Day of Reckoning
This is the way the world ends/Not with a bang but a whimper.
T.S.Eliot, The Hollow Men
Merrill Lynch published this chart last night of the U.S. Short term Treasury obligations of $742 Billion. Note that 2/3rds of this debt is held by the central banks of about 8 countries including China, Russia, Saudia Arabia, and Japan. Let’s assume the dollar keeps falling because the Fed is afraid to raise interest rates in an election year. At what point do we encounter a “buyers strike” from these Central Banks at a Treasury Bill auction, which forces rates much higher in order to keep paying for the War In Iraq? What happens then? According to Merrill, this is what happens.
The US consumer is ultimately forced to violently adjust its impaired balance sheet. An insatiable appetite for debt comes against the constraint of reduced global credit availability.
There are only two ways to “violently adjust” a balance sheet: forced asset sales or bankruptcy. Either one leads to financial panic. Someday when the history of the decline of the American Empire is told, we will look at this chart on the left, and see that it was when Ronald Reagan came to office that we started going into debt to the rest of the world. And we will know that the idealogical stupidity of the conservative revolution lead us to this Day of Reckoning.
The task of rebuilding America as a producing/saving economy as opposed to a consumption/debt economy will be left to the Democrats. It will be painful and the supply side economist idealogues that brought this plague upon our nation will retreat to their think tanks like Heritage and AEI and pretend it wasn’t their fault.
Our Puritan forefathers would have locked them in the Pillory stocks for public shaming.
It’s funny how supply side economics ceases to work when there is no demand.
You have to let the masses retain some wealth so they can spend. Supply siders seemed to have forgotten that part.
It’s funny how supply side economics ceases to work when there is no demand.
You have to let the masses retain some wealth so they can spend. Supply siders seemed to have forgotten that part.
I’m curious- where did ML publish this? I’m interested to read the article but ‘violently adjust its balance sheet’ doesn’t google (except for this page.)
I’m curious- where did ML publish this? I’m interested to read the article but ‘violently adjust its balance sheet’ doesn’t google (except for this page.)
Rob- Its a private report to their clients.
Rob- Its a private report to their clients.
The Democrats? Do you mean the same co-opted zombies of Dick Cheney who, in the House, passed telecom immunity and permanent warrantless wiretapping for a runaway executive? The same people who are *still* handing Cheney and his corporate cabal precisely what they demand? The same people who, take Diane Feinstein for example, have been profiting directly and enormously from the Iraq war?
You’ll excuse me if I don’t hold my breath waiting. If they’re the cavalry riding to the rescue, we’re getting F Troop.
No, I think we’re going to ride this pony right over the edge and all the way down to the jagged rocks below. Dick and Diane and the rest have dollar-silk parachutes that will waft them to their undisclosed locations, in the hinterlands of Argentina for example.
The Democrats? Do you mean the same co-opted zombies of Dick Cheney who, in the House, passed telecom immunity and permanent warrantless wiretapping for a runaway executive? The same people who are *still* handing Cheney and his corporate cabal precisely what they demand? The same people who, take Diane Feinstein for example, have been profiting directly and enormously from the Iraq war?
You’ll excuse me if I don’t hold my breath waiting. If they’re the cavalry riding to the rescue, we’re getting F Troop.
No, I think we’re going to ride this pony right over the edge and all the way down to the jagged rocks below. Dick and Diane and the rest have dollar-silk parachutes that will waft them to their undisclosed locations, in the hinterlands of Argentina for example.
If we cut Medicare by 10% and keep the cost of growth to inflation, and parse out medical care until a certain age – say 85? 86? Growing that age based on available money to spend.
If we remake education, so that each student has a dollar value and any school is able to compete for that student.
If we can have energy independence as our new moon shot – refactor the economy around drilling at home, clean coal, renewables, solar in every home.
These simple steps will keep inflation down and grow our economy – creating jobs, making us more competitive for the next century.
If we cut Medicare by 10% and keep the cost of growth to inflation, and parse out medical care until a certain age – say 85? 86? Growing that age based on available money to spend.
If we remake education, so that each student has a dollar value and any school is able to compete for that student.
