http://www.nytimes.com/2009/05/04/business/economy/04debt.html?_r=1&hpw Worries Rise on the Size of U.S. Debt By GRAHAM BOWLEY and JACK HEALY The nation’s debt clock is ticking faster than ever — and Wall Street is getting worried. As the Obama administration racks up an unprecedented spending bill for bank bailouts, Detroit rescues, health care overhauls and stimulus plans, the bond market is starting to push up the cost of trillions of dollars in borrowing for the government. Last week, the yield on 10-year Treasury notes rose to its highest level since November, briefly touching 3.17 percent, a sign that investors are demanding larger returns on the masses of United States debt being issued to finance an economic recovery. While that is still low by historical standards — it averaged about 5.7 percent in the late 1990s, as deficits turned to surpluses under President Bill Clinton — investors are starting to wonder whether the United States is headed for a new era of rising market interest rates as the government borrows, borrows and borrows some more. Already, in the first six months of this fiscal year, the federal deficit is running at $956.8 billion, or nearly one seventh of gross domestic product — levels not seen since World War II, according to Wrightson ICAP, a research firm. Debt held by the public is projected by the Congressional Budget Office to rise from 41 percent of gross domestic product in 2008 to 51 percent in 2009 and to a peak of around 54 percent in 2011 before declining again in the following years. For all of 2009, the administration probably needs to borrow about $2 trillion. The rising tab has prompted warnings from the Treasury that the Congressionally mandated debt ceiling of $12.1 trillion will most likely be breached in the second half of this year. Last week, the Treasury Borrowing Advisory Committee, a group of industry officials that advises the Treasury on its financing needs, warned about the consequences of higher deficits at a time when tax revenues were “collapsing” by 14 percent in the first half of the fiscal year. “Given the outlook for the economy, the cost of restoring a smoothly functioning financial system and the pending entitlement obligations to retiring baby boomers,” a report from the committee said, “the fiscal outlook is one of rapidly increasing debt in the years ahead.” While the real long-term interest rate will not rise immediately, the committee concluded, “such a fiscal path could force real rates notably higher at some point in the future.” In some ways, ballooning deficits should not matter. Deficits are a useful way for governments to use public spending to stimulate the economy when private demand is weak. This works as long as a country closes its deficit and pays back its borrowings after its economy starts to recover. The trouble is that government borrowing risks crowding out private investment, driving up interest rates and potentially slowing a recovery still trying to take hold. That is why the Federal Reserve announced an extraordinary policy this year to buy back existing long-term debt — $300 billion over six months — to drive down yields. The strategy worked for a while, but now the impact of that decision appears to be wearing off as long-term interest rates tick up again. Then there is the concern that the interest the government must pay on its debt obligations may become unsustainable or weigh on future generations. The Congressional Budget Office expects interest payments to more than quadruple in the next decade as Washington borrows and spends, to $806 billion by 2019 from $172 billion next year. “You’re just paying more and more interest and having to borrow more and more money to pay the interest,” said Charles S. Konigsberg, chief budget counsel for the Concord Coalition, which advocates lower deficits. “It diverts a tremendous amount of resources, of taxpayer dollars.” Of course, no one is suggesting the United States will have problems paying the interest on its debt. On Wednesday, even as it announced its huge financing needs for the latest quarter, the Treasury said financial markets could accommodate the flood of new bonds. “We feel confident that we can address these large borrowing needs,” said Karthik Ramanathan, the Treasury’s acting assistant secretary for financial markets. One worry, however, is that there are fewer eager lenders to buy all that American debt. Most of the world is in recession, and other nations have rising borrowing needs as well. As other nations’ surpluses turn to deficits, America will face competition in global financial markets for its borrowing needs. For the moment, the United States is actually benefiting from a flight to quality into Treasuries brought on by the global financial crisis, which helped reduce rates to record lows this winter. But the influx will not continue forever. China has lent immense sums to the United States — about two-thirds of its central bank’s $1.95 trillion in foreign reserves is believed to be in United States securities — but it has begun to voice concerns about America’s financial health. To calm nerves and fill the deficit hole, the government is getting creative. The Treasury is ramping up its auction calendar, holding more frequent sales of government debt and selling the debt in expanded amounts. It is now holding sales of its 30-year bond each month, up from four times annually. It is also resuscitating previously discontinued bonds, such as the seven-year note and the three-year note, to try to mop up any available money all along the yield curve. There is even talk of issuing billions of dollars of a new 50-year bond, though the idea has not won official approval. On a second front, the Treasury and the Federal Reserve are trying to bolster the mechanics of the market — to make sure every auction goes smoothly. With such enormous sums involved, every extra basis point on the interest rate the government pays could mean extra billions of dollars for the taxpayer. Earlier this year, when demand was hesitant at a Treasury auction and when a British bond auction went poorly, investors grew nervous that the government might struggle to sell its mountain of debt. To avoid such an outcome and to keep borrowing costs low, the government is trying to expand the group of firms that bid at Treasury auctions. After the demise of such names as Lehman Brothers, the number of these firms, called primary dealers, has shrunk to 16, the smallest since this elite club was formed decades ago. Now the government is in discussions with smaller firms like Nomura and MF Global to persuade them to join.
