Tag Archives: Interest Rate

Is Obama’s economy as good as the mainstream media are telling us?

This article from CNS News was tweeted by GOP presidential candidate Carly Fiorina.

The economy is not good
This economy is not good (click for larger image)

It says:

The federal government taxed away more money, spent more money and ran a bigger deficit in the first half of fiscal 2015 than it did in the first half of fiscal 2014, according to the Congressional Budget Office.

“The federal government ran a budget deficit of $430 billion for the first half of fiscal year 2015, CBO estimates–$17 billion more than the shortfall recorded in the same span last year,” the CBO said in its Monthly Budget Review for March 2015, which was published April 8. “Both revenues and outlays were about 7 percent higher than the amounts recorded in the first six months of fiscal year 2014.”

Keep in mind that these deficit numbers are for half a year. In 2007, George W. Bush was running a deficit of $160 billion for an entire year.

And we’re being taxed more, too:

The biggest source of additional tax revenue for the federal government was the individual income tax. In the first six months of fiscal 2014, Americans paid the federal government approximately $585,000,000,000 in individual income taxes. In the first six months of fiscal 2015, Americans paid $642,000,000,000 in individual income taxes—an increase of $57 billion (or 9.7 percent) from fiscal 2014.

What’s the long-term forecast?

The Wall Street Journal has it:

Question: “How close are we from seeing entitlement programs like Medicare, Medicaid, and Social Security come into direct conflict with defense spending priorities? Defense spending is almost 20% of the Fed budget and nearly 60% of discretionary spending. Current cost of health care and an aging population are strong indicators this could happen sooner than later.”

Zumbrun: “I’d say we’re already seeing it now. As Nick noted above, the CBO projects that mandatory spending and spending on interest will climb, but that defense and nondefense discretionary spending will be squeezed. Anyone who doesn’t want to see that happen in the next decade needs some combination of higher revenue, much faster economic growth, or cuts to entitlement programs.

“The budget deal known as sequestration squeezed down both defense and non-defense discretionary spending. If, instead, everyone agreed it was okay to cut entitlements (which they obviously don’t), you wouldn’t have needed to squeeze that down. So I think it’s fair to say these things are already in conflict.”

Question: “Debt as long as partnered with productivity is no problem. From the looks of it, the U.S. might fall as an economy, but is now the time?”

Timiraos: “That’s a good point. One thing that’s a little bit troubling, however, is that estimates of the potential output of the U.S. economy have been revised down. What does that mean exactly? Instead of growing at a 2.7% rate from 2014-18, it now says the economy will grow at a 2.5% rate. That doesn’t sound too bad, but over time, it adds up.”

Question: “The U.S. has so far been capable of keeping its cost of borrowing at a remarkably low level. What about in the long term where it seems likely that servicing the debt will eat up a larger and larger percentage of government expenditures in an age of slowing growth?”

Zumbrun: “There’s actually decent reason to believe that if the economy slows down a lot then interest rates will stay very low. That’s basically the situation in Japan, right? They’re mired in decades of low growth, driven by aging demographics and a central bank that was really timid for a long time, but as a result of their permanently stagnant economy, interest rates are incredibly low. In the U.S., one scenario like this is known as secular stagnation.

Wow, if our economy starts to look like Japan, that will not be good. They have massive deficits, zero economic growth and a looming demographic crisis (few young workers, many older retirees). It’s a very bad situation that’s being masked by low interest rates and massive, massive borrowing.

The Brookings Institute agrees

Lest you think that this is just the conservative take on this, here’s the leftist Brookings Institute, writing about it just last week.

They say:

Debt figures tell part of the story. When the Great Recession hit, the federal debt was equal to about 40 percent of GDP. But to fight the recession, Congress enacted an $800 billion dollar stimulus bill. Stimulus spending, combined with already enacted spending and tax policy, resulted in four years of trillion dollar deficits. As a result, the debt ballooned to 78 percent of GDP in 2013, almost twice the pre-recession level. The annual deficit is now declining at a stately pace, but by 2016 it will begin increasing again, and by 2020 under CBO’s alternative fiscal scenario, we will once again return to annual deficits above a trillion dollars, thereby once again greatly increasing the national debt.