If we can have energy independence as our new moon shot – refactor the economy around drilling at home, clean coal, renewables, solar in every home.
These simple steps will keep inflation down and grow our economy – creating jobs, making us more competitive for the next century.
Judging by the graph, a bit uncertain due to the scaling, it seems the Clinton years featured lots of debt generation. During the Bush I presidency we were climbing out of the hole. It’s a bit partisan to blame the Republicans.
Judging by the graph, a bit uncertain due to the scaling, it seems the Clinton years featured lots of debt generation. During the Bush I presidency we were climbing out of the hole. It’s a bit partisan to blame the Republicans.
I worked with an attorney once that when he was going to write a check he would call the bank and check his checking acct. balance and shazzam that was the amount he had to spend. No big deal, if it created a monetary shortfall and large check charges, that’s OK, just go out and make more money. Among other things he was a bookkeeping nightmare.
Politicians don’t even bother to do that. Instead of a sense of responsibility they have an unlimited amount of ego centric gall, taxing authority and sense of self preservation. This is all inclusive, for one to point his finger at another and say it’s all his fault, I had nothing to do with it, is incredulous, who enables these liars, panderers, ideological hacks, pseudo intellectual piss ants?
The American People
A Frenchmen once said ,”The Americans have a great system, and it will remain so until they realize they can vote themselves Largess” Well he was right and the slide into irresponsibility, a slippery slope greased by ignorance, that has followed since this self realization on the part of the American people has produced a lot of very opportunistic citizens/politicians who are going to blame everyone else for the ride to the bottom.
I once asked a rancher how he was going to keep his ranch during tough economic times. He responded, ”that he was going to find out just how much equity he had in the land”
I think we are about to find out the same thing.
By the way he was a great salesman, that attorney; he had a lot of charisma and never did have to balance his check book. He just married a person with a LOT of money.
It’s a real knee slapper listening to liberals talking about personal wealth.
I worked with an attorney once that when he was going to write a check he would call the bank and check his checking acct. balance and shazzam that was the amount he had to spend. No big deal, if it created a monetary shortfall and large check charges, that’s OK, just go out and make more money. Among other things he was a bookkeeping nightmare.
Politicians don’t even bother to do that. Instead of a sense of responsibility they have an unlimited amount of ego centric gall, taxing authority and sense of self preservation. This is all inclusive, for one to point his finger at another and say it’s all his fault, I had nothing to do with it, is incredulous, who enables these liars, panderers, ideological hacks, pseudo intellectual piss ants?
The American People
A Frenchmen once said ,”The Americans have a great system, and it will remain so until they realize they can vote themselves Largess” Well he was right and the slide into irresponsibility, a slippery slope greased by ignorance, that has followed since this self realization on the part of the American people has produced a lot of very opportunistic citizens/politicians who are going to blame everyone else for the ride to the bottom.
I once asked a rancher how he was going to keep his ranch during tough economic times. He responded, ”that he was going to find out just how much equity he had in the land”
I think we are about to find out the same thing.
By the way he was a great salesman, that attorney; he had a lot of charisma and never did have to balance his check book. He just married a person with a LOT of money.
It’s a real knee slapper listening to liberals talking about personal wealth.
Good point, Michael R, but it’s not just the White House, but also Congress, that is responsible. Until 9/12/2001, Congress actually had an important, sometimes predominant, voice in the budgetary process.
I would be interested in reading an in-depth, non-partisan analysis of just what went on in these years, to get a better idea of just what this graph really tells us. I have a feeling that this one simple little graph represents a very big and important story.
Good point, Michael R, but it’s not just the White House, but also Congress, that is responsible. Until 9/12/2001, Congress actually had an important, sometimes predominant, voice in the budgetary process.
I would be interested in reading an in-depth, non-partisan analysis of just what went on in these years, to get a better idea of just what this graph really tells us. I have a feeling that this one simple little graph represents a very big and important story.
I, too, would like to see more details before I jump on a bandwagon for the Demonauts. The story from my perspective is like one long and tortured sibling rivalry.
And while we looking at that story how about a little more analysis of why it is so damn important to politic your way into office as Obama is now being described as doing? (Like that intransitivity, Hugh?)
