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I.O.U.S.A.

For those of you looking for some feel-good cinema this summer, you may want to pass on the movie “I.O.U.S.A.,” which debuts August 21. Frank Ahrens of the Washington Post wrote Thursday:

A private-equity billionaire, a former federal government official and a Baltimore newsletter editor have made a documentary film that they hope can do what an endless parade of policy papers has not: Persuade Americans that debt has created a looming economic crisis that would make the Great Depression look like a market correction.

The movie, “I.O.U.S.A.,” debuting Aug. 21, is an 87-minute alarum on what it calls the tsunami of debt bearing down on the United States’ future, caused by the rising national deficit, the trade imbalance and the pending costs of baby boomers cashing in on entitlements…

The film will debut in 400 theaters around the country on Aug. 21, followed by a live video town hall meeting from Omaha, featuring Walker, Peterson and Buffett. The next day, the film opens in 10 cities, including Washington.

From the movie’s website:

Wake up, America! We’re on the brink of a financial meltdown. I.O.U.S.A. boldly examines the rapidly growing national debt and its consequences for the United States and its citizens. Burdened with an ever-expanding government and military, increased international competition, overextended entitlement programs, and debts to foreign countries that are becoming impossible to honor, America must mend its spendthrift ways or face an economic disaster of epic proportions.

Throughout history, the American government has found it nearly impossible to spend only what has been raised through taxes. Wielding candid interviews with both average American taxpayers and government officials, Sundance veteran Patrick Creadon (Wordplay) helps demystify the nation’s financial practices and policies. The film follows former U.S. Comptroller General David Walker as he crisscrosses the country explaining America’s unsustainable fiscal policies to its citizens.

With surgical precision, Creadon interweaves archival footage and economic data to paint a vivid and alarming profile of America’s current economic situation. The ultimate power of I.O.U.S.A. is that the film moves beyond doomsday rhetoric to proffer potential financial scenarios and propose solutions about how we can recreate a fiscally sound nation for future generations.

I know where I’ll be August 21…

Trailer, “I.O.U.S.A.” (2008)
YouTube Video Link

Source:

“Indebted Ever After”
Frank Ahrens
Washington Post, August 7, 2008

How Will McCain, Obama Deal With A Record Budget Deficit?

Last week, I talked about the U.S. national debt. $53 trillion of debt (factoring in long-term liabilities), or $455,000 per American household.

This week, it’s the U.S. budget deficit, which the White House predicts will reach close to half a trillion dollars in 2009. The Associated Press’ Andrew Taylor wrote earlier today:

The government’s budget deficit will surge past a half-trillion dollars next year, according to gloomy new estimates, a record flood of red ink that promises to force the winner of the presidential race to dramatically alter his economic agenda.

The deficit will hit $482 billion in the 2009 budget year that will be inherited by Democrat Barack Obama or Republican John McCain, the White House estimated Monday. That figure is sure to rise after adding the tens of billions of dollars in additional Iraq war funding it doesn’t include, and the total could be higher yet if the economy fails to recover as the administration predicts.

The result: the biggest deficit ever in terms of dollars, though several were higher in the 1980s and early 1990s as a percentage of the overall economy.

Both presidential candidates have proposed new initiatives as part of their campaign platforms. The question is, how will this latest deficit forecast affect their agendas? Taylor noted:

Neither campaign is backing off campaign promises — McCain to cut taxes and Obama to expand health and education programs — in light of the bleaker new figures.

“We can’t afford not to invest in some major initiatives such as health and energy and middle-class tax cuts,” said Obama economic adviser Jason Furman. “And we also can’t afford not to pay for those initiatives.”

Some would disagree with Furman. MarketWatch’s Robert Schroeder wrote today:

Stan Collender, a managing director for Qorvis Communications who formerly worked on both the Senate and House Budget Committees, is skeptical that the next president will have an easy time getting much accomplished as long as the deficit remains high.

“Based on what we now know for sure about next year’s budget, none of the presidential candidates’ promises should be taken seriously,” said Collender. “Unless they, the country, and those lending us money are willing to tolerate much higher nominal deficits and a larger debt than has so far been imaginable, the next president’s options will be severely limited,” Collender wrote Tuesday.