Oh come on – Obama says that he saved the economy, and everyone in the mainstream media agrees.

Did he?

What’s the word for our fiscal situation? Stunning? Shocking? Desperate? In recent testimony before the Senate Budget Committee, Boston University Economics Professor Laurence Kotlikoff, in effect, told the Committee that all of these terms are pathetically inadequate to describe our true fiscal situation. In compelling testimony, Kotlikoff argues that the federal fiscal situation is much worse than the CBO estimates let on. The reason is that CBO’s debt estimates do not take into account the full financial obligations the government is committed to honor, especially for future payments of Social Security, Medicare, and interest on the debt. He asserts that the federal government should help the public understand the nation’s true fiscal situation by using what economists call “the infinite-horizon fiscal gap,” defined as the value of all projected future expenditures minus the value of all projected future receipts using a reasonable discount rate.

If you’re going to be retirement age around 2030, you’d better do two things right now – first, don’t expect any help from the Federal government. I don’t care if you paid into their Ponzi scheme redistribution programs – there is no money for you there. Second, if you’re working till you’re retired, then expect the government to raise taxes even more on you.

Would you expect secularists to care about the next generation when this is the only life they have? I would not. Ideas have consequences.

National debt up more than $10 trillion since Pelosi/Reid budgets of 2007

This post is from Red State.

Excerpt:

Despite his promises to cut the deficit in half by the end of his “first” term, Obama  racked up the largest deficits in U.S. history:

  • FY2009: The federal budget deficit was $1.413 trillion, the highest in U.S. history. (“Monthly Budget Review: November 2011,” Congressional Budget Office, 11/7/11)
  • FY2011: The federal budget deficit was $1.299 trillion, the second highest in U.S. history. (“Monthly Budget Review: November 2011,” Congressional Budget Office, 11/7/11)
  • FY2010: The federal budget deficit was $1.294 trillion, the third highest in U.S. history. (“Monthly Budget Review: November 2011,” Congressional Budget Office, 11/7/11)
  • FY2012 The federal budget deficit was $1.090 trillion, the fourth highest in U.S. history. (“An Analysis of the President’s 2013 Budget,” Congressional Budget Office, 10/5/12)

You shouldn’t be shocked by Obama’s failure to reduce the deficit in half by the end of his first term in office. He did warn us there would be “trillion-dollar deficits for years to come.”

Interest expense on the national debt is what sinks countries. The zero interest rate environment we have today masks the problem. When we return to normal interest rates, say 6%, our interest expense will jump to approximately to 25% of tax receipts. We have recently seen what happens to countries with debt problems similar to ours. Spain, Portugal, Greece, and Argentina all brought to their knees by excessive debt.

Heritage Foundation economist Stephen Moore:

Here is the biggest worry about an $18 trillion debt: What happens if/when interest rates start to drift back upward? Answer: This is the economic equivalent of the nuclear option.

Each 1-percentage-point rise in interest rates causes the U.S. deficit to rise by more than $1 trillion over ten years. So a 300-basis-point rise in rates — nothing more than a return to normalcy — would mean about $5 trillion in federal deficits.

If that happens, the debt-servicing costs grow astronomically and interest payments would become the biggest expense item in the budget. We start to pay more and more taxes just to finance past borrowing. This is what happened in Detroit; look at how that turned out.

Maybe this debt bubble won’t burst. Let’s pray that it doesn’t. If it does, the 2008–09 real-estate crash could look like a picnic by comparison.

[…]Oh, and we’re still borrowing half a trillion a year, so the debt will likely hit $20 trillion sometime before 2018. Have a nice day.

In 2007, when Nancy Pelosi and Harry Reid took over the spending, the national debt was only 8.5 trillion!

