Mother of all debt problems.

[tex]

[source: Reuters, March 31]

U.S. FOREIGN DEBT JUMPED TO $6.80 TRILLION

-- A WHOPPING 60.4% OF OFFICIAL GDP --

AS OF THE END OF 2003, an increase of $306 billion

from the level at the end of September,

the Treasury Department said in its quarterly report.

A large amount of the "gross external debt"

-- more than $1.4 trillion --

will have to be rolled over in the next three months.

ECONOMIC LIFE

Debt level places US at risk

By Charles Stein, Globe Columnist, 4/4/2004

In 2002,Treasury Secretary Paul O'Neill asked a pair of economists to calculate the federal government's fiscal gap. In simplest terms, O'Neill wanted to know how big a tab the current generation was leaving for future generations to pay. The calculation included everything from the cost of defense and roads to the bills for Social Security and Medicare.

Their work never made it into print. After O'Neill was fired, his successor, John Snow, decided not to publish the findings. He may have figured that the estimate, like last week's gory atrocity photos from Iraq, was just too disturbing for the American public to handle.

Laurence Kotlikoff is in the Paul O'Neill mold. The chairman of Boston University's economics department feels strongly that the nation needs to face up to the fact that it has created obligations that it cannot possibly afford. ''This is the moral crisis of our age," he writes in his new book, ''The Coming Generational Storm. ''We are collectively endangering our children's future without giving them the slightest say in the matter."

Kotlikoff's book arrives at a good time. Washington's spiraling budget deficit has become a campaign issue. Last month, the trustees of Social Security and Medicare released annual reports that showed the programs for seniors have multitrillion dollar liabilities. Red ink is on the nation's radar screen.

To Kotlikoff, the discussion is welcome but misguided. He is a harsh critic of government accounting, arguing that it gives a distorted picture of the country's finances. ''We hide our bills the way Enron did," he said in a recent interview.

Kotlikoff is one of the pioneers of generational accounting, a system that measures the burden today's commitments will create down the road. ''It's the future, stupid," he writes in his book.

O'Neill's economists used a similar approach. They concluded that America's fiscal gap was $44 trillion, more than four times the gross domestic product. To put that number in perspective, think about this. If the politicians in Washington wanted to fix the problem today, they would have to choose from among the following unpleasant options: Raising income taxes by 69 percent, boosting payroll taxes 95 percent or cutting Social Security and Medicare 45 percent The longer we wait, the more Draconian the tax hikes or cuts will have to be.

Kotlikoff isn't holding his breath waiting for Washington to move. ''Politicians are lower life forms," he said. But a failure to act will have consequences, he warns. In a worst-case scenario, he envisions a future that makes the ''Terminator" seem hopeful. He forsees a stagnant American economy crushed by debt. Taxes are dramatically higher. So is the inflation rate because the government has decided to print money to escape the fiscal vice. Money and talent are fleeing the country. ''I'm not particularly optimistic," said Kotlikoff.

Not everyone is so gloomy. While conceding that an aging population and rising medical costs pose major challenges, some economists say the problems are manageable. ''We will have to make adjustments but it won't be the apocalypse," said Marilyn Moon of the American Institutes for Research, a Washington think tank.

I hope she is right. But is it too much to ask the two candidates for president this year just how they plan to make the adjustments? The early indicators aren't promising. President Bush's three tax cuts contributed $9 trillion to the fiscal gap, according to Kotlikoff. Bush's Medicare drug benefit will add trillions more to the $44 trillion total. Like most Democrats, John Kerry has stressed the importance of preserving Social Security and Medicare benefits, without saying how he expects to pay for them. His proposed tax hikes on the wealthy will help close the gap, but compared to the size of the problem, he is spitting in the ocean.

Zoology was never my strong suit, but I recall that most ''lower life forms" -- Kotklikoff's description of politicians -- wriggle around because they have no backbone. Do Bush and Kerry?

Charles Stein is a Globe columnist. He can be reached at stein@globe.com.

[Art]

Tex,

The problem here, as with any assessment of what we're leaving our children to pay, is it presumes the government can't stop spending for a few years. All you have to do is reform social security anytime before it goes bankrupt, and allow it to save itself by actually earning interest and protecting it from government clutches by having a system that is individually tied to how much you pay in, rather than having workers pay for retired employees.