Sources:

“US deficit zooming to half-trillion as Bush leaves”
Andrew Taylor
Associated Press, July 29, 2008

“Deficit projections complicate candidates’ plans”
Robert Schroeder
MarketWatch, July 29, 2008

Ross Perot Warns Of Economic Crisis, Launches PerotCharts.com

Glad someone else is spreading the word. Definitely worth a visit:

Ross Perot Launches Public Information Website About U.S. Economic Crisis

PerotCharts.com Illustrates that We Are Running Out Of Time to Stop Deficit Spending

DALLAS, TEXAS - JUNE 16, 2008 /PRNewswire/—Ross Perot, business leader and former presidential candidate, announced today the launch of “PerotCharts.com,” a public information website that contains objective, factual information about the current economic crisis in America. The site is being launched as an alert and appeal for American citizens to inform themselves about federal government spending. Perot said, “The U.S. national debt reached $9.4 TRILLION on April 30, and it is increasing by more than $1 billion every day. We are leaving our children and grandchildren with debt they cannot possibly pay.”

PerotCharts.com consists of three major components: a video featuring Ross Perot discussing the purpose of the website, a blog where new charts and other information are posted daily for study and comment, and a narrated chart presentation explaining the economic problems our country faces.

The website is not affiliated with any political party or candidate. Most of the data and research for the charts is gathered from official government sources.

“The economic crisis facing America today is far greater than anything since the Great Depression,” said Perot. “Our federal government continues to spend us deeper into debt. The American people must get directly involved and demand an end to deficit spending. This website will provide information for citizens to do just that.”

Like the economic charts Perot employed in his 1992 and 1996 presidential campaigns, which served as snapshots of complex economic issues presented in simple terms, PerotCharts.com features the latest official government figures about the real conditions of our economy for everyone to see and consider. The site is designed to be a reservoir of information about the economy, and provides an accurate look at where the money comes from and where it goes.

David Walker, former U.S. Comptroller General and current president and CEO of the Peter G. Peterson Foundation said, “Ross Perot is the father of fiscal charts, and PerotCharts.com will help Americans understand the serious fiscal challenges facing our nation. These updated economic charts will also serve to hold elected officials accountable while accelerating needed actions to help ensure that our collective future will be better than our past. What we need now is leadership from our elected officials.”

Newt Gingrich, former Speaker of the U.S. House of Representatives said, “Ross Perot is exactly right to echo Winston Churchill’s famous cry for ‘action this day’ to rally the nation to reform our entitlement programs, end deficit spending, and balance the federal budget. PerotCharts.com contains information every citizen needs to know so we can demand real change to get the nation on the right track.

David L. Boren, former U.S. Senator and governor of Oklahoma and current president of the University of Oklahoma said, “The facts speak for themselves in Ross Perot’s powerful website for all Americans. Runaway spending and a rising national debt will destroy America’s future as a great nation. As more of our debt is held by those in other countries, our political independence is put at risk by our economic dependency. We must act now!

“We simply cannot wait any longer to do something about runaway deficit spending,” Perot said. “This website addresses a number of issues, and we will add more in the coming weeks and months. But there is a common thread running through all of them. We cannot solve these problems unless we have the ability to pay for the solutions. Getting spending under control is the first step in that process.”

For more information, visit PerotCharts.com.

Source:

“Ross Perot Launches Public Information Website About U.S. Economic Crisis”
PRNewswire, June 16, 2008

Talk Of Another Stimulus Package

Although only one-half of the tax “rebate” checks have been paid out, there is already talk of another “stimulus” package being required to jump-start the U.S. economy. Reuters’ Emily Kaiser wrote this afternoon:

Even as U.S. consumers raced to spend their tax rebate checks, economists and analysts at a Reuters summit this week said the effect on the economy may be so short-lived that another cash infusion will be needed.

Kaiser talked to economists Martin Feldstein and Roger Kubarych, and wrote:

Martin Feldstein, a Harvard University economics professor and head of the influential National Bureau of Economic Research in Cambridge, Massachusetts, said textbook economic theory holds that one-time tax rebates don’t work, but recent experience shows otherwise.

“For a lot of people, seeing the cash sends them right out to the store to spend it,” he said. “If the economy is weak a year from now, and this (first stimulus) seems to have worked, I think they ought to do it again.”