I know Jon that’s off meme but I didn’t want to go back and I also think that the main point, the elephant, is the script of these transactions (the debits/credits/connections/relationships/proxies/lobbies) in relationship to the way our government is really run.
I, too, would like to see more details before I jump on a bandwagon for the Demonauts. The story from my perspective is like one long and tortured sibling rivalry.
And while we looking at that story how about a little more analysis of why it is so damn important to politic your way into office as Obama is now being described as doing? (Like that intransitivity, Hugh?)
I know Jon that’s off meme but I didn’t want to go back and I also think that the main point, the elephant, is the script of these transactions (the debits/credits/connections/relationships/proxies/lobbies) in relationship to the way our government is really run.
Michael you are reading the graph backwards. Deficit is down.We retired the debt in the Clinton years and went deep in the whole under Bush (almost 6% of GDP)
Michael you are reading the graph backwards. Deficit is down.We retired the debt in the Clinton years and went deep in the whole under Bush (almost 6% of GDP)
rhb-You know I have been very critical of the way the Clinton/Rubin economic policy tended to favor the same interest groups as the Republicans (Big Oil, Media, Pharma and Military). But I think we are at a particular moment of crisis now, where the old politics will need to be abandoned. I’m not sure either campaign really realizes this. But they will soon.
rhb-You know I have been very critical of the way the Clinton/Rubin economic policy tended to favor the same interest groups as the Republicans (Big Oil, Media, Pharma and Military). But I think we are at a particular moment of crisis now, where the old politics will need to be abandoned. I’m not sure either campaign really realizes this. But they will soon.
What are the policies that the democrate party intends to implement that will rescue our economy.
Will it be raising taxes on, oil companies, capital (capital gains), labor (small business taxes). Taxes on retirement programs (one time or permanent) Excess profit taxes. Higher payroll taxes. Imputed income?
Entitlement programs, More comprehensive Medicare, national health care. Expanded prescription programs. More money for educational programs. etc etc
I’m just curious how they intend to balance the budget.
Those pesky details.
What are the policies that the democrate party intends to implement that will rescue our economy.
Will it be raising taxes on, oil companies, capital (capital gains), labor (small business taxes). Taxes on retirement programs (one time or permanent) Excess profit taxes. Higher payroll taxes. Imputed income?
Entitlement programs, More comprehensive Medicare, national health care. Expanded prescription programs. More money for educational programs. etc etc
I’m just curious how they intend to balance the budget.
Those pesky details.
My original belief in Obama’s “bottom up” strategy was that he intended to develop the idea of individual responsibility by intiating a “less is more’ approach to budgets. By that I mean I understood him to be aiming at every budget to be reexamined and fine-toothed for excess, trimmed to meet actual funding, and held to that position until all, yes, all, budgets; schools, small and large businesses, townships, small villages, the Federal, the states – all budgets balanced.
The aim would be to disavow the current strategy, the one most popularized by school districts and the military/police/Homeland Security folks and governments, of spending everything in the budget each year so you could claim the need for more next year.
Of course, this would actually be asking all sides to suddenly grow up and then work together.
Setting real budgets would allow us to face what needs to be funded and then find out how, whether by tax, or sale of some of our massive military over-supplies or by simply rescinding all tax breaks until we are out of debt, I don’t care. It is stupid to argue about how when we already know why.
My original belief in Obama’s “bottom up” strategy was that he intended to develop the idea of individual responsibility by intiating a “less is more’ approach to budgets. By that I mean I understood him to be aiming at every budget to be reexamined and fine-toothed for excess, trimmed to meet actual funding, and held to that position until all, yes, all, budgets; schools, small and large businesses, townships, small villages, the Federal, the states – all budgets balanced.
The aim would be to disavow the current strategy, the one most popularized by school districts and the military/police/Homeland Security folks and governments, of spending everything in the budget each year so you could claim the need for more next year.
Of course, this would actually be asking all sides to suddenly grow up and then work together.
Setting real budgets would allow us to face what needs to be funded and then find out how, whether by tax, or sale of some of our massive military over-supplies or by simply rescinding all tax breaks until we are out of debt, I don’t care. It is stupid to argue about how when we already know why.
