Congressional Budget Office
With a government's October 1 shut down - temporary of course - now seemingly inevitable, and more importantly with the peak debt ceiling negotiations due in just about a week after which point the Treasury will run out of money, many wonder what comes next. That this is happening just two short years after the dramatic August 2011 debt ceiling impasse, when the market tumbled 20% and likely slowed economic growth is still fresh in everyone's mind, is hardly helping matters. Add a potential political crisis in Greece and Italy, and suddenly a whole lot of unexpected variables have to be "priced in."
Barack Obama promised to fundamentally transform America, and when it comes to health care he has definitely kept his promise. As a result of Obamacare, health care spending is up, health insurance premiums are up, the number of hours Americans are working is down and employer-based health insurance is becoming an endangered species. Of course employer-based health insurance will not disappear completely any time soon, but it has been steadily shrinking for over a decade, and Obamacare will greatly accelerate that decline. So Americans are going to pay more, get worse care, have more paperwork and a more complicated system, and they are likely to die younger too? Wow, that sounds like a great deal.
It's possible that the liberal's ultimate objective of achieving a single payer system, might well prove to be their undoing.
Earlier this week, we followed up the CBO’s publication of its 2013 Long-Term Budget Outlook with a chart that we believe should have been included. But what would Rick Santelli say? Only Rick would think to mix our debt projections with cheeseburgers and a magnifying glass. Here’s his entertaining "I will gladly pay you Tuesday for a cheeseburger today" take on our chart...
In a tight 217-210 vote, The House voted this evening to 'taper' food stamps by $39 billion over the next decade. This bill - setting up a showdown with Senate Democrats - cuts nearly twice as much as a bill that was rejected in June, and, as USA Today reports, dramatically larger than the $4.5 billion 'trim' that was passed by the Senate earlier in the year. The bill would cause 3 million people to lose benefits while another 850,000 would see their benefits cut, according to the non-partisan Congressional Budget Office. Republicans argued that the bill would restore the program's original eligibility limits and preserve the safety net for the truly needy. The White House threatened Wednesday to veto the bill, calling food stamps one of the "nation's strongest defenses against hunger and poverty." Of course, as long as the Dow is trading at all-time highs, it doesn't really matter... since the number of people on Food stamps in the US is already greater than the population of Spain!
Do you wonder what to make of America’s soaring government debt and what it means for the future? Or, if you already have it figured out, are you interested in research that might challenge your position? Either way, you might like to see the results of this exercise:
1... Take each historic instance of government borrowing rising above America’s current debt of 105% of GDP.
2... Eliminate those instances in which creditors received a lower return than originally promised, due to defaults, bond conversions, service moratoriums and/or debt cancellations.
3... Of the remaining instances, consider whether and how the debt-to-GDP ratio was reduced.
In other words, let’s see what history tells us about today’s debt levels and what comes next. You may find the answer surprising.
In light of this morning's Obama-Boehner volleys, we thought a reflection on the facts was useful. The Congressional Budget Office (CBO) released its 2013 Long-Term Budget Outlook yesterday morning, and its government debt projections are dismal... But the CBO’s featured chart only tells a small part of the story. The baseline scenario happens to be bogus. Even as it shows our addiction to debt worsening, it doesn’t do justice to the severity of that addiction. (You may want to show the chart to your children. After all, they’ll be the ones who’ll have to deal with the debt we’re piling on today.)
- Fed likely to reduce bond buying, pass policy milestone (Reuters)
- Fall in Home Loans Pushing Fed Away From Taper in Mortgage Bonds (BBG)
- Russia says U.N. report on Syria attack preconceived, political (Reuters)
- China House Price Surge Raises Prospect of Steps to Cool Market (FT)
- Cyprus Plans to Complete End of All Capital Controls... some time in 2014 (FT)
- GOP Reworks Budget Terms (WSJ)
- U.S. Navy was warned that Washington shooter 'heard voices' (Reuters)
- Berlusconi Impeachment Vote Looms (WSJ)
- Ageing could weaken central banks, spur rate volatility (Reuters)
"I estimate the US fiscal gap at US$200 tn, 17 times the reported US$12 tn in official debt in the hands of the public.... Our country is broke. It’s not broke in 50 years or 30 years or 10 years. It’s broke today. Six decades of take as you go has led us to a precipice. That’s why almost the entire economics profession is talking as one at www.theinformact.org. Economists from all political persuasions are collectively sending our government a warning about what is, effectively, a nuclear economic bomb. I’ve been around economics for a long time. I’ve never seen such a strong response to a proposed Congressional bill. This is the profession sending a statement to the President and Congress that’s not unlike the warning physicists sent via Einstein to Roosevelt about the bomb." Larry Kotlikoff
This chart seems to sum up our fiscal challenges as well as anything else...
Political activity related to reforming Fannie Mae and Freddie Mac has picked up over the last few months and additional legislative activity is expected this fall. As Goldman notes, while there is still substantial political disagreement, a loose consensus has begun to emerge on some issues. However, despite somewhat greater agreement on certain aspects of GSE reform, lawmakers still face a basic dilemma. Housing finance reform has languished in large part because of the disagreement over the appropriate federal role, as well as a concern that reform would ultimately lead to an increase in borrowing costs. Recent GSE reform proposals such as Corker-Warner appear to have attracted support by calling for high levels of private capital. However, such high levels of capital would require a return to investors, increasing borrowing costs. Overall, Goldman's expectation continues to be that GSE reform is unlikely to be enacted this year or next.
If S&P had any guts it would lower the US another notch.
The gorilla in the room may sleep soundly for the rest of July and August, but expect a foul temper when he wakes up in September. At that time, Congress once again haggles over our debt ceiling.
Sovereign debt is the bonds that are issued by national governments in foreign currencies with the intent to finance a country’s growth. The risk involved is determined by whether that country is a developed or a developing country, whether that country has a stable government or not and the sovereign-credit ratings that are attributed by agencies to that country’s economy.