Kaiser also spoke to Roger Kubarych, the chief U.S. economist at The Unicredit Group, who said:

We’ve got quite a lot of fiscal kick for the second half but it has got a lot of work to do. I think that it allows maybe 2 percent, 2.5, 3 percent growth in the third quarter but by the end of the year it will be slack. And the next president will reconsider and maybe do another rebate program next year. The economy is not really strong enough without some fiscal kick, and the Fed is pretty much spent.

Despite such benefits, Kaiser warned, “Nothing is free, and the current package, worth $168 billion over two years, will add to an already daunting federal deficit.” In fact, the U.S. Treasury Department reported yesterday that the May deficit was more than double what it was in May 2007. According to the Associated Press on Wednesday, $48 billion in “stimulus” payments contributed to last month’s $165.9 billion deficit, the highest imbalance ever for May.

“She Wants My… Stimulus PACKAGE”
Warning: Somewhat Offensive Material
YouTube Video Link

Sources:

“Economy may need second dose of stimulus”
Emily Kaiser
Reuters, June 12, 2008

“Stimulus payments result in record May deficit”
Martin Crutsinger
Associated Press, June 11, 2008

State Governments Battered By Slowing Economy

Earlier today, Bloomberg’s William Selway reported that state governments are projecting a $26 billion shortfall in the next budget year as the slowing economy erodes tax receipts, according to a national survey. The National Conference of State Legislatures study found:

With a few exceptions, state finances are deteriorating, in some cases considerably…

If the national economy continues to struggle and indeed falls into recession, the state fiscal situation will worsen.

While economists argue over whether or not the U.S. economy is in a recession, the group said:

Whether or not the national economy is in recession — a subject of ongoing debate — is almost beside the point for some states because their fiscal situations have declined so much that they appear to be in recession.

According to the survey, deficits are forecast in 23 states for the 2009 budget year. 16 states, including California and Florida, were forced to deal with shortfalls of $11.7 billion that appeared after their spending plans were already set. 33 states say they are concerned about the outlook for the coming year. Not surprisingly, states that benefited most from the housing boom are now seeing the most pain. The widest deficits for next year, measured as a percentage of the budget, are in Arizona, Nevada, California, Alabama, and Florida.

And how do the states plan to deal with the budget shortfalls? Selway wrote:

At least 16 states will respond to their shortfalls by cutting back spending, according to the report. At least eight, including California, are considering moves to raise taxes or fees. Massachusetts is considering a $1 per pack increase in the cigarette tax to raise $175 million, the report said. New York lawmakers balanced next year’s budget in part with a $1.25 per pack cigarette tax boost.

Others are looking at selling assets or using bonds sales to pay for projects. Illinois may sell its lottery, while Maine is looking at selling surplus land. Nevada is considering using bonds, instead of general fund money, for capital works.

More “pole taxes” to come?

Source:

“U.S. States ‘Deteriorating’ as Slump Curbs Taxes, Lawmakers Say”
William Selway
Bloomberg, April 25, 2008

Twin Deficits, Twice The Pain

It was all bad news today with the release of the latest data on the “twin deficits”— the U.S. budget and trade deficits. The Associated Press reported Thursday that the federal deficit through the first half of the budget year is at an all-time high. The U.S. Treasury Department said Thursday that the budget deficit through the first six months totaled $311.4 billion, which is up 20.5% when compared to the $258.4 billion deficit through the first six months of 2007. The previous record of $302 billion was set in 2006.

Back in February, the Bush administration was projecting that the deficit for the whole year would total $410 billion. The Associated Press wrote today:

However, private economists are forecasting a much bigger deficit, reflecting the country’s current economic problems and a $168 billion stimulus package that Congress has passed in an effort to jump-start growth.

While the trade deficit data released by the U.S. Department of Commerce today didn’t set any records, it wasn’t much rosier. MarketWatch senior reporter Greg Robb wrote:

The U.S. trade deficit widened unexpectedly in February, painting an even gloomier picture for the economy.

The 5.7% increase wasn’t even caused by the two factors usually cited as culprits — imports of oil from the Middle East and imports of inexpensive goods from China. Rather, the widening of the deficit came about as a result of record imports of food, industrial supplies, capital goods and consumer goods.