Guys, what I don’t get is the round and round. We’ve talked about this. Why not really answer the point i’ve been trying to make?
I gave you the one answer that ABSOLUTELY makes 100% sense. Republicans intentionally deficit spend – it doesn’t happen by accident. It isn’t just “lower taxes” – it is “deficit spend.”
It is the fault of the leaders of the liberal wing. They want “democracy” to be a way to gain power. Votes-for-stuff is over. FOR 60 YEARS, it worked because Republicans knee jerk reaction was to balance the budget. There was always deficit spending available to have new social programs – since 1980 there hasn’t been.
Because we are at the natural conclusion, the end game of vote-for-stuff democracy – we are once again (just like 1992) witnessing a precarious situation whereby the next President is going to be Capt. Bad News.
Let me put it another way, the only way we could cut welfare (1995) was with a Democrat president in office. We might just need another Democrat to cut Medicare and Social Security.
Guys, what I don’t get is the round and round. We’ve talked about this. Why not really answer the point i’ve been trying to make?
I gave you the one answer that ABSOLUTELY makes 100% sense. Republicans intentionally deficit spend – it doesn’t happen by accident. It isn’t just “lower taxes” – it is “deficit spend.”
It is the fault of the leaders of the liberal wing. They want “democracy” to be a way to gain power. Votes-for-stuff is over. FOR 60 YEARS, it worked because Republicans knee jerk reaction was to balance the budget. There was always deficit spending available to have new social programs – since 1980 there hasn’t been.
Because we are at the natural conclusion, the end game of vote-for-stuff democracy – we are once again (just like 1992) witnessing a precarious situation whereby the next President is going to be Capt. Bad News.
Let me put it another way, the only way we could cut welfare (1995) was with a Democrat president in office. We might just need another Democrat to cut Medicare and Social Security.
The comments about budgets in this string remind me of Jimmy Carter’s plan for “Zero-based Budgeting.” Very difficult to do in the real world, but maybe the present crisis will force us in that direction. — Bernie
The comments about budgets in this string remind me of Jimmy Carter’s plan for “Zero-based Budgeting.” Very difficult to do in the real world, but maybe the present crisis will force us in that direction. — Bernie
Zero based budgeting is a great exercise. We tried it here–
http://jtaplin.wordpress.com/2008/03/29/a-new-federalist-budget/
Zero based budgeting is a great exercise. We tried it here–
http://jtaplin.wordpress.com/2008/03/29/a-new-federalist-budget/
The current account deficit is the result of our trade imbalance and our extremely low and falling savings rate. As the Chinese, Russia and the Middle East export goods to the US they end up with dollars. These dollars are invested in US treasury securities for investment purposes.
The increase in the current account deficit is exacerbated by US government and citizen deficit spending. It used to be, when Americans saved, they used to invest in US Treasuries. Now that the foreigners have all those dollars they are buying our Treasuries. Their percentage of treasury ownership is rising while US domestic holdings are declining.
But the current account deficit that seemed to begin and accelerate during the Clinton administration was not due to the US federal government deficit spending but to rising foreign imports into the US and declining US domestic savings.
The danger in the present situation is that someone bigger than Libya will decide they’d rather sell their goods for, say, Euros instead of dollars. The dollars that have been circulating around the globe as the world’s preferred currency for international commerce will suddenly be traded for Euros and the dollar will tank. The US will be awash in dollars and we’ll see unimagined inflation.
The current account deficit is the result of our trade imbalance and our extremely low and falling savings rate. As the Chinese, Russia and the Middle East export goods to the US they end up with dollars. These dollars are invested in US treasury securities for investment purposes.
The increase in the current account deficit is exacerbated by US government and citizen deficit spending. It used to be, when Americans saved, they used to invest in US Treasuries. Now that the foreigners have all those dollars they are buying our Treasuries. Their percentage of treasury ownership is rising while US domestic holdings are declining.
But the current account deficit that seemed to begin and accelerate during the Clinton administration was not due to the US federal government deficit spending but to rising foreign imports into the US and declining US domestic savings.