Medicare can be completely disbanded, replaced with individual health accounts. The federal government can simply stop spending at rates surpassing what it takes in, and every worry disappears. At some point people will figure out that spending leads to deficits, and if deficits matter, then, spending needs to be curtailed.

Sadly, an entire political spectrum believes deficits grow on trees and are unable to be countered by anything other than taking more individual money from people. They've never taken a moment to put together the fact that to have a deficit MEANS you are spending more than you take in, so, spend less, and the deficit goes away.

The reason the deficit isn't an issue with political traction for Democrats is because people don't believe them knowing they have no plan to help the deficit other than to spend more of your money, which will grow it. Yes, it's possible we could have another internet boom creating false surpluses, but those are generational things that happen rarely.

The point is, in 20 years or so, someone on the right will win the presidency in a sweeping fashion by capturing the view that spending leads to deficits, and deficits are too large, so it's time to spend less.

[tex]

http://www.sebimeyer.com/?p=1229

Bill Gates openly stated yesterday he is pulling out of the dollar and is instead investing in euros. Microsoft’s co-founder has made many mistakes in the past (I write this on an Apple computer, so I may be biased), but this is a wise move, indeed. He’s probably not the last one to pull out of the U.S. currency.

Bill Gates, whose net worth of $46.6 billion makes him the world’s richest person, is betting against the U.S. dollar.

“I’m short the dollar,” Gates, chairman of Microsoft Corp., told Charlie Rose in an interview late yesterday at the World Economic Forum in Davos, Switzerland. “The ol’ dollar, it’s gonna go down.”

Gates’s concern that widening U.S. budget and trade deficits are undermining the dollar was echoed in Davos by policymakers including European Central Bank President Jean-Claude Trichet and German Chancellor Gerhard Schroeder.

The dollar fell 21 percent against a basket of six major currencies from the start of 2002 to the end of last year. The trade deficit swelled to a record $609.3 billion last year and total U.S. government debt rose 8.7 percent to $7.62 trillion in the past 12 months.

“It is a bit scary,” Gates said. “We’re in uncharted territory when the world’s reserve currency has so much outstanding debt.”

[Destino]

The problem here, as with any assessment of what we're leaving our children to pay, is it presumes the government can't stop spending for a few years.

Right. Which is why this kind of budgeting is passing the buck. Some government somewhere down the line is going to have to make changes, painful changes, to fix the mess this administration is making. Like you said Art government will have to stop spending, but we both know it won't be this one.

All you have to do is reform social security anytime before it goes bankrupt, and allow it to save itself by actually earning interest and protecting it from government clutches by having a system that is individually tied to how much you pay in, rather than having workers pay for retired employees.

The problem with that is how does one pay for it. The money going in now is gonig out soon. So if you were to declare tomorrow that all money coming in would go to a savings account.....how do you pay those who are drawing SS now or about to?

Medicare can be completely disbanded, replaced with individual health accounts. The federal government can simply stop spending at rates surpassing what it takes in, and every worry disappears. At some point people will figure out that spending leads to deficits, and if deficits matter, then, spending needs to be curtailed.

People have been paying into medicare for years, cutting their benefits is theft. What politician do you know that is going to look the AARP in the face and say "I'm shutting off medicare"? Politics isn't about doing what needs to be done, it's about having the support to do what needs to be done. I don't see anyone with the political capital to attempt what you are describing.

The point is, in 20 years or so, someone on the right will win the presidency in a sweeping fashion by capturing the view that spending leads to deficits, and deficits are too large, so it's time to spend less.

Someone on the right? Explain that thought being that you and I both know what party gave us the deficits.

[chomerics]

The reason the deficit isn't an issue with political traction for Democrats is because people don't believe them knowing they have no plan to help the deficit other than to spend more of your money, which will grow it. Yes, it's possible we could have another internet boom creating false surpluses, but those are generational things that happen rarely.

Art, your comment about democrats would hold more water if we didn't decrease the deficit under Clinton to the point where we had a surplus.

You remember those times don't you? The times when we were actually making more money then we were spending. That was until a conservative took hold of the ship and showed us what conservatism was all about. Corporate welfare for the ultra elite, without even the decency to pay for it. :doh:

[Zen-like Todd]

That article about the dollar is pretty funny. The guy mentions the dollar's "decline" since he mentioned it last december? The dollar has strengthed against the euro markedly since that time. It was about a $1.33 to the euro last December, and right now, its $1.20 to the euro. That guy can't read an exchange rate.