The nation’s trade deficit expanded to $62.3 billion, broader than the revised figure of $59.0 billion for January, the Commerce Department said.

February’s gap is the largest and the biggest one-month worsening in the deficit since November.

Sources:

“Mid-year budget deficit at all-time high”
Associated Press, April 10, 2008

“U.S. trade gap widens unexpectedly”
Greg Robb
MarketWatch, April 10, 2008

Next Stop, Depression?

Back on March 29, ABC News’ David R. Francis talked about the economic forecast of Robert Parks, a finance professor at Pace University and former chief economist at three Wall Street firms. So, what’s so special about Parks that ABC News would be covering him? According to Francis, Parks is predicting that there is more than a 60% chance the United States will enter into an economic depression.

Even though the Federal Reserve has been cutting interest rates to stimulate the economy, Francis wrote:

Mr. Parks, however, doubts the cuts will do much to boost the economy. Rather, he sees a further steep fall in housing prices, continued major deficits in the federal budget and in the international trade balance, a tumbling dollar, and a weak stock market leading to a genuine depression with 30 to 35 percent unemployment, greater poverty, more loss of homes, plunging bond and stock prices, even some starvation.

Mother and child during Great Depression

Source: FDR Presidential Library & Museum

He also noted that Parks says he has never predicted a depression before.

The economist thinks that it’s a mistake to rely on money supply growth to help alleviate present economic conditions. Francis wrote:

As Parks sees it, Washington and Wall Street are mostly counting on Fed additions to the money supply to revive the free market and right the economy.

“Automatic recovery is in no way a reliable concept,” he warns, especially if deflation (falling prices) has begun. He recalls warning of the economic damage that the bursting real estate and stock market bubbles would wreak in Japan: That nation suffered stagnation from 1990 to 2001.

Source:

“Are We Heading Into a Depression?”
David R. Francis
ABC News, March 29, 2008

Why Americans Should Worry

Let me tell it to you straight. The. Math. Politicians. Sell. Does. Not. Work. And if we don’t start dealing with the truth soon, this country could face dire consequences.

-David L. Walker, Comptroller General of the United States, October 2007

On February 15, David M. Walker, Comptroller General of the United States, announced his resignation as head of the U.S. Government Accountability Office (GAO). Since November 9, 1998, Walker has served as the nation’s chief accountability officer, leading the GAO in its mission to help improve the performance and accountability of the federal government for the benefit of the American people. Back on February 15, Richard Cowan wrote in Reuters that:

Walker repeatedly urged Congress to waste no time in reforming massive government programs, such as health care for the elderly, which will grow significantly as the U.S. population ages.

“The picture I will lay out for you… is not a pretty one and it’s getting worse with the passage of time,” the blunt-talking Walker told Congress more than once.

Despite those warnings, Congress and the White House have yet to begin cooperating on how to tackle the huge growth in health care and retirement benefit costs.

Back on December 18, 2007, I wrote:

On Monday, the Bush administration released its Financial Report of the United States Government for the 2007 budget year. And guess what? The U.S. government is promising $45 trillion more than it can deliver on Social Security, Medicare, and other benefit programs, according to the Associated Press yesterday…

Even worse, when the gap in funding social insurance programs (Social Security, Medicare, Railroad Retirement, and Black Lung Program) is added to other government commitments, the total shortfall as of September 30 increases to $53 trillion, up more than $2 trillion in just a year, according to the report. Comptroller General David M. Walker, who serves as the head of the Government Accountability Office (GAO), said Monday that, “Our government has made a whole lot of promises in the long-term that it cannot possibly keep.”

Yesterday, Bill Donoghue from MarketWatch had this to say about Walker’s departure:

Facing indifference on the Hill and unrealistic spending promises, Walker is resigning with five years still remaining in his term to head the newly formed Peter G. Peterson Foundation. Peterson, senior chairman of The Blackstone Group and Commerce secretary in the Nixon administration, has pledged an astounding startup budget for the foundation of $1 billion.

That money will attack what the foundation considers “the most substantial economic, fiscal and other sustainability challenges of our current age” — including federal entitlement programs, health care, unprecedented trade and budget deficits, low savings rates, mounting foreign debt, soaring energy consumption, an uncompetitive educational system, and the proliferation of nuclear warfare materials. Maybe Congress will listen this time.

