Tag Archives: Debt

What I Never Thought I Would See

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On Monday The Federalist posted a list of thirteen things that have happened that they would not have believed five years ago.

Here is the list. Please follow the link to the article to read the details:

1. Men As Women

2. Blocking Puberty

3. Drafting Women

5. Massive Illegal Immigration

6. Widespread Censorship

7. Parents Labeled Terrorists

8. President’s Mental Abilities Doubted

9. Asking Athletes for Advice

10. Record Debt and Inflation

11. Covid Restrictions Continue and Some Increase

12. Major Scientific Advances Not Celebrated

13. Losing Our Lead

Please follow the link above to read the details. We are obviously not in a good place.

It’s Better To Owe Money To A Friend Than To Owe Money To Someone Who Is Not Your Friend

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America’s runaway spending is a problem. So far no one in Washington has either the power or the will to bring that spending to a screeching halt. But at least we are being a little wiser in our borrowing habits.

CNS News posted an article today with the following headline, “Japan Surpasses China as Top Foreign Holder of U.S. Debt.” It would be better if we had no debt, but at least the majority of our debt is held by a country that is not out to destroy us.

The article reports:

In May of this year, the Chinese owned $1,110,200,000,000 in U.S Treasury securities and the Japanese owned $1,101,000,000,000. In June, however, Chinese ownership of U.S. Treasury securities rose only to $1,112,500,000,000 and Japanese ownership climbed to $1,122,900,000,000.

That marked the first time since May 2017 that entities in Japan have owned more U.S. Treasury securities, as estimated by the U.S. Treasury, than entities in China.

In May 2017, the Japanese owned $1,111,500,000,000 in U.S. Treasury securities and the Chinese owned $1,102,200,000,000. In June 2017, Chinese ownership of U.S. Treasury securities increased to $1,146,500,000,000 and Japanese ownership declined to $1,090,300,000.000.

Chinese ownership of U.S. Treasury securities, according to the estimates, peaked in November 2013 at $1,316,700,000,000.

…The Federal Reserve owns more U.S. Treasury securities than either Japan or China. As of June 27, according to the Federal Reserve’s balance statement, the Federal Reserve owned $2,110,256,000,000 in Treasury securities.

U.S. Treasury securities held by entities in Hong Kong are counted separately from those in Mainland China. According to the Treasury’s estimate, entities in Hong Kong owned $215,600,000,000 in U.S. Treasury securities in June.

Entities in the United Kingdom were the third largest foreign holders of U.S. Treasury securities after Japan and China. In June, entities in the U.K. owned $341,100,000,000 in U.S. Treasury securities.

The article concludes:

In explaining its methodology for estimating foreign holdings of U.S. Treasury securities, the Treasury explained that some countries have higher numbers because owners of Treasury securities from third countries “entrust the safekeeping of their securities” to institutions in these countries.

“Imperfections caused by ‘custodial bias’remain in the current MFH [Major Foreign Holders of U.S. Treasury Securities] table,” said the methodology statement. “Some foreign owners entrust the safekeeping of their securities to institutions that are neither in the United States nor in the owner’s country of residence. For example, a German investor may buy a U.S. security and place it in the custody of a Swiss bank. In both the SLT and the periodic surveys of holdings of long-term securities, such a holding will typically be recorded vis-a-vis Switzerland rather than Germany. This ‘custodial bias’ contributes to the large recorded holdings in major custodial centers including Belgium, the Caribbean banking centers, Luxembourg, Switzerland, and the United Kingdom.”

It truly is time to cut our spending. We owe too many people too much money.

The Uni-Party Needs To Be Voted Out Of Office

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The Washington Examiner posted an article today with the following headline, “Republicans join Democrats to kill Rand Paul’s fiscally responsible Pennies Plan because no one cares about the debt crisis.”

As of today, the national debt of America is approximately 22 trillion dollars. That’s a lot of debt for our children and grandchildren to be saddled with.

The article reports:

That was a nice decade of Republicans pretending to care about our $22 trillion national debt and annual multitrillion-dollar deficit. But as of Monday, we can safely say the Tea Party is over.

Sen. Rand Paul, R-Ky., introduced about as reasonable an attempt to rein in our exploding deficit with his Pennies Plan, which would cut 2% from on-budget spending per year for the next five years. Additionally, Paul’s plan would expressly protect Social Security, include instructions to make the individual income tax reforms passed by President Trump permanent, and expand access to Health Savings Accounts.

