If a $14.3 trillion national debt sounds like a staggering sum, economist Lawrence Kotlikoff's estimate of the nation's real long-term indebtedness might bowl you over. Kotlikoff, who was a senior economist on President Reagan's Council of Economic Advisers, calculates the debt at $211 trillion.
"We have all these unofficial debts that are massive compared to the official debt," Kotlikoff, a professor at Boston University, said on the weekend edition of National Public Radio's All Things Considered. "If you add up all the promises that have been made for spending obligations, including defense expenditures," Kotlikoff said, "and you subtract all the taxes that we expect to collect, the difference is $211 trillion. That's the fiscal gap. That's our true indebtedness."
Former Federal Reserve Bank Chairman Alan Greenspan came up with a novel way to claim the U.S. government would never default on debt: print the difference. Greenspan told NBC's "Meet the Press" August 7, in response to a question about the recent downgrade in the U.S. bond rating by Standard and Poor's:
This is not an issue of credit rating. The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.
Analysts ask, Zimbabwe-like inflation of the dollar is not default? They say that Greenspan won't find that argument very persuasive to bond-holders, who won't be able to buy anything with their bonds when they come due.
On Friday, Standard & Poor's kept its word and downgraded the U.S. credit rating for the first time in history — from AAA to AA+. The action came because the debt bill passed last week is not considered stringent enough to stabilize the debt crisis. Treasury Secretary Tim Geithner has already railed against the credit agency, saying it has shown “terrible judgment” in its decision, but some are using the rating downgrade to call for Geithner’s resignation, a move that Geithner had already been considering. At the behest of President Obama, however, Geithner has decided to stay for now.
“Secretary Geithner has let the president know that he plans to stay on in his position at Treasury," Jenni LeCompte, assistant secretary for public affairs, said in a statement today in Washington. "He looks forward to the important work ahead on the challenges facing our great country."
The eyes of the nation are on Wisconsin again as voters head to the polls to decide the fate of eight state Senators — six Republicans and two Democrats — in a series of historic recall elections. And the stakes are enormous.
Analysts are touting the looming showdown as everything from a “referendum” on the policies of Wisconsin Gov. Scott Walker to an “indicator” of President Obama’s chances of victory in 2012. Control of the Senate could go to Democrats if they manage to unseat three or more of the Republican Senators being targeted.
Now that the Tea Party has not only demonstrated its power to force the Republican Party to begin acting like a true party for less government, it has also shown that it has staying power. The elections of 2010 were just the beginning of the Tea Party’s ascent to power in Washington, and the liberals are running scared. And when they run scared they begin calling names.
In a two-hour, closed-door Democrat Caucus meeting, Rep. Mike Doyle of Pennsylvania angrily said, “We have negotiated with terrorists. This small group of terrorists have made it impossible to spend any money.” Vice-President Biden agreed: “They have acted like terrorists.” Biden later denied that he had said that, but after Politico published the remarks, spokeswoman Kendra Barkoff said: “The word was used by several members of Congress.”
Now that the politicians have delivered an anti-debt deal that adds an estimated $8 trillion to the current $14.5 trillion federal debt over the next 10 years, President Obama is getting ready to head off on a pro-jobs bus tour of the Midwest.
With more than 2.5 million additional Americans without jobs since he moved into the White House, President Obama would do better on jobs if he cancelled the bus, saved the gas, and just stayed put in the Oval Office to work on reversing the policies he’s promoted that have only made things worse, starting with ObamaCare.
Freshman in Economics-101 learn that price hikes reduce demand. That applies to how many steaks we buy and to how many workers are added to payrolls by employers.
Standard and Poor’s was blunt in its assessment of America’s deteriorating financial condition when it announced Friday night that it was cutting its credit rating on United States’ Treasury securities from AAA to the second-tier AA+, with a negative outlook.
S&P said: "Progress [in] containing the growth of public spending, especially on entitlements, or on reaching an agreement on raising revenues, is less likely than we previously assumed.... The fiscal consolidation plan [Budget Control Act of 2011] that Congress and the Administration agreed to this week falls short of the amount we believe is necessary to stabilize the general government debt burden.... Elected officials remain wary of tackling the structural issues required to effectively address the rising U.S. public debt burden in a manner consistent with a ‘AAA’ rating." (Emphases added.)
Investors will be anxiously watching when the New York Stock Exchange market opens Monday morning to see what effect Standard and Poor's downgrade of the U.S. credit rating will have on trading. The stock market fell by 7.1 percent last week, before S&P issued its report of the downgrade at the end of the day on Friday. The market fell despite the bill signed into law last Tuesday that allowed the raising of the debt limit to prevent the government from defaulting on its financial obligations, accompanied by a deficit reduction package aimed at trimming $2.1 trillion of deficit spending over the next 10 years.
The S&P downgrade of the U.S. government's credit rating from AAA to AA+ set off alarm bells in foreign markets as well, as the news coincided with increased concerns over the economic crisis in Europe. Finance ministers of both the Group of 7 and Group of 20 nations were conferring by phone, Reuters reported, while the governing council of the European Central Bank was also holding an emergency conference call late Sunday. The central bank was reported to be considering buying Spanish and Italian bonds to keep the cost of borrowing for those two counties manageable.
The problems of European public debt reach beyond the borders of the nations that cannot pay their bills. The meltdown of the Greek economy, which is prompted by the sovereign debt crisis, is affecting banks throughout Europe. On August 5, the Royal Bank of Scotland announced that it suffered a net loss in the first half of this year in the amount of £1.4 billion due to its exposure from the struggling Greek economy.
The citizens of the United Kingdom ultimately will pay the price of this loss. The government owns more than 80 percent of the stock in the Royal Bank of Scotland. Four years ago, the Royal Bank of Scotland was rescued from collapse by the British government providing an enormous £45 billion bailout, which was the biggest single bailout in the world.
What is “Capitalism”? First, it is a term that was originally coined by its enemies. Second, it suggests that the phenomenon—or, more precisely, the phenomena—that it denotes composes a system, and since the systems of which the human (as opposed to the “natural”) world is comprised are almost always the products of design, “capitalism” appears to refer to but one more such system among others. So, according to its critics, “capitalism” differs, say, from socialism and communism only in degree: While the latter “distribute” material goods “equally,” the former “distributes” them “unequally.” Or maybe the difference between “capitalism” and its competitors can be summed up as thus: “the poor” and “the middle class” are the targeted beneficiaries of socialism and communism while “the rich” are intended to benefit most from “capitalism.”