The danger in the present situation is that someone bigger than Libya will decide they’d rather sell their goods for, say, Euros instead of dollars. The dollars that have been circulating around the globe as the world’s preferred currency for international commerce will suddenly be traded for Euros and the dollar will tank. The US will be awash in dollars and we’ll see unimagined inflation.
Jon -
The graph you have very clear shows a substantial increase in the current accounts deficit under Clinton, winding up at about 4% of GDP. In your comment above you refer to the federal budget deficit, which is a different thing. The former is an excess of imports over exports, the latter spending of the federal government beyond its receipts.
These two are connected, but the relationship is not simple. What was happening during the 1990s is that the federal budget was in balance, but because of the strong economy, consumers were spending more overseas than producers were able to export.
Jon -
The graph you have very clear shows a substantial increase in the current accounts deficit under Clinton, winding up at about 4% of GDP. In your comment above you refer to the federal budget deficit, which is a different thing. The former is an excess of imports over exports, the latter spending of the federal government beyond its receipts.
These two are connected, but the relationship is not simple. What was happening during the 1990s is that the federal budget was in balance, but because of the strong economy, consumers were spending more overseas than producers were able to export.
Mitch, you are right. It did get to 3.7% of GDP in the last years of Clinton. It’s now 6% of GDP.
Mitch, you are right. It did get to 3.7% of GDP in the last years of Clinton. It’s now 6% of GDP.
Morgan-”Because we are at the natural conclusion, the end game of vote-for-stuff democracy “-
You said a Mouf-ful, we can’t afford to play the game under the existing rules anymore.
Morgan-”Because we are at the natural conclusion, the end game of vote-for-stuff democracy “-
You said a Mouf-ful, we can’t afford to play the game under the existing rules anymore.
…..and a happy July 4th Dependence Day to you.
…..and a happy July 4th Dependence Day to you.
You got it, sad but true
You got it, sad but true
I don’t see this as a political problem but more of a social/cultural problem. Americans have been told to spend, in fact they are encouraged to spend and spend they do.
I, like many people, was brought up by a generation of immigrants that where taught the value of conservation and quality. Not too long ago American products were the most coveted because of their quality “life time guarantees” and all of that. Now we buy inexpensive, cheaply made products that satisfy the immediate need but are not meant to last. And it’s not just the day to day stuff, we build our homes this way, plan communities this way and do it all on credit.
It’s harder to save to buy quality in the future than simply satisfy that pang of the moment.
It took me a while, but nothing I own will stop working or go out of style before me and I have everything I need to be comfortable and live well.
In Europe they still benefit from these customs and if you’ve ever had the chance to close a door or window in a house in Germany or Switzerland you know why: expensive, lasting, efficient quality.
When is the last time any of you visited your television repair man? Or had a blender fixed? a couch re-upholstered or a vacuum cleaner serviced? Instead of just buying a new one?
A.
I don’t see this as a political problem but more of a social/cultural problem. Americans have been told to spend, in fact they are encouraged to spend and spend they do.
I, like many people, was brought up by a generation of immigrants that where taught the value of conservation and quality. Not too long ago American products were the most coveted because of their quality “life time guarantees” and all of that. Now we buy inexpensive, cheaply made products that satisfy the immediate need but are not meant to last. And it’s not just the day to day stuff, we build our homes this way, plan communities this way and do it all on credit.
It’s harder to save to buy quality in the future than simply satisfy that pang of the moment.
It took me a while, but nothing I own will stop working or go out of style before me and I have everything I need to be comfortable and live well.
In Europe they still benefit from these customs and if you’ve ever had the chance to close a door or window in a house in Germany or Switzerland you know why: expensive, lasting, efficient quality.
When is the last time any of you visited your television repair man? Or had a blender fixed? a couch re-upholstered or a vacuum cleaner serviced? Instead of just buying a new one?
A.
[...] The sight of him sucking up to Putin and Medvedev is a true snapshot of a changed world order. As I pointed out last week, the Russians and the Chinese are already the largest holders of our Treasury Bills. I’m not [...]
[...] The sight of him sucking up to Putin and Medvedev is a true snapshot of a changed world order. As I pointed out last week, the Russians and the Chinese are already the largest holders of our Treasury Bills. I’m not [...]