It’s a modest but tangible step in the right direction. It wouldn’t solve our debt crisis, but it would ameliorate it somewhat. So naturally, a large bipartisan majority voted to block it from the Senate floor.

Just 22 Republicans proved themselves to be great American patriots. Sixty-nine senators, including a whopping 25 Republicans, voted not to bring the bill to a final vote.

What are we voting those 25 Republicans into the Senate for? Conservatives tell me that Sen. Josh Hawley, R-Mo., is the next big thing. But while he’s found the time to nearly derail Trump’s exceptional judicial agenda and threaten to go full-big-government on private social media companies, he refused to bring the Pennies Plan for as much as a floor vote.

It is time for those who formed the Tea Party Movement in 2009 to rename and rebrand their movement and work to shrink the cost of government. Increasing debt is not a workable financial model. It is time to elect legislators who will actually keep their promise to shrink government–not grow it. There is something in the water in Washington that causes people who run as conservatives to forget who put them in office. We need to keep voting them out of office until we find someone who knows how to keep his promises.

Bouncing Back

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Yesterday CNBC reported the following:

After a disappointing February in which just 20,000 jobs were added to the economy, the job market is back on track, adding 196,000 jobs in March.

That’s according to the latest report from the Bureau of Labor Statics, which also showed unemployment remaining at 3.8% and wages increasing by 3.2% from a year ago.

“I think the March report will reassure investors after the weak report in February brought about concerns of a possible slowing economy,” Glassdoor’s chief economist Andrew Chamberlain tells CNBC Make It. “The report is strong across the board and it’s hard to find any weaknesses. It shows that even after 102 months of positive job gains, the economy still has room to grow.”

At some point the economy will slow down. We have not yet dealt with the debt that runaway spending has created in recent years, and we have not yet fully revised trade deals that were detrimental to our country. However, March was a good month for Americans looking for work and Americans in the workforce.

The article reminds us that there may be a recession in the future, but not in the near future:

Though February’s numbers may have been alarming to some, Hamrick, Gimbel and Chamberlain agree that there’s no need to worry about a recession just yet.

“There’s no sign that one is imminent,” says Hamrick, though he adds, “we know that one is inevitable at some point.”

Gimbel adds that, “In 2018, we created, on average, about 200,000 jobs per month. That is astonishing at this point in the recovery and highly unlikely that the economy is going to keep that up moving forward. So if we drop down to creating 180,000 jobs a month, or 150,000 or even 100,000, that is OK.”

Having a businessman as President has been a good thing for the majority of Americans.

The Law Of Unintended Consequences

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It’s hard to defend the actions of the Federal Reserve right now. The people who propped up the economy under President Obama seem determined to destroy the economy under President Trump. But we know that the Federal Reserve is apolitical. Sure we do. However, there may be some unintended consequences of the current Federal Reserve actions.

The Gateway Pundit posted an article today which explains some of those consequences.

The article reports:

The Chinese were relentless in their efforts to obtain Western technology and grow their economy.  They set up trade barriers and manipulated their currency in ways that helped China. The US was at a disadvantage in trade resulting in massive deficits into the billions.

Along comes the Trump Administration, the first administration to address China’s unfair trade advantage.  President Trump is a shrewd negotiator and he obviously believes now is the time to encourage China to make changes to their trade barriers with the US.  China may have no choice but to go with what the US offers to keep its economy afloat.

The more pressing issues for China surround real estate, in a manner similar to the US in 2008.  As China grew, it invested in its infrastructure and in addition it invested in large housing projects throughout the country.  These efforts helped bolster China’s already fast growing economy.

The problem is that China over invested in these random properties all over China and these properties today remain empty.

…Now to add to China’s misery, the Fed is doing all it can to kill the US economy.  China is dependent on the US economy to stay afloat.

…The US debt now stands at $21.8 trillion. A 2.25% interest increase on this amount of debt is an annual increase in debt interest payments of $500 billion!!!

The Fed is doing all it can to destroy President Trump’s economy. What the Fed doesn’t realize is that a flat US economy means disaster to the Chinese.

China’s financial crash may make the 2008 crash in the US look small.  The implications will no doubt impact the entire world.  Jerome Powell at the Fed has no idea what he is doing!

Hang on to your hat, if the Federal Reserve continues on its current path, this may be a very bumpy ride.