FYI, the entire US budget in Clinton's last year was $2T, the amount Obama's going to borrow. In a related story: http://www.google.com/hostednews/afp/article/ALeqM5i4estRSYeFBIII9kezxnP4jgoGZQ China has 'canceled US credit card': lawmaker 4 days ago WASHINGTON (AFP) — China, wary of the troubled US economy, has already "canceled America's credit card" by cutting down purchases of debt, a US congressman said Thursday. China has the world's largest foreign reserves, believed to be mostly in dollars, along with around 800 billion dollars in US Treasury bonds, more than any other country. But Treasury Department data shows that investors in China have sharply curtailed their purchases of bonds in January and February. Representative Mark Kirk, a member of the House Appropriations Committee and co-chair of a group of lawmakers promoting relations with Beijing, said China had "very legitimate" concerns about its investments. "It would appear, quietly and with deference and politeness, that China has canceled America's credit card," Kirk told the Committee of 100, a Chinese-American group. "I'm not sure too many people on Capitol Hill realize that this is now happening," he said. The Republican lawmaker said that China was justified in concerns about returns from finance giants Fannie Mae and Freddie Mac, which were bailed out by the US government due to the financial crisis. Kirk said he was the first member of Congress to tour the Bureau of Public Debt, which trades bonds, and was alarmed at how much debt was being bought by the US Federal Reserve due to absence of foreign investors. "There will come a time where the lack of Chinese participation may have a significant impact," Kirk said. "We should track that, because up until last month they were the number one provider of currency to the United States and now they're gone." With China's economy also hit by the global economic crisis, Premier Wen Jiabao has openly voiced concern about the status of his country's investments in the United States. China has also floated replacing the dollar as the key international currency with a basket of units bringing in the euro, sterling and yen.
And another related story: http://uk.reuters.com/articlePrint?articleId=UKTRE54363X20090504 China military build-up seems U.S.-focused: Mullen Mon May 4, 2009 9:56pm BST WASHINGTON (Reuters) - China's build-up of sea and air military power funded by a strong economy appears aimed at the United States, the chairman of the U.S. Joint Chiefs of Staff said on Monday. Admiral Michael Mullen said China had the right to meet its security needs, but the build-up would require the United States to work with its Pacific allies to respond to increasing Chinese military capabilities. "They are developing capabilities that are very maritime focused, maritime and air focused, and in many ways, very much focused on us," he told a conference of the Navy League, a nonprofit seamen's support group, in Washington. "They seem very focused on the United States Navy and our bases that are in that part of the world." China in March unveiled its official military budget for 2009 of $70.24 billion, the latest in nearly two decades of double-digit rises in declared defense spending. Beijing bristles at criticism, saying its spending is line with economic growth and defense needs, and its budget remains a fraction of the Pentagon's. Mullen acknowledged that "every country in the world has got a right to develop their military as they see fit to provide for their own security." But he said the build-up propelled by fast economic growth required the United States and allies or partners like South Korea, Japan, Australia and New Zealand to work together to "figure out a way to work with (China)" to avoid miscalculations. Mullen's comments followed remarks by President Barack Obama's top adviser on Asia on Friday calling for high-level talks with the Chinese military to reduce mistrust. A brief naval clash in March in waters near China underscored that "the absence of a sound relationship between our two militaries is a part of that strategic mistrust," said Jeffrey Bader, senior director for Asian affairs at the National Security Council. In that encounter, the U.S. Defense Department said an unarmed U.S. Navy surveillance ship was shadowed and harassed by Chinese ships. (Reporting by Karen Jacobs, writing by Paul Eckert, editing by Alan Elsner)
1. China's military is nothing compared to the US military, even now that we are downsizing (which is the right move). They are so far behind in military technology (which is the US's advantage over anyone given how much money we put into it) that it would be a very long while before they should be a serious threat. The thing that is interesting is the fact that they seem to really want to upgrade their military and expand it. They want new subs, aircraft carriers and all that. But US policy with China should emphasize that we aren't enemies, and unneeded spending because we feel threatened by each other shouldn't happen. This should not turn into an arms race or anything like that, which is why i'm happy Obama is in office. But We are switching our military policy from focusing our budget on a war that will never