The departing Comptroller General told Reuters:

As Comptroller General of the United States and head of the GAO, there are real limitations on what I can do and say in connection with key public policy issues, especially issues that directly relate to GAO’s client — the Congress.

My new position will provide me with the ability and resources to more aggressively address a range of current and emerging challenges facing our country.

MarketWatch’s Donoghue lamented:

This sounds to me like the ultimate sell signal on America…

When the nation’s best-informed watchdog resigns and few are acting on his recommendations on his “Fiscal Wake-Up Tour,” it’s time to reconsider over-optimistic domestic stock investments and look elsewhere, or bet against the U.S. market.

Source: stock.xchng

The “Fiscal Wake-Up Tour” is a joint public engagement initiative by the Concord Coalition, the Budgeting for National Priorities Project at the Brookings Institution, and the Heritage Foundation, created for the purpose of explaining in plain terms why budget analysts of diverse perspectives are increasingly alarmed by the nation’s long-term fiscal outlook.

(Note: The author disclaims any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein.)

Washington’s Angle On The Tax Rebates

Growing up in the Chicago area, I learned early on that most people work from an “angle.” The Urban Dictionary defines this as, “A plan or way of doing something, especially making a good sales pitch, implying that the person knows exactly what he or she is doing or saying.” It seems to me Washington policymakers have an “angle” when it comes to the tax “rebate” checks as part of the Economic Stimulus Act of 2008. Washington has been quite silent when it comes to explaining where it will get the money to pay for its $168 billion “stimulus” package. It appears they want us to believe this is somehow free money. No way. Who, in this day and age, still believes in a “free lunch?” Apparently, quite a few people. Consider the following headlines:

“Free Money: Feds to distribute rebate checks to millions of taxpayers”
-USA Today, February 13

“Bush Passes Stimulus Plan, Free Money Coming Soon”
-KSPR (ABC) News (Springfield, Missouri), February 13

“Is the tax rebate really free?”

You could receive a tax rebate check for a few hundred dollars by May as part of a government effort to stimulate the economy. But is this free money really free?

Yes. The IRS says the tax rebate money does not have to be paid back. Period.

-WATE 6 (ABC) News (Knoxville, Tennessee), February 14

Oh, there will be pay back all right. Yesterday, the editorial board of the Telegraph Herald (Dubuque, Iowa) wrote “Handouts won’t help U.S. economy in long term.” Leave it to Midwestern sensibility to figure out what’s really going on with these tax rebate checks and “stimulus” plan:

OK, here’s how we’re going to fix the lagging U.S. economy — read carefully: We’re going to borrow a whole bunch of money from China and give it to Americans. Then Americans will go out and buy things, most of which will have been made in China. That’s the plan to help our economy, remember. Boosting China’s economy is just a fringe benefit. For China.

They continued:

So, the government’s solution is to encourage Americans, who spend too much and save too little, to spend more?…

We need a big-picture plan that involves something besides handing out borrowed money. The Congressional Budget Office reports the deficit for the current budget year will jump to about $250 billion after the stimulus package checks are cashed.

Giving out money we don’t have to people who aren’t saving enough as it is may be a good way to win votes. But it won’t do much for the long-term health of the U.S. economy.

Thanks guys. I couldn’t have said it any better.

State Budgets Hit Hard By Housing Bust, Slowing Economy

Back on January 28, I read in Bloomberg that the Washington D.C.-based research group The Center on Budget and Policy Priorities announced half of all U.S. states were projecting budget deficits for the next fiscal year as the U.S. economy slows and tax revenue disappears. According to their report (revised on February 1):

At least twenty-four states, including several of the nation’s largest, face budget shortfalls in fiscal year 2009. Of these 24 states, 20 have already made specific estimates; the combined deficits of these 20 states are expected to total at least $34 billion for fiscal 2009 — which begins July 2008 in most states. Another 3 states expect budget problems in fiscal year 2010, although some of those gaps may occur earlier than expected. Many of the other states have not yet released information about their fiscal status.