I am really hoping that interest rates will go up. Not only would it help me personally to get a predictable return on my investments, but I would like the people who voted for the Democrats to perceive (when it blows up) that lowering interest rates and borrowing trillions of dollars was not the right way to achieve real economic growth. The economy looks better if you throw 10 trillion dollars of borrowed money at it, but it’s not sustainable. In fact, it seems as if the left is always trying to wreck the economy with one bubble or another. It’s not just reducing mortgage lending requirements to create a housing bubble, it’s reducing student loans requirements to create a higher education bubble, and it’s reducing interest rates to create a debt bubble. It’s almost as if they were trying to destroy the economy.

Michele Bachmann questions Ben Bernancke

Awesome:

Partial transcript:

BACHMANN: So the Fed wouldn’t need to be buying all these treasuries then. We could find other buyers of our debt. Is that true?

BERNANKE: Yes.

BACHMANN: So then why are we doing it?

BERNANKE: To keep rates a little bit lower, to help support housing, automobiles, and other parts of the economy that need support.

BACHMANN: But if there are other buyers, why the FED?

BERNANKE: To get rates a little bit lower.

BACHMANN: So if my 18-year-old daughter was spending 40 percent more than what my husband and I were giving her, and she didn’t just do it this month but she did it the next month and the next month and the next month — and finally my husband and I said, ‘We’re just not going to bail you out anymore, we’re not going to continue to finance that overspending that you’re doing,’ and she said to me, ‘Mother, we need to align our solution with the problem,’ — in other words, you need to keep giving me that money because it’s really not a problem yet — I would say, I think you have a problem today.

And the reason why I would say that is because the analogy with the federal government, in January of 2007, our debt was 8.67 trillion. That debt today is closer to 16.5 trillion with the intra-government debt, according to your calculation.

Do you think that’s a problem, that in six years, we’ve gone from 8.67 trillion to 16.5 trillion?

BERNANKE: Certainly I think it’s a problem, and I think it’s important we have measures to bring down it down over time.

BACHMANN: But you said we need to align the solution with the problem. It seems to me we have a big problem. and I’ll tell you why. When I was home this last week and talking to a lot of women, they were telling me, ‘I don’t get this — gasoline at Christmastime was $2.99 a gallon, now it’s $4 a gallon.’ They say, ‘I can’t keep up with the price increases at the grocery store. And we just got our health insurance premium and its going to be $300-a-month more than what it was.’

And so all I want to say Mr. Chairman is that what I’m hearing from people is that they are having to deal with the inflationary pressure.

Inflation is nothing but a hidden tax on people who save their money so that they can be independent in their old age. It’s nice to see Michele looking out for savers like me.

Standard and Poor’s: there may be more downgrades

From CNBC.

Excerpt:

Standard & Poor’s may downgrade the long-term credit rating of the U.S. once again in less than three months after sending shockwaves through the bond and stock markets by stripping the nation of its top notch triple-A rating last week, according to an emergency Sunday night conference call for clients of Bank of America Merrill Lynch.

“We do expect further downgrades,” said Ethan Harris, North American economist, on the call. “We doubt the newly appointed bipartisan commission will come up with a credible long-term deficit reduction plan. Hence by November or December we would not be surprised to see S&P downgrade the debt again from AA-plus to AA.”

Harris said that the U.S. should have avoided the downgrade in the first place by meeting S&P’s demands of a $4 trillion deficit cut and a “demonstrating a sensible budget process.” What they got instead was a “deficit cut of $2.1 trillion and a budget process that’s been extremely chaotic,” said Harris.

[…]”If a disorderly Treasury market leads to the Fed embarking on QE3, repercussions for the dollar will be catastrophic,” said David Woo, head of global rates and currencies research, on the call. “Investors will be quick to conclude that U.S. monetary policy has been subjugated by fiscal policy and the Fed’s independence would be placed seriously into question.”

In other news, Estonia has actually received a recent debt rating UPGRADE:

In the midst of a world embroiled in economic turmoil, a few nations have managed to do surprisingly well—among them, Estonia. After near economic collapse during the 2008–2009 financial crisis, the country has managed to successfully bounce backwith substantial GDP growth, a vibrant trade environment, and a notable budget surplus.

During the first quarter of this year, Estonia had the highest rate of growth in the EU and the biggest drop in unemployment. In July, its credit rating was raised by Fitch to A+, a reflection of substantial economic growth.