[Zen-like Todd]

And either that guy is dense, or he's intentionally trying to mislead you tex. I clicked on his source for the quote, and its dated January 29th. That's right, 9 months ago. Its funny that Gates' speculation against the dollar completely backfired in retrospect, but less amusing that this site is taking the quote chronologically out of context. Be careful what you read, tex.

[iheartskins]

I'd also be curious to see how large Gates' positions were in futures or forwards. He may have bet a couple (or more) million, but I seriously doubt he would put a significant amount of his forture into any other currency than dollars.

[Lifelong Skins Fan]

http://www.sebimeyer.com/?p=1229

“I’m short the dollar,” Gates, chairman of Microsoft Corp., told Charlie Rose in an interview late yesterday at the World Economic Forum in Davos, Switzerland. “The ol’ dollar, it’s gonna go down.”

Gates’s concern that widening U.S. budget and trade deficits are undermining the dollar was echoed in Davos by policymakers including European Central Bank President Jean-Claude Trichet and German Chancellor Gerhard Schroeder.

.............

“It is a bit scary,” Gates said. “We’re in uncharted territory when the world’s reserve currency has so much outstanding debt.”

Interesting that in the same week the bond market remained strong because even though the US had record level inflation US debt (Bonds) is still the worlds most stable investment. The other owners of US Debt are americans. Ceteris Peribus if america paid off the entire national debt tommorow it would destabilize the entire worlds economy.

And besides as the US debt mounted in WW2 people said the next generation could never pay for it or FDR's Entitlement program (Social Security).

What would happen if in the next twenty years the middle east moves toward stabilization.

I hate that Mr Gates has so little faith in the nation that has allowed him the freedom to become the worlds wealthiest man.

[Destino]

Interesting that in the same week the bond market remained strong because even though the US had record level inflation US debt (Bonds) is still the worlds most stable investment. The other owners of US Debt are americans. Ceteris Peribus if america paid off the entire national debt tommorow it would destabilize the entire worlds economy.

Paying off the national debt tomorrow is impossible so why even bring it up, may as well argue that if we vanished from the earth are were replaced with crab people Mexico would be screwed. No matter how you want to look at it, at the very least paying out interest to our many eager foriegn bankers is a poor way to spend tax payer money. Deficits are the products of irresponsible fiscal policy. Borrowing because you can't stop spending more then you earn is always bad, even at the personal finance level.

Can we eventually pay it off? Of course but that isn't the point. Mistakes aren't made ok just because you can get out of them.

[tex]

And either that guy is dense, or he's intentionally trying to mislead you tex. I clicked on his source for the quote, and its dated January 29th. That's right, 9 months ago. Its funny that Gates' speculation against the dollar completely backfired in retrospect, but less amusing that this site is taking the quote chronologically out of context. Be careful what you read, tex.

Thanks for responding Todd. You are on the ball as always.

I saw that and decided to post anyway to show that even a fat cat like Gates harbors concern over the debt.

I thought about posting just the “It is a bit scary,” quote to illustrate the point but decided against it due to the time warp issue you point out.

[Mister Happy]

The US government has not spent less money than the year before since 1965. Even then it was only a 1 year decrease of $300 million. The government went on to spend $16 billion more in 1966 than it did in 1965.

There's the problem.

[skinsfan44]

Art, your comment about democrats would hold more water if we didn't decrease the deficit under Clinton to the point where we had a surplus.

You remember those times don't you? The times when we were actually making more money then we were spending. That was until a conservative took hold of the ship and showed us what conservatism was all about. Corporate welfare for the ultra elite, without even the decency to pay for it. :doh:

You have it wrong again, Chome.

It was the "Contract with America" from the Republican controlled House that Clinton didn't even want to sign was the REAL reason for the decrease in the National debt in the 90's.

9/11 and the war in Iraq are the biggest factors in our debt right now, not "Corporate Welfare."

[Destino]

You have it wrong again, Chome.

It was the "Contract with America" from the Republican controlled House that Clinton didn't even want to sign was the REAL reason for the decrease in the National debt in the 90's.