The center explained why this was happening:

The bursting of the housing bubble has reduced state sales tax revenue collections from sales of furniture, appliances, construction materials, and the like. Weakening consumption of other products has also cut into sales tax revenues. Property tax revenues have also been affected, and local governments will be looking to states to help address the squeeze on local and education budgets. And if the employment situation continues to deteriorate, income tax revenues will weaken and there will be further downward pressure on sales tax revenues as consumers become reluctant or unable to spend.

The slower growth in tax receipts is coming at a time when state lawmakers hammer out spending plans for the next fiscal year, which begins in July for all but four states. According to the center, states, unlike the federal government, typically cannot borrow all the money they need when revenues fall short, which leaves them with no other choice but to draw down reserves, cut spending, and/or find new sources of money (new taxes) . In California, which faces a $14.5 billion deficit, Governor Arnold Schwarzenegger has proposed releasing prison inmates early and closing state parks, in addition to selling $3 billion of bonds to help pay the bills. A number of states are getting creative when it comes to finding new sources of funds. In a January 28 article entitled “Cash-Strapped States Resort to Odd Taxes,” Michael Gormley of the Associated Press wrote:

Need a few million dollars to fill a budget deficit? Lease a toll highway, like Indiana and Virginia did, or cash in on future lottery profits as a half-dozen states are considering. You could slap a tax on pornography as six states already have, or tax strip joints like they do in Texas, where they call it a “pole tax.”

Some states take a slice out of pumpkin sales at Halloween. And most states tax Shaquille O’Neal and Barry Bonds when they visit, using a “jock tax” on professional athletic events.

Amused? That will cost you, too. Many states collect an amusement tax for live performances.

Nate Bailey, of the nonpartisan Tax Foundation, had this to say about the new funding initiatives. He told the Associated Press:

They range from the outright crazy to the absolutely insane. People at the local level already feel overtaxed and politicians, in a somewhat spineless way, look for a hidden way to increase revenue without raising taxes.

Shortfalls are anticipated to be significant in states whose economies were driven by the recent housing boom. Arizona is expecting a budget deficit of between $1.3 billion and $1.7 billion, or 12.1% to 16.2% of its FY 2008 general fund. Nevada is forecast to have a shortfall of $565 million, or 7.8% of its budget.

Back on October 11, 2007, I talked about a Retuers article which noted half of all U.S. states were collecting less from their sales taxes than expected, which could signal a recession was ahead. I wrote:

Philippa Dunne is a co-editor with the New York-based Liscio Report, which was founded by veteran bond-market reporter John Liscio in 1992 on the belief that real time information on monthly state tax receipts is crucial to understanding the state of the United States economy. Ms. Dunne said that, “There are a lot of unknowns, but the state sales tax receipts are pretty much at recession levels.” She added that about 25 states are seeing disappointing sales tax revenues. How sales taxes perform is one way to judge a region’s economy since the data is released promptly and reveals consumer spending trends that are otherwise hard to discern, according to Goldman Sachs in a July 2007 report.

Father of Reaganomics: Nothing Can Be Done To Save Economy

This morning I came across an interesting article by Paul Craig Roberts in the Coastal Post. Who is Dr. Roberts? He is an economist who served as an Assistant Secretary of the Treasury in the Reagan Administration, and is known as the “Father of Reaganomics.” Outside of the public sector, he was a former editor and columnist for the Wall Street Journal and Business Week.

What initially caught my eye was the title of the article- “The Impending Destruction Of The U.S. Economy.” No use beating around the bush. But he did manage to beat up the Bush administration and other policymakers in Washington for their mishandling of the U.S. economy. Dr. Roberts wrote:

Hubris and arrogance are too ensconced in Washington for policymakers to be aware of the economic policy trap in which they have placed the U.S. economy. If the subprime mortgage meltdown is half as bad as predicted, low U.S. interest rates will be required in order to contain the crisis. But if the dollar’s plight is half as bad as predicted, high U.S. interest rates will be required if foreigners are to continue to hold dollars and to finance U.S. budget and trade deficits.

Which will Washington sacrifice, the domestic financial system and overextended homeowners or its ability to finance deficits?

The answer seems obvious. Everything will be sacrificed in order to protect Washington’s ability to borrow abroad. Without this, Washington cannot conduct its wars of aggression, and Americans cannot continue to consume $800 billion dollars more each year than the economy produces.