But how did Estonia get here? Estonia possesses a flexible, open economy and investment climate that encourages competition and economic growth. It remains one of the world’s freest economies, according to The Heritage Foundation’s Index of Economic Freedom. However, prudent fiscal policies have played the largest role in Estonia’s impressive economic performance, particularly in recent years. Still, the path to fiscal conservatism was not easy; it required a lot of rigorous, painful cutback involving 9 percent of GDP in fiscal adjustments and large cuts to nominal wages.

Notice that Estonia’s economic policies are tea party conservative policies, not socialist policies.

Meanwhile, the White House has yet to respond to our first credit downgrade.

Calls for Geithner resignation in wake of credit downgrade

Obama Budget Deficit 2011
Obama Budget Deficit 2011

First, some details about the recent downgrade of America’s credit rating by Standard & Poor’s.

Excerpt:

Standard & Poor’s announced Friday night that it has downgraded the U.S. credit rating for the first time, dealing a symbolic blow to the world’s economic superpower in what was a sharply worded critique of the American political system.

Lowering the nation’s rating to one notch below AAA, the credit rating company said “political brinkmanship” in the debate over the debt had made the U.S. government’s ability to manage its finances “less stable, less effective and less predictable.” It said the bipartisan agreement reached this week to find at least $2.1 trillion in budget savings “fell short” of what was necessary to tame the nation’s debt over time and predicted that leaders would not be likely to achieve more savings in the future.

[…]The downgrade to AA+ will push the global financial markets into uncharted territory after a volatile week fueled by concerns over a worsening debt crisis in Europe and a faltering economy in the United States.The AAA rating has made the U.S. Treasury bond one of the world’s safest investments — and has helped the nation borrow at extraordinarily cheap rates to finance its government operations, including two wars and an expensive social safety net for retirees.

Treasury bonds have also been a stalwart of stability amid the economic upheaval of the past few years. The nation has had a AAA rating for 70 years.

Analysts say that, over time, the downgrade could push up borrowing costs for the U.S. government, costing taxpayers tens of billions of dollars a year. It could also drive up interest rates for consumers and companies seeking mortgages, credit cards and business loans.

A downgrade could also have a cascading series of effects on states and localities, including nearly all of those in the Washington metro area. These governments could lose their AAA credit ratings as well, potentially raising the cost of borrowing for schools, roads and parks.

Jim Demint responds by calling for Tim Geithner’s resignation.

Excerpt:

Sen. Jim DeMint (R-S.C.) responded to the nation’s downgrade at the hands of Standard & Poor’s by calling for the resignation of Treasury Secretary Timothy Geithner.

Saying “enough is enough,” the Tea Party favorite pressured President Obama to remove his top economic official and adopt a new perspective.

“The President should demand that Secretary Geithner resign and immediately replace him with someone who will help Washington focus on balancing our budget and allowing the private sector to create jobs,” he said in a statement. “For months he opposed all efforts to reduce the debt in return for a debt ceiling increase. His opposition to serious spending and debt reforms has been reckless and now the American people will pay the price.”

After S&P put the nation’s rating on negative watch back in April, Geithner said there was “no risk” the US would be downgraded.

“No risk of that, no risk,” he said at the time in an interview with Fox Business Network.

Yes, there is no risk the same way that the 864 billion stimulus was supposed to keep unemployment below 8% – except that unemployment shot up over 10%.

I saw this status update from a friend on Facebook:

If you don’t understand the current financial crisis in our country, here’s a simplified explanation: “If the US Government was a family, they would be making $58,000 a year, they spend $75,000 a year, & have $327,000 in credit card debt. They are currently proposing BIG spending cuts to reduce their spending to $72,000 a year. These are the actual proportions of the federal budget & debt, reduced to a level that we can understand.” – Dave Ramsey

The Obama administration has had three one-and-a-half trillion dollar deficits in a row. That is nearly TEN TIMES the last Republican budget deficit in 2007. That was the last year that the Republicans held the House and Senate. The last year before Nancy Pelosi and Harry Reid came into power.