happen with Russia/China to urban warfare which is what has been going on for a while. We also need to downsize the military because of cost a bit. The thing i'm worried about is that we have stopped producing F-22s, which should never happen. IMO, when you cut costs you do not touch the air force. THe Air Force IS America's military. Air superiority is how we win wars, so its just silly. They are really banking on the F-35s but those still have a long way to go (and are simply different kind of fighter jets with a different purpose). Instead of having our main 3 Fighter Jets the F-15, 16 and 18, we could of had them the F-18, 22, and 35 which would have been on a whole other level from any country in the world, but with only a limited number of F-22s (the best air superiority fighter in the world) it looks like we won't be doing that until we can adjust the budget to start producing this extremely expensive (worth it imo) fighter. 2. I think i'm ok with the spending, but I think it is now time to stop it and draw a line. I think it was called for with the bailouts and the stimulous, imo. Its time to get our economy moving again, rebuild our infrastructure, invest in energy and healthcare and all that. But it BETTER work, as a country we have no choice but to hope it works with all the money invested in it. If only we didn't go to war in the Middle-East, we'd be doing much better (10bil/month per war I believe). Thank God Iraq is coming to a close. Even though I think we never should have invaded Iraq, I think it was a success when looking back because of how the Iraqi military is now handling the country. I'm just a non-interventionist. I think we shouldn't get into the affairs of other countries. I'm fine with going after terrorists but not with overthrowing governments (unless they go together). I think we should go the route of diplomacy and military only as defense really. I think we should work on peace and friendships and alliances and be heavily involved in trade and meetings of the nations. But i'm sick of us being the world police. It comes with such a burden from human life, to the money we don't have right now, to being hated all across the world.
It's difficult for me to comment on the fiscal suicide we're commiting just to try to avoid a little pain. The harm we're doing to ourselves is so obvious, it blows my mind that we're so willingly leading ourselves to the slaughter.
China's quantity has a quality all its own. They can't necessarily project power, but they can be a major regional headache. They aren't all that far behind, because they've been smart in buying technology. They're buying a lot of Russian technology, especially Russian Naval technology. It takes but one side to make a war, not two. This line of thinking sounds a lot like Truman's downsizing in the late-40's, just in time to get blitzed in Korea by---the Chinese. I disagree with you here. The Air Force is useful, but every other service has an air element. Why do you worry about not producing F-22s, if you think that we're shifting away from a "war that will never happen"? If we're going to a MOUT concept, what good is a supersonic-cruise, stealthy fighter jet? You can shoot tomahawks from a ship or submarine, you can drop bombs from any number of aircraft. If we're not going to war with a large-military country like Russia or China, why do we need super-air-superiority that we can't get with F/A-18's or F-15s? I agree that it's a success...did our economy go into the tank when we were spending lots of money in reconstructing Europe and Japan post-WWII? Of our entire budget of the last 8 years, (and someone please correct me if I"m wrong) around 11% was spent on military funding (including emergency resolutions and war funding) and around 40% was spent on care for people over 62. If there's a place to cut spending, I don't think it's on national defense, but on making people work an extra few years. Spider-Man told us with great power comes great responsibility. For good or evil, we are the world's police b/c organizations such as the UN have failed in their charter over and over. There aren't a ton of superpowers left to pick up the slack if we don't. We are heavily involved in the trade of nations, and in fact are creating partnerships (google Global Maritime Partnership) with third-world countries who have issues defending their own coasts and resources. And imo and in my experience, we're not nearly as "hated" around the world as the media makes it out. Heck, check out Rick Steves' Iran Vacation to see how Americans are "hated" by a supposed enemy. Being a non-interventionist is a noble goal, and one that I wish could happen. Unfortunately, not only are there bad people around the world not tied to rules and constitutions protecting the common man, but there is a long history of isolationists being exploited and not being ready when the crap hits the fan. Peace and friendship and alliance is a two-way street. I'm somewhat ok if the President wants to reach out an olive branch to Cuba or China or whatever, but the cultures of many of these places sees "niceness" as "weakness". You can't apply our mores to their culture and expect them to act the way you would. /soapbox