Nice job, Washington!

However, this line of credit is threatened. According to Roberts:

No country wants to hold a depreciating asset, and no country wants to acquire more depreciating assets. In order to reassure itself, Wall Street claims that foreign countries are locked into accumulating dollars in order to protect the value of their existing dollar holdings. But this is utter nonsense. The U.S. dollar has lost 60 percent of its value during the current administration. Obviously, countries are not locked into accumulating dollars…

Japan and China - indeed, the entire world - realize that they cannot continue forever to give Americans real goods and services in exchange for depreciating paper dollars. China is endeavoring to turn its development inward and to rely on its potentially huge domestic market. Japan is pinning hopes on participating in Asia’s economic development.

The dollar’s decline has resulted from foreigners accumulating new dollars at a lower rate. They still accumulate dollars, but fewer…

Foreigners have continued to accumulate dollars in the expectation that sooner or later Washington would address its trade and budget deficits. However, now these deficits seem to have passed the point of no return.

Faced with the realization that the twin deficits will not be addressed, will foreigners finally stop accumulating dollars and/or significantly reduce dollar holdings, causing a dollar crash?

Dr. Roberts explained why the twin deficits could no longer be fixed:

The sharp decline in the dollar has not closed the trade deficit by increasing exports and decreasing imports. Offshoring prevents the possibility of exports reducing the trade deficit, and Americans are now dependent on imports (including offshored production) for which there are no longer any domestically produced alternatives. The U.S. trade deficit will close when foreigners cease to finance it.

The budget deficit cannot be closed by taxation without driving up unemployment and poverty…

In the 21st century, the U.S. economy has been driven by consumers going deeper in debt. Consumption fueled by increases in indebtedness received its greatest boost from Fed chairman Alan Greenspan’s low interest rate policy. Greenspan covered up the adverse effects of offshoring on the U.S. economy by engineering a housing boom. The boom created employment in construction and financial firms and pushed up home prices, thus creating equity for consumers to spend to keep consumer demand growing.

This source of U.S. economic growth is exhausted and imploding. The full consequences of the housing bust remain to be realized. American consumers lack discretionary income and can pay higher taxes only by reducing their consumption. The service industries, which have provided the only source of new jobs in the 21st century, are already experiencing falling demand. A tax increase would cause widespread distress.

The old-school Republican had this to say about our precarious position:

Superpower America is a ship of fools in denial of their plight. While offshoring kills American economic prospects, “free-market economists” sing its praises. While war imposes enormous costs on a bankrupt country, neoconservatives call for more war and Republicans and Democrats appropriate war funds, abroad….

We have arrived at the point where it is no longer bold to say that nothing now can be done. Unless the rest of the world decides to underwrite our economic rescue, the chips will fall where they may.

Bad Moon Rising

On Monday, the Bush administration released its Financial Report of the United States Government for the 2007 budget year. And guess what? The U.S. government is promising $45 trillion more than it can deliver on Social Security, Medicare, and other benefit programs, according to the Associated Press yesterday.

I see the bad moon arising.
I see trouble on the way.
I see earthquakes and lightnin.
I see bad times today.

The Bush administration said Monday that the $45 trillion represents the gap between the promises the U.S. government has made in benefits, and the projected revenue stream for these programs over the next 75 years. The shortfall increased by nearly $1 trillion in just one year when using the 2006 report as a benchmark. In addition, the gap between entitlements and revenue is up 67.8% in just the past four years. Martin Crutsinger, an AP Economics Writer, said that in 2003 the shortfall was projected to be only $26.9 trillion over the same 75-year time period.

I hear hurricanes ablowing.
I know the end is coming soon.
I fear rivers over flowing.
I hear the voice of rage and ruin.

Even worse, when the gap in funding social insurance programs (Social Security, Medicare, Railroad Retirement, and Black Lung Program) is added to other government commitments, the total shortfall as of September 30 increases to $53 trillion, up more than $2 trillion in just a year, according to the report. Comptroller General David M. Walker, who serves as the head of the Government Accountability Office (GAO), said Monday that, “Our government has made a whole lot of promises in the long-term that it cannot possibly keep.”

