Tag Archives: National Debt

The Other Raiding Party, by David Stockman

Bush doubled the national debt, Obama doubled the national debt, and there’s a better than average chance that Trump will do the same. From David Stockman at davidstockmanscontracorner.com:

While the FBI was raiding the offices of Trump’s lawyer yesterday afternoon, the CBO published a blockbuster report evidencing the Donald’s own raiding party. To wit, in roughly 90 days of fiscal madness between December and February, Trump and his GOP allies piled $459 billion onto next year’s (FY 2019) deficit.

That eruption of red ink consisted of $285 billion for the tax bill and $174 billion of spending add-ons for defense ($56 billion), domestic programs ($105 billion) and additional debt service ($13 billion). For FY 2019 alone the added debt amounted to 2.3%of GDP, and turned an awful fiscal situation into an outright disaster.

Indeed, the real “watershed moment” yesterday was not that Mueller went after the keeper of Trump’s legal skeletons, but that CBO let the real monsters out of the fiscal closet, translating Trump-O-Nomics into the scariest budget numbers ever seen.

Namely, a public debt that reaches $33.85 trillion (130% of GDP) by 2028 and that’s not our projection; it’s right there on p.87 of the CBO’s official report.

Moreover, that’s the good news part of the report. But to believe that the public debt is only heading for 130% of GDP during the next 10 years, you have to believe in Rosy Scenario economics and be OK with the crooked book-keeping forced on CBO by our estimable legislators.

As we show below, grab some sober economics and honest fiscal book-keeping—and the public debt number 10-years out is actually $40 trillion and 150% of GDP. And there’s no conceivable way to dig out from under it because the tsunami of baby-boom retirements and the associated Welfare State fiscal costs are insuperable.

The CBO report lets some skeletons out of the closet on that point, too. Thus, combined social security and medicare costs will rise from $1.8 trillion in FY 2019 to $3.3 trillion by FY 2028 owing to the rolls rising from 60 million to 80 millionbeneficiaries, as well as cost of living adjustments and medical care inflation.

Needless to say, the remaining accounting “solvency” of the OASHDI (old age, survivors, hospital and disability) trust funds will quickly evaporate under this spending wave. In fact, the trust funds’ cash deficit in the coming year will total $108 billion, rise to $504 billion by 2028 and then head into the trillions shortly thereafter. And that’s per year!

In short, what’s coming is a monumental Welfare State crisis owing to the fact that the vaunted trust funds are rapidly going bust. Just in the FY 2019-2028 period they will be collecting nearly $2.8 trillion less in income from the payroll taxes than the benefit costs which the retired population will be entitled to under law.

To continue reading: The Other Raiding Party

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Treasury Admits It Lost $1.2 TRILLION in 2017, by Mark Nestmann

The US is broke, and the Treasury’s own report admits it. From Mark Nestmann at nestmann.com:

In 1971, President Richard Nixon told an ABC News reporter that he was “now a Keynesian in economics.”

Nixon’s statement was an acknowledgment that he agreed with the ideas of John Maynard Keynes. Keynes was an economist whose theories once underpinned the economies of every major country.

Nixon’s endorsement of Keynesian economics was shocking. To understand its impact at the time, consider how the world would react today if the leader of ISIS converted to Christianity. Or if the National Rifle Association endorsed a ban on semi-automatic weapons.

Nixon’s statement was astonishing because one of the fundamental precepts of Keynesian economics is that governments must intervene in the economy to ensure “optimal outcomes.” To economic conservatives, this was dangerously close to socialism or even communism.

Keynes believed that business cycles – periods of expansion followed by recessions – are the inevitable consequence of capitalism. Free-market economists believe governments should not intervene in the business cycle support economies in recession. Keynes thought intervention was a fundamental duty of government.

During the Great Depression of the 1930s, Keynes advocated for governments to reduce taxes and increase public spending to spur employment. Keynes acknowledged that this policy might require deficit spending. But he believed budget surpluses when prosperity returned would make up for the deficits.

Once Nixon embraced Keynesianism, resistance by economic conservatives – and the Republican Party – faltered. The last Republican president who didn’t endorse Keynesian economics was Dwight Eisenhower, who left office in 1961. Ronald Reagan, George Bush Sr., George Bush Jr., and now Donald Trump have all embraced cutting taxes to spur the economy.

That brings us to 2018. February 15, 2018, to be exact. That’s the day that Treasury Secretary Steven T. Mnuchin signed off on a report with the mind-numbing title Fiscal Year 2017 Financial Report of the United States Government.

To continue reading: Treasury Admits It Lost $1.2 TRILLION in 2017

US Gross National Debt Spikes $1.2 Trillion in 6 Months, Hits $21 Trillion, by Wolf Richter

The numbers on the US debt clock spin faster and faster. It seems like just yesterday that we hit $20 trillion. From Wolf Richter at wolfstreet.com:

These dang trillions are flying by so fast, they’re hard to see.