Russian technology is far behind US technology. They allowed their tech. to get stale after the collapse of the USSR. are you saying that jets aren't used in urban warfare and in fights against terrorism? And I agree iwth downsizing and using our funds smarter, for warfare that we are currently engaged in and that seems to be the way of the future, but i'm against abandoning the might of the US military power. Air superiority and air dominance is the US way of fighting. You said that "every service has an air element"... alright, that is great. How does that make F-22s not as important? Why not continue to upgrade our technology on the air force front? To get stale and allow other countries to catch up would be a huge mistake. If we fight with F-16s, something that other countries have, does that mean we should allow other countries to pass us with the next gen of fighters? No... My stance is simply... I'm for downsizing and using our funding smarter because we spend too much, and i'm all for focusing more on urban warfare with some of those funds, but i'm against taking away from continuing to enhance our air force period. That worries me. In regards to urban warfare, this is my view on it. I may sound like a US homer, but these are my thoughts. I think that the US was so dominant in all fields of conventional military, from air power, to missles, to tanks, military vehicles, guns, and all that, that rebel/rogue groups around the world simply said "not fair, well we are just going to play a different game". So I think that its now our turn to adjust our tactics and weaponry and technology to be effective verse these types of enemies. I mean honestly, when you look at US enemies across the globe, most of them are probably going to fight in this kind of warfare, which is why i'm all for strengthening ourselves in this way. I'm for cutting naval production (not Aircraft carriers), i'm for investing in more robotic, futuristic devices that can aid in this type of close quarter combat, new technologies like that and downsizing others that don't seem to be used that much outside of patroling, i'm just definitely not in favor of fucking with our air force. Do you agree, or not? Or are we just way far apart on this issue? Nobody wants the US to be the policeman of the world (Outside the US at least). There are rogue states out there, but as the world continues to develop and modernize I think the need for us to patrol the world diminishes. I simply think us being the world police isn't in our countries best interest. And i'm all for being part of a coalition like we were in Desert Storm with other countries after diplomacy has failed, but the approaches we were taking under the Bush administration were simply unneccessary, imo, and didn't do anything to help our country. We had so much international support after we got attacked, willing to help us and fight terror, and they would go with us in Afghanistan, yet we decided to go in a country that didn't have WMD, that wasn't linked to Al-Qaeda, and that was allowing (for the most part) weapon inspections? We went in not caring what anyone else thinks? That isn't cool, and does not serve our best interest to cost American lives to overthrow a regime like Sadaam's, imo. I'm so against that I can't even describe it. I'm just really happy that it turned out OK, that we are getting the fuck out of there, that Bush is gone, and that the American people, the British people, and people across the globe were outraged by this war and let their voices be heard. Hopefully now administrations will think twice about it. Sorry about going off there, I know the last part wasn't directly about our conversation. But you know what I mean? Do you agree or no?
Who isn't worried about the US debt? There is a lot to be worried about right now. Unemployment is sky high, housing market is in the toliet, many Americans have lost a major % of their retirement portfolio, decade old companies are goin out of business, GM is on the verge of going out of business and costing tens of thousands of jobs, banks are reeling, terrorism threatens our safety, we are involved in a war in Iraq where Americans are dying on a weekly basis (for no reason to many US citizens). These are tough complex times . . . Americans should be worried. FWIW-Warren Buffet is worried about the debt, but believes it is the adminstration is making right moves with regard to the economy. You could probably find 100 economist that have the opinion that the stimulus package was a bad idea and 100 economist that have the opinion that the stimulus package was a good idea.
My biggest problem isn't with the stimulus package. A 1-time, $800 billion stimulus could be argued either way. The key is 1-time. I personally don't like it, but I won't claim to know for sure if things would be better or worse off without attempting a stimulus. The scary thing about Obama is the projections 4-8 years out from here. The deficit and debt are projected to keep growing at astonishing rates. I think these articles emphasize what I have been saying on this board: We will be LUCKY to only have to pay this debt back with higher taxes, considering that communist China owns so much of our debt.
