Monday, October 20, 2008

And You Get a Check! And You Get a Check!! And You Get a Check!!

The markets perked up on the idea that were going to throw away more money, I mean authorize another stimulus payment of some sort.

This is getting out of hand. Unfortunately, our leaders lack any real ability to see beyond November 4th, so they are bending over backwards to borrow money from China to put in your pockets by Christmas so you can buy Chinese exports for the kiddies.

There is a great chart at another blog that visually highlights the growing debt of our nation.

First a couple of definitions.

National Debt and the Budget Deficit - There is a lot of confusion on these terms. The national debt is the sum total of our obligations, while the deficit is the amount by which the government spends more than it takes in in a given year. If in one year the government takes in $100 in taxes, but spends $110, we have a $10 Budget Deficit. To fund that gap, the US Government borrows from individuals and foreign governments. If we have a $10 deficit for 5 straight years we would have $50 National Debt.

National GDP - The sum of all of the goods and services produced in the US.

The national debt has oscillated between 25% and 60% of GDP for most of the past 90 years with one exception (when we finally exited the Great Depression and GDP growth hadn't accelerated yet). As of Friday 10/16/08, our national debt has exploded to $10.33 Trillion with current GDP in the 13.8 trillion range (possibly slipping if the economy doesn't reverse course) giving us a debt to GDP ratio of 75%.

The implications of this are far reaching. Let's slice away some zero's and assume that the US is now Joe the Plumber that makes $138,000, but because of his gambling habit and love of old muscle cars, he has amassed a $103,000 in credit card debt. Do you think the banks are going to continue to loan to Joe at a nice low 3% rate or do you think that they might see him as potential deadbeat so they will increase his interest rate to 27.9%. Of course, his rate is going higher. This is the position that US finds itself in. I'm afraid that very soon we are going to be in a position where servicing our debt is going to be an unmanageable prospect.

"According to the Government Accountability Office, if spending on government retirement programs remains on its current course and revenues grow at their historical averages, interest on the debt could skyrocket from its current 9 percent to almost 30 percent of the budget by 2040."

Yet, at this moment when we need fiscal restraint more than ever, we're talking of issuing another stimulus check.

Here's another thing to consider - unlike corporations that have to account for unfunded liabilities on their balance sheet, the Federal Government has chosen to simply ignore the massive social security, medicare, and veteran's benefits that have been promised.

The Institute for Truth in Accounting estimates that the nation's true debt reached the $57 trillion mark; more than $187,000 for each American (or a cool $750,000 for a family of four).

The Institute's true debt calculation includes the country's public debt, the liabilities owed to federal employees and veterans for retirement benefits, and the promises that have been made to seniors for Social Security and Medicare benefits.

Between the cold in NNY and the perilous outlook for my daughters' financial future they've got me shopping for condos in Hyderabad.

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