying her interest, and after she pays herself for handling the transaction, she put the “profits” from interest back into our bank account.

I wish making money was that easy.

(via moralanarchism)

Filed under Federal Reserve Debt

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Occupy Wall Street’s Non-Official Demands

Here is the “proposed list of demands" of the Occupy Wall Street movement. They are very clear in that it is not an official list, so keep that in mind. Personally, I like number eleven.

Demand eleven: Immediate across the board debt forgiveness for all. Debt forgiveness of sovereign debt, commercial loans, home mortgages, home equity loans, credit card debt, student loans and personal loans now! All debt must be stricken from the “Books.” World Bank Loans to all Nations, Bank to Bank Debt and all Bonds and Margin Call Debt in the stock market including all Derivatives or Credit Default Swaps, all 65 trillion dollars of them must also be stricken from the “Books.” And I don’t mean debt that is in default, I mean all debt on the entire planet period.

I wonder how they feel about the $2.5 trillion in IOUs that comprises the Social Security trust fund. Or the debt that pension funds own which provide retirement for teachers, police officers, fire fighters, union members, etc. I suppose demand number three, “Guaranteed living wage income regardless of employment” would take care of the people affected by this.

Uhg. Why am I even writing about this? It’s that stupid.

Filed under debt occupywallstreet politics

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Greece Debt 12 Times GDP, U.S. Debt 14 Times GDP

These numbers are based on our “fiscal gap” which is defined as:

the difference, measured in present value, between all projected future spending obligations — including our huge defense expenditures and massive entitlement programs, as well as making interest and principal payments on the official debt — and all projected future taxes.

So it includes everything we have promised to today’s and tomorrow’s 100 million-plus retirees in the form of Social Security, Medicare, and Medicaid benefits as well as our official debt numbers.

Filed under debt Greece GDP politics

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China “Liquidating” US Treasuries - What This Means

Just ran across this article, China to ‘liquidate’ US Treasuries, not dollars.

A key rate setter-for China’s central bank let slip – or was it a slip? – that Beijing aims to run down its portfolio of US debt as soon as safely possible.

"The incremental parts of our of our foreign reserve holdings should be invested in physical assets," said Li Daokui at the World Economic Forum in the very rainy city of Dalian – former Port Arthur from Russian colonial days.

"We would like to buy stakes in Boeing, Intel, and Apple, and maybe we should invest in these types of companies in a proactive way."

"Once the US Treasury market stabilizes we can liquidate more of our holdings of Treasuries," he said.

So what does this mean? Here are my thoughts:

Stealth Default
First, since the government can’t get our debt under control, it appears that China has lost faith we will repay our debt. It might be a bit more accurate to say they are afraid we will repay it by printing more and more money. Paying off debt by printing money is essentially a quiet way of defaulting on debt.

Actually, it says as much in the article (I’m writing this as I read :)…

The Chinese are clearly vexed with Washington, viewing the Fed’s QE as a stealth default on US debt.

Bleak Future for Bonds
It also means that if you are heavily (or otherwise) invested in U.S. Treasury bonds, be prepared to see their value continue to fall and fall. China holds a lot of debt. The more they sell, the less our debt will worth. If other countries start getting rid of their treasury bonds too, look out. A massive exodus from bonds would be very detrimental to anyone holding any kind of debt type asset. It will also mean that the U.S. would have a very difficult time borrowing money.

From the end of the article…

It is bad for bonds – or will be. The money will go into strategic land purchases all over the world, until the backlash erupts in earnest. It will go into equities, until Capitol Hill has a heart attack. It will go anywhere but debt.

There is also the potential for a great deal of inflation here.

We don’t know how much US debt is held by SAFE (State Administration of Foreign Exchange), the bank’s FX arm. The figure is thought to be over $2.2 trillion.


So what Li Daokui said is not bad for the dollar as such. He said there is “$10 trillion” waiting to be invested in the US, if America will open its doors.

I totally disagree with the “not bad for the dollar” comment. If they try to liquidate $2.2 trillion in debt and start to invest $10 trillion that have until now been sitting on the sidelines, the price of just about everything will go up. Conversely, the dollar will drastically lose its value. The fact that they want to “buy stakes in Boeing, Intel, and Apple” tells me that if it’s not nailed down, China is looking to buy it. Imagine trying to compete with $10 trillion to buy anything (land, commodities, stock, you name it). Prices will skyrocket. In reality, this is the only way to fight inflation - buy as many hard assets as you can.

Unfortunately, the only way for our government to pay for its out of control spending habits will be to print more money, which will compound and speed up the process. QE II was all about the Fed buying US Treasuries, there is nothing to stop them from continuing to do so.

What To Do
A lot of people have been saying this is coming and that it is inevitable. I agree, although it scares the crap out of me. I have enough money to buy another 1oz gold coin, I’ll probably be doing so soon. Gold is another commodity they’ll be buying with that $10 trillion. Likewise, anyone with debt with a fixed interest rate (a home) will essentially see that debt erased - provided they can hold on to their jobs.

Filed under china gold inflation U.S. Treasury Bonds bond market politics economics debt

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Debt increase by presidents: Reagan 186%, Bush 54% Clinton 41% Bush II 72% Obama 23%. Source CBO

I saw this post had a lot of attention today but to me these number seem very deceiving. Let me know if I’m missing something here.

If you take into account inflation, Reagan increased our national debt from what today would be $1 trillion to $2.6 trillion - approximately $1.6 trillion. This was over an eight year period.

Under Obama, from 2009 to 2010 (adjusted for inflation) our national debt went from $12.3 trillion to $14 trillion - an increase of approximately $1.7 trillion. This was in one year!

It’s a lot easier to increase things by a large percentage when the numbers are low, compared to when the numbers are high.


(Source: soupsoup)

Filed under debt Reagan Obama

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Whose Fault Is it?

There has been a lot of talk by Democrats and Republicans alike blaming the S&P downgrade on the tea party. Here is the President’s chief re-election strategist:

"This is essentially a tea party downgrade," David Axelrod told the CBS program "Face the Nation." "The tea party brought us to the brink of a default."

News Flash.

The tea party did not borrow $14 trillion in the name of the Federal Government. The tea party is not passing budgets that spend trillions of dollars a year more then the government takes in taxes.

The people responsible for this downgrade are the people who accumulated the debt and continue to accumulate debt. This is as much George Bush’s fault as it is Obama’s. It is as much the Republican’s fault as it is the Democrat’s. It is 50+ years of mismanagement and over spending.

The people responsible for this downgrade are those that said if the debt ceiling was not raised, the United States would default for the first time in our nations history. Those that threatened senior citizen’s Social Security checks.

To find the culprits for this downgrade, look to those who are placing blame.

(Source: CNN)

Filed under Deficit Downgrade Tea Party Debt