The important thing going forward is the the government budget actually spends quite a bit money, on improving the economy so that you have more resources in the future, and because of that, hopefully more money coming in to stop the debt accumulation. There are certain projects out there that when you spend money on them, they are just a money pit with no return for the future. But when you invest in things such as infrastructure, those things promote business here in the country, bring in jobs, revenue, and tax income. The same with education. The same with job training. Even when you invest in the military, there is a little bit of return as the jobs it creates, and the technology eventually filters down to civilians, even if it does take some years. I would also like to point out the difference between an approach like this, and an approach that the conservative republicans try to promote, which is that low taxes promote economic growth. The conservative view is that if you are not taxing folks, they will reinvest in their companies and grow them up. But I would like to point out, how does that help if a company is leaving a state or country due to poor infrastructure? It is not often these days that companies of any size actually pay for the infrastructure within a city/county/state themselves, in fact, almost never. They look for the places that have the infrastructure in place, or are willing to put it in place for them to come there, and take advantage of the situation. The facts are, you need a little bit of "love" from both types of policies to make things work. Not every company has the same needs. So the programs need to be versatile in both way (tax and end game) in order to make it work. One company may be privately owned, and so maybe the tax issue is important to the american owner. But maybe for the "stem cell biopharmeceutical company from France" that is looking for a new home, that is not the case. Then the question becomes, which projects out there are "money holes" that we need to quite spending money on. Stuff like subsidies for farmers. The drug war. (A complete money hole, with no return.) This is the type of crap that has to go.
I hope whatever debt v. whatever good the debt produces all plays out in the next 3.5 years, so that the voting public will know if Obama made the right economic moves and factor that into their voting. My concern is that the debt thing won't play out till after 4 years and voters won't know if Obama made the right moves or not.
This line of thinking is wrong. I'll give you an example. In WWII the Nazis had technology far superior to our own. The Tiger tank was so far ahead of the Sherman, it wasn't even fair. Even their fighters, the ME109, and eventually their jet fighters, were far more advanced than anything we had prior to or during the war. We didn't start to catch up until we released the P51. With that said, we utilized quantity over quality. The Sherman was inferior to the Tiger, but we could produce 10x as many Shermans, so we just overwhelmed Germany. The F22 is the best fighter in the world, but the Chinese already have the worlds largest airforce. How many fighters does it take to down an F22?
If we threw every man, woman, and child in the USA at the Chinese, we'd have to have a 4:1 kill ratio to break even. The sheer numbers that have can be overwhelming. Reminds me of a WW II story I heard about some africans defeating a german tank with nothing but sticks. They rushed the tank and flipped it over and beat the germans to death with the sticks when they crawled out. The 9/11 hijackers proved that warfare can be assymetric and battles won by the side with inferior technology... Regarding the opening post/article... Just a couple of weeks ago (or even more recently), I posted an article saying the deficit was going to be $1.7T. The deficit is skyrocketing by hundreds of $billions a week. If the budget is $3.65T, we're spending $100B per day or ~$4B per hour, or $1B every 15 minutes. The other point I bolded is the size of the interest payments. When govt. has to spend $800B to cover its minimum payment on the credit cards, that's $800B less to be spent on infrastructure investment and all the neato buzzwords the left are tossing around. Even worse, it's going to put a real squeeze on the govt's ability to spend on anything else. Cut the defense budget to $0 and you still have hundreds of $billions to cut elsewhere. And the giant elephant in the room are all the T-Bills the social security trust fund bought over the years that will have to be paid off out of the treasury as that ponzi scheme comes home to roost. To get a $3.6T budget to near balanced, the govt.'s overal % take of the economy would have to be about 36%; it's currently about 21%. So figure taxes have to (roughly) double on everyone. Everyone. There's no way to soak the rich for that kind of scratch. You'd have to tax 1,000,000 people making $1M per year 100% of their income to bring in $1B. The funny thing about all this spending is that I would actually favor $1T or $2T to fix social security (that's what it'd take).
heh heh Now think about how much you can raise in taxes from the top 50 employees of each of the fortune 500 executives, assuming they make $1M/year each. Or $5M/year each. 25,000 x $1M = $25B at a tax rate of 100% from $1 one. You need 24x that amount just to cover the increased interest payments. Maybe the magnitude of the hole we're digging ourselves into is becoming clearer? On the other hand, we own a bunch of GM and Chrysler stock. Better hope Detroit doesn't turn into a ghost town.