Hope you got your things together.
Hope you are quite prepared to die.
Looks like were in for nasty weather.
One eye is taken for an eye.

As usual, Congress said something should be done as 78 million Baby Boomers reach retirement age…

On a side note, the report said that the federal budget deficit would have been 69% higher than the $162.8 billion reported two months ago if the government were held to the same accounting standards as private companies. Using the accrual method of accounting, the deficit would have totaled $275.5 billion for the fiscal year ending September 30.

Vanguard Founder Says Recession Odds At 75 Percent

Earlier today, CNN Money posted the answers to questions Fortune readers asked of John Bogle, the 78-year-old founder of mutual fund giant Vanguard. With $1.3 trillion in assets, Vanguard is now the second-largest mutual fund company. Bogle talked about the odds of a U.S. recession, the U.S. housing market, the subprime crisis, and challenges to the U.S. economy, among other issues.

What are the odds of a recession right now?

I would put the odds of a recession at 75 percent. This economy is very much consumer-based, and I believe that 70 percent of the GDP is consumer spending. That’s a very high number. Two things are happening there: Consumers have fewer resources because from 2001 to 2005 they took $5 trillion out of real estate. That will not recur. This is a big drop. We also see weakness in auto sales and retail spending - we even see it at companies like Starbucks. There is another, equally important factor in consumer spending, and that is confidence. Consumers are not going to spend if they are worried about the future.

Will the real estate market improve anytime soon?

It doesn’t look so good. I really don’t see it improving soon. At some point homes will have to be built. But right now there is not much incentive to build new places when there are so many old places on the market. When those lines cross I don’t know. It’s complicated by the fact that many people have gotten into ARMs [adjustable-rate mortgages] who didn’t know what they were doing. I don’t know what is going to happen to those people when lenders foreclose. When banks were community banks, they were more careful. But when banks sell loans in a bundle, they are clearly not going to be concerned about mortgage quality. So we have to have a better system in the future to make sure we have a much better element of credit quality in mortgages.

How does the U.S. subprime mess compare with other crises you have seen in your career?

I’d say the most similar example was the S&L crisis of the late ‘80s and early ‘90s. The issues were somewhat the same: Institutions borrowed short and lent long.

The immediate concern for most investors is the subprime market, but over the long term what do you see as the biggest challenges facing the U.S. economy?

Externally, we are faced with $1.5 trillion already poured into Iraq and Afghanistan. So you have enormous expenditures in a corner of the world that is important to us, but it is very unwise to think we can bring democracy to a place that doesn’t share our values. There are also the challenges from low cost production in China and India. At home, we have a tremendous future financial problem with the federal deficit. We’ll have to take action on Social Security someday. Government spending has gotten to the point where we will have to either cut spending or raise taxes. Another problem is this deadlocked Congress. And I see the quality and caliber of our presidential nominees, and I am not impressed.

It raises the question of whether this country is even able to run itself anymore.

U.S. Budget Deficit Could Suffer ‘Noticeable Deterioration’

Today, Congressional Budget Office Director Peter Orszag told the House Budget Committee that subprime mortgage woes and other factors have combined to create an “elevated risk of a recession,” according to MarketWatch. However, Orszag emphasized that the most likely scenario was “low economic growth,” pointing to the general consensus of analysts.

His testimony was notable in that he pointed out that a recession or extended stretch of sluggish growth could cause a “noticeable deterioration” in the U.S. budget deficit. A budget deficit occurs when the U.S. government spends more money than it takes in. Orszag pointed out that the U.S. deficit has increased by around 1% to 3% of gross domestic product during recessions since 1968, or $140 billion to $420 billion in today’s economy. For fiscal year 2007 (which ended September 30), the deficit stood at $162.8 billion, according to U.S. Treasury data.

Source: White House

On December 3, Bloomberg said a growing number of strategists are saying the stage is being set for a U.S. dollar rally in 2008. They have been pinning their hopes on the simultaneous narrowing of the U.S. budget and trade deficits for the first time since 1995. Stephen Jen, the London-based head of currency research at Morgan Stanley, told Bloomberg, “I am confident that the dollar will have a significant rally next year, especially against the euro and the pound… The deficits are shrinking fast.”

For how much longer?