The US gross national debt jumped by $72.8 billion in one day, on Thursday, the Treasury Department reported Friday afternoon. This March 16 is a historic date of gloomy proportions, because on this date, the US gross national debt punched through the $21 trillion mark and reached $21.03 trillion.

Here’s the thing: On September 7, 2017, a little over six months ago, just before Congress suspended the debt ceiling, the gross national debt stood at $19.84 trillion.

In those six-plus months – 132 reporting days, to be precise – the gross national debt spiked by $1.186 trillion. I tell you, these dang trillions are flying by so fast, they’re hard to see. And we wonder: What was that? Where did it go?

Whatever it was and wherever it went, it added 6% to the gross national debt in just 6 months.

And with 2017 GDP at $19.74 trillion in current dollars, the gross national debt now amounts to 106.4% of GDP.

In the chart below, the flat spots are the various debt-ceiling periods. This is a uniquely American phenomenon when Congress forbids the Administration to borrow the money that it needs to borrow in order to spend it on the things that Congress told the Administration to spend it on via the appropriation bills. So that’s where we are, on this glorious day of March 16, 2018:

This was the largest spike in the gross national debt over a period of 132 reporting days, going back to 2011. Perhaps during the depth of the Financial Crisis, when all heck was breaking loose, and when credit was freezing up, and when millions of people lost their jobs, and when the government stopped receiving payroll deductions from them, and when capital gains turned into losses, and when corporations were drowning in red ink and not paying taxes either, in other words, when tax receipts collapsed due to the crisis, and expenditures for unemployment and other things jumped, well then the debt might have increased more sharply in a time span like this. But not since then.

To continue reading: US Gross National Debt Spikes $1.2 Trillion in 6 Months, Hits $21 Trillion

 

US Gross National Debt Spikes $1 Trillion in Less Than 6 Months, by Wolf Richter

A trillion here, a trillion there; pretty soon you’re talking a real national debt, especially when it takes less than six months to add another trillion. From Wolf Richter at wolfstreet.com:

And these are the good times.

As of the latest reporting by the Treasury Department, the US gross national debt rose by $41.5 billion on Thursday, February 22, to a grand total of $20.8 trillion.

Here’s the thing: On September 7, 2017, five-and-a-half months ago, just before Congress suspended the debt ceiling, the gross national debt stood at $19.8 trillion.

At that time, I was holding my breath waiting for the gross national debt to take a huge leap in a single day – as it always does after the debt ceiling gets lifted or suspended – and jump to the next ignominious level. It sure did the next day, when it jumped $318 billion.

And it continued. Over a period of 8 weeks, the gross national debt jumped by $640 billion. Four weeks after that, it had ballooned by $723 billion, at which point Fed Chair Yellen – whose cheap-money policies had enabled Congress to do this for years – said that she was “very worried about the sustainability of the US debt trajectory.”

Then Congress served up another debt ceiling – a regular charade lawmakers undertake to extort deals from each other, beat the White House into submission, and keep the rest of the world their on their toes. It goes like this: First they pass the spending bills, directing the Administration to spend specific amounts of money on a gazillion specific things spread around specific districts. Then they block the means to pay the credit card bill.

That debt ceiling was suspended on February 8, at which point the gross national debt began to surge again, adding $1 trillion ($960.4 billion rounded to the nearest 100 million), a 5% jump in the gross national debt in just 5.5 months:

In the chart, note the somewhat technical jargon (marked in green) of what will happen going forward. The past week saw record issuance of Treasury debt, and that surge of Treasury debt issuance will continue. The Treasury department now expects that the debt will increase by $617 billion by mid-year.

To continue reading: US Gross National Debt Spikes $1 Trillion in Less Than 6 Months

How Did America Go Bankrupt? Slowly, At First, Then All At Once!!! by Chris Hamilton

Here is the story, with charts, detailing America’s impending bankrupty. From Chris Hamilton at economica.com, via zerohedge.com:

The US federal debt has again been on the move, as of mid-week up to a fresh record of $20.7 trillion.  But, really, without some sort of reference point, what does that mean?

Typically, the metrics of total debt or federal debt divided by GDP (Gross Domestic Product or the total value of goods produced and services provided in the US annually) are used (chart below).  Still, that’s a bit ethereal to most folks.

So, I thought I’d make this simpler.  The chart below shows federal debt (red line) versus total full time employees (blue line) since 1970.  Clearly, debt has surged since 2000 and particularly since 2008 versus decelerating net full time jobs growth.  The number of full time employees is economically critical as, generally speaking, only these jobs offer the means to be a home buyer or build savings and wealth in a consumer driven economy.  Part time employment generally offers only subsistence level earnings.

But if we look at the change over those periods highlighted in the chart above, we get a clear picture (chart below).  Full time jobs are being added at a rapidly declining rate while federal debt is surging in the absence of the growth of full time employees.