Raising Interest Rates Is Not The Right Move

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Interest rates were kept artificially low during the Obama administration. This resulted in lower interest payments on the national debt, which increased from $7.27 trillion in 2009 when President Obama took office to $14 trillion at the end of fiscal 2016. The current national debt is $16 trillion. Increasing interest rates from 2.25 percent to 2.50 percent increases the amount of money all taxpayers will have to pay as interest on that debt.

Breitbart reported today:

“In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 2-1/4 to 2‑1/2 percent,” the Federal Reserve announced. The Fed indicated the possibility of just two rate hikes in 2019.

The Dow Jones industrial average rose leading up to the announcement.

Predictions looked toward a likely rate hike ahead of the announcement and possible signaling to a slowing of potential future rate hikes. USA Today reported ahead of the announcement, “Most Wall Street pros expect the Fed, as it has signaled, to hike its key rate another quarter point to a range of 2.25 percent to 2.50 percent. This would be the fourth increase this year and ninth since late 2015.”

The Federal Reserve is not a government agency. They are supposed to be apolitical, but their actions in recent years bring that into question. Lower interest rates during the Obama administration kept the stock market high, paid dividends to those on Wall Street and any well-connected politicians. It provided the appearance of an okay economy despite decreases in the Workforce Participation Rate and the rapidly shrinking middle class. Since President Trump took office, the middle class is growing, and the Workforce Participation Rate is slowly climbing. This rate increase will increase the amount of money needed to pay interest on the national debt and will be a drag on the economy. I don’t mean to be cynical, but I believe that is by design. The Federal Reserve is part of the political establishment that does not want to see the economic success of President Trump’s economic policies. President Trump is not a member of the political establishment, and it will be more difficult to get rid of him in 2020 if the economy is growing. The rate hikes announced today will put a damper on economic growth. The question will be how much of a damper.

 

But It Sounds So Good

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On Wednesday, Investor’s Business Daily posted an editorial about the cost of free stuff. Yes, you read that right.

The editorial reports:

In a devastating piece that appeared on the left-of-center web site Vox (to its credit), Manhattan Institute fellow Brian Riedl went through the simple math of what free actually costs. It’s a lot.

It’s not just the free aspect, but the fact that the democratic socialists have made so many promises that must be paid for that will make it so tough to swallow for most voters.

Riedl looked at the 10-year costs of all the various promises made by Bernie Sanders, Alexandria Ocasio-Cortez, and other self-described democratic socialists. He was as generous as could be in his estimates, often accepting the democratic socialists’ cost estimate even when it was patently and absurdly too low. It’s quite a laundry-list of promises with enormous costs: “Free college” ($807 billion); Social Security expansion ($188 billion); single-payer health care ($32 trillion); guaranteed jobs at $15 per hour plus benefits ($6.8 trillion); infrastructure ($1 trillion); student loan debt forgiveness ($1.4 trillion).

Net cost: about $42.5 trillion over 10 years, give or take a few hundred billion. To paraphrase the late, great Republican Sen. Everett Dirksen: “A trillion here, a trillion there, and pretty soon you’re talking real money.”

I wonder if the young people who support socialism understand how much it costs.

The article reminds us that our spending is already out of control:

As it is, current federal estimates expect about $44 trillion in tax revenues over that same period, with a deficit of roughly $12.4 trillion. Remember: All this democratic socialist spending comes on top of what we’re already spending.

Please consider this when you vote. If you want the government to take less of your money, the only hope you have (although it is a small hope) is to vote Republican.

Why The Republican Party Is Losing Voters

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The 2016 Republican Platform includes the following on Page 8:

Reducing the Federal Debt

Our national debt is a burden on our economy and families. The huge increase in the national debt demanded by and incurred during the current Administration has placed a significant burden on future generations. We must impose firm caps on future debt, accelerate the repayment of the trillions we now owe in order to reaffirm our principles of responsible and limited government, and remove the burdens we are placing on future generations. A strong economy is one key to debt reduction, but spending restraint is a necessary component that must be vigorously pursued.

On May 10, 2018, CNS News reported:

The federal government collected a record $2,007,451,000,000 in total taxes through the first seven months of fiscal 2018 (October through April), but still ran a deficit for that period of $385,444,000,000, according to the Monthly Treasury Statement.

It’s the spending–not the revenue–that is the problem. So what are Republicans doing about it?

On May 8, 2018, The Washington Times posted the following:

House GOP leaders vowed Tuesday to speed President Trump’s new $15.4 billion spending cuts proposal through their chamber, brushing aside complaints from Democrats and some Republicans over the trims the White House wants to see.