9/11 and the war in Iraq are the biggest factors in our debt right now, not "Corporate Welfare."

Both Clinton and "contract with American" both aimed at balancing the budget their own way. Neither side gave in, and in the end both had to make changes. Claiming that the GOP was the "REAL" reason is just flat out not true.

9/11 and the war in Iraq are major reasons for the debt right now. If you read your history you'd see that historically tax cuts and war don't normally happen at the same time. Tax cuts, war, and increased government spending on pork......well now that's a real problem.

[Kilmer]

Tex,

The reason the deficit isn't an issue with political traction for Democrats is because people don't believe them knowing they have no plan to help the deficit other than to spend more of your money, which will grow it. Yes, it's possible we could have another internet boom creating false surpluses, but those are generational things that happen rarely.

Bush has pretty much destroyed that Republican myth. Replublicans should really be worried right now, I have left the party to the point were I really don't care who the Dems put up for election, they are getting my vote(I have only ever voted Dem once, Clinton's 2nd term). Bush's presidency is going down as one of the worst in American history and he is taking the replublican party with him. I may hate many of the Dems far left idea's, but the Republicans are making my life and my child life much harder. And for what, I really have no idea other than Corporate profits.

[Kilmer]

You have it wrong again, Chome.

It was the "Contract with America" from the Republican controlled House that Clinton didn't even want to sign was the REAL reason for the decrease in the National debt in the 90's.

9/11 and the war in Iraq are the biggest factors in our debt right now, not "Corporate Welfare."

That is such a freaking joke and a bold face LIE.

[Kilmer17]

That is such a freaking joke and a bold face LIE.

Is Not Is Not!!

[iheartskins]

I always had a feeling that Kilmer had schizophrenia.

[chomerics]

You have it wrong again, Chome.

It was the "Contract with America" from the Republican controlled House that Clinton didn't even want to sign was the REAL reason for the decrease in the National debt in the 90's.

9/11 and the war in Iraq are the biggest factors in our debt right now, not "Corporate Welfare."

Please, more BS propaganda. If the "Contract with America" was the reason, how come it stopped the SECOND a democrat was out of office?

You see, you can't hold that line of argument anymore, that it was Congress, not Clinton, because the same Congress has been in power under Bush and they have spend at rates never seen before.

You may continue to blindly believe that the conservative party is the party of fiscal frugality, but you would be wrong. I have the last four years of numbers and facts on my side to back me up.

As for the War in Iraq being the greatest factor? Where do you come up with that INSANE notion. It hasn't helped, but it is in NO WAY the reason for our debt, and neither is 9-11. Maybe you should look up the facts before you come back and sprout off ludicrous RNC talking points again.

[chomerics]

Is Not Is Not!!

OK KIlmer, what is the reason for our debt? Why are we in so far over out heads? What has Bush done with spending?

Look up the facts and bring them all front and center to the table and lets debate it. You will be very suprised at where the deficit came from, and at what % the contributing factors were.

[Kilmer17]

OK KIlmer, what is the reason for our debt? Why are we in so far over out heads? What has Bush done with spending?

Look up the facts and bring them all front and center to the table and lets debate it. You will be very suprised at where the deficit came from, and at what % the contributing factors were.

Actually, lets have Kilmer (sans17) answer that. He's the one who did the drive by retort without offering his own explanation.

I'll respond to that.

[chomerics]

Actually, lets have Kilmer (sans17) answer that. He's the one who did the drive by retort without offering his own explanation.

I'll respond to that.

Sounds good to me

BTW, this could get pretty interesting. . . Kilmer vs Kilmer 17. . . Kind of like a Madden 82 skins vs the 87 skins :laugh:

[Kilmer]

Actually, lets have Kilmer (sans17) answer that. He's the one who did the drive by retort without offering his own explanation.

I'll respond to that.

.

The guy threw out the contract with american as a reason for the Clinton years fiscal responsibilty and I just reacted. Most of the contract didn't even get passed and what did was a bipartison effort as most laws should be. Now that the Replublicans have complete control is when everything is turning to ****.

[Kilmer17]

So, to what do you attribute the 90s economy?

[Mister Happy]

During that time of surpluses, government spending was increasing at pretty much the same rate it had for the previous 20 years or so.

The surplus was due to the booming economy.