And if we look at the federal debt added per full time job added (chart below)…broken arrow…broken arrow!!!  That is $1.92 million dollars in new federal debt per net new full time employee since 2008.  Compare that to the $30 thousand per net new full time employee from ’70 to ’80…or $140 thousand from ’80 to ’90…and nearly quadruples the $460 thousand per from ’00 to ’08.  Despite a far larger total population and after ten years of “recovery” since ’08, this is likely as good as it gets.  We are likely at or very near the top of this economic cycle.  This pattern is likely to carry forward over the next decade and economic cycle…likely with disastrous results.

To continue reading: How Did America Go Bankrupt? Slowly, At First, Then All At Once!!!

There Will Be No Economic Boom, by Lance Roberts

Debt and debt service destroy savings and retard capital formation. From Lance Roberts at realinvestmentadvice.com:

Last week, Congress passed a 2-year “continuing resolution, or C.R.,”  to keep the Government funded through the 2018 elections. While “fiscal conservatism” was just placed on the sacrificial alter to satisfy the “Re-election” Gods,” the bigger issue is the impact to the economy and, ultimately, the financial markets.

The passage of the $400 billion C.R. has an impact that few people understand. When a C.R. is passed it keeps Government spending at the same previous baseline PLUS an 8% increase. The recent C.R. just added $200 billion per year to that baseline. This means over the next decade, the C.R. will add $2 Trillion in spending to the Federal budget. Then add to that any other spending approved such as the proposed $200 billion for an infrastructure spending bill, money for DACA/Immigration reform, or a whole host of other social welfare programs that will require additional funding.

But that is only half the problem. The recent passage of tax reform will trim roughly $2 Trillion from revenues over the next decade as well.

This is easy math.

Cut $2 trillion in revenue, add $2 trillion in spending, and you create a $4 trillion dollar gap in the budget. Of course, that is $4 Trillion in addition to the current run rate in spending which continues the current acceleration of the “debt problem.”

But it gets worse.

As Oxford Economics reported via Zerohedge:

The tax cuts passed late last year, combined with the spending bill Congress passed last week, will push deficits sharply higher. Furthermore, Trump’s own budget anticipates that US debt will hit $30 trillion by 2028: an increase of $10 trillion.”

Oxford is right. In order to “pay for” all of the proposed spending, at a time when the government will receive less revenue in the form of tax collections, the difference will be funded through debt issuance.

Simon Black recently penned an interesting note on this:

“Less than two weeks ago, the United States Department of Treasury very quietly released its own internal projections for the federal government’s budget deficits over the next several years. And the numbers are pretty gruesome.

In order to plug the gaps from its soaring deficits, the Treasury Department expects to borrow nearly $1 trillion this fiscal year. Then nearly $1.1 trillion next fiscal year. And up to $1.3 trillion the year after that.

This means that the national debt will exceed $25 trillion by September 30, 2020.”

You can project the run rate quite easily, and it isn’t pretty.

Of course, “fiscal responsibility” left Washington a long time ago, so, what’s another $10 Trillion at this point? 

 

To continue reading: There Will Be No Economic Boom

The % Puzzle Coming Together, by Sven Heinrich

Debt service is taking a huge toll on the US economy, which will grow larger as the US goes ever-deeper into debt. From Sven Heinrich at northmantrader.com:

The macro premise remains simple and I’ve written about this a lot: The US is drowning in debt and as long as rates are low it’s all fun and giggles, but there is a point where it cramps on growth and the simple question is when and where. In recent weeks we have had a nasty correction coinciding with technical overbought readings and both bonds and stocks testing 30 year old trend lines.

In the meantime we continue to get data that keeps sending the same message: It’s a debt bonanza that keeps expanding and is unsustainable. Janet Yellen a few months ago said the debt to GDP ratio keeps her awake at night. Yesterday the Director of National Intelligence came out and described the national debt on an unsustainable path and a national security threat. This is literally where we are as a nation.

What’s Congress’s and the White House’s response? Spend more and blow up the deficit into the trillion+ range heading toward 2-3 trillion.

What is there to say but stand in awe at the utter hubris that is being wrought.

Last night the Fed came out with the latest household debt figures and it’s equally as damning, record debt and ever more required to keep consumer spending afloat:

The non-mortgage piece is particularly disturbing:

A few nuggets in the Fed’s household debt data.
Total non mortgage debt was $2.7 trillion at the peak in 2008.
Now it’s over $3.8 trillion, a 41% increase.
The big drivers: Auto loans and student loans.
Also: Credit card balances back at their 2008 peak.

As I added on twitter last night: “Non-housing balances, which have been increasing steadily for nearly six years overall, saw a $58 billion increase in the fourth quarter. Auto loans grew by $8 billion and credit card balances increased by $26 billion, while student loans saw a $21 billion increase”. “As of December 31, 4.7 percent of outstanding debt was in some stage of delinquency. Of the $619 billion of debt that is delinquent, $406 billion is seriously delinquent (at least 90 days late or “severely derogatory”). “The flow into 90+ days delinquency for credit card balances has been increasing notably from the last year and the flow into 90+ days delinquency for auto loan balances has been slowly increasing since 2012”.

So they want to keep raising rates. Fine go ahead. See what happens.

To continue reading: The % Puzzle Coming Together