House Majority Leader Kevin McCarthy on Tuesday predicted the House will pass the package, which includes 38 cuts to programs and generally involves money that’s sitting unused.

So what happened when the bill reached the Senate?

The Daily Haymaker posted the story today:

Senators voted Wednesday to block President Trump’s $15.4 billion spending cuts package, with lawmakers saying it trimmed the budget too much.

Brushing aside administration promises that the cuts were chiefly to money that was never going to be spent, the Senate voted 50-48 to keep the bill bottled up. Two Republicans — Susan Collins of Maine and Richard Burr of North Carolina — joined Democrats to defeat the package.[…]

So if the Republicans won’t even cut spending on money that wasn’t even spent, why in the world should I vote for them? Didn’t they read their own platform? How long could you run up your credit card before creditors would start clamoring for their money? Is the government any different?

 

Bad Policies Have Consequences

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On Friday, Investor’s Business Daily posted an article about the results of the government’s takeover of the student loan program. The results of that takeover have not been good.

The article reports:

A report from the Department of Education notes that the net cost of the federal government‘s direct loan program is quickly heading into the red. This program, mind you, was supposed to be a moneymaker for the government, as students paid back federal loans with interest.

But as it turns out, borrowers have been flocking toward various loan forgiveness programs, by which the government will lose money, erasing gains from other loans. The report shows that the direct loan program went from a $25 billion surplus in 2012 to less than $5 billion by 2015.

A separate report says that this program ran a $36 billion deficit last year, up from $8.4 billion in 2016.

One of the problems with the government’s takeover of the student loan program is that the government did not have any interest in limiting the loans to people who might be willing and able to pay them back. When the program was privately granted, banks had an incentive to use good business practices in granting student loans–in order to stay in business, the banks needed the people borrowing the money to pay it back. This is another example of the private sector being able to do something better than the government.

The article concludes:

One program, called “income-driven repayment,” lets borrowers avoid payments if their income falls below a certain threshold, and then caps payments as a percentage of total family income. Any debt left over at the end of 25 years is forgiven.

Not surprisingly, students flocked to these and other programs that let them avoid paying back all their loans, even though the interest rates they had to pay were already subsidized.

Between 2011 and 2015, the portion of loans being repaid through these IDR plans shot up 625%, according to the report.

The direct lending program even earned the nickname “Obama Student Loan Forgiveness,” and surveys of student borrowers by LendEDU found that half of them don’t expect to have to pay back all their debts because the federal government would forgive them.

The rising expectation that loans wouldn’t have to be paid back in full also had the perverse effect of making students increasingly indifferent to college costs, thereby fueling tuition inflation.

As the Education report says, “Decision makers and others may not be aware of the growth in the participation in these IDR plans and loan forgiveness programs and the resulting additional costs.”

Given the $1 trillion in loan debt on the federal books, one hopes that awareness comes soon. Otherwise, the student loan program will quickly turn into one of the most regressive taxes on the books.

This is one example of the need to shrink the government. Taking over a program that has been run successfully in the private sector and moving it to government control is simply not wise. Free market capitalism is always the best way to run anything.

What Happens When The Government Makes Something Better

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Investor’s Business Daily posted an article about what has happened to student loans under the Obama Administration.

This is the picture:

The Obama Administration took over the student loan program in 2010.

The article reports:

In a nutshell, federal loan aid to colleges is pushing up tuition faster than inflation. Students must take out ever higher amounts of debt to pay for their education, but starting salaries haven’t kept up. If students don’t get good jobs when they graduate, many will default.

The study, published by the National Bureau of Economic Research, shows conclusively that growth in one program — the Federal Student Loan Program — was more than enough to account for the entire rise in college tuition from 1987 to 2010 — a stunning conclusion that suggests a massive market failure.

From 2006 to today, total student loan debt soared from $517 billion to $1.3 trillion, a 152% jump, to cover surging tuition costs. Over that same period, real starting wages for college grads were essentially flat.

Sadly, this should be no surprise, given recent history.

Whenever government gets involved in subsidizing anything — from sugar to home mortgages — higher prices emerge, leading to market disruptions and, often, a “crisis.”

At some point, we need to realize that the private sector does a better job at everything than the government. The bubble of the student loan debt will be bailed out by the taxpayers, and the national debt will continue to spiral out of control. This is our future unless we begin to elect people who understand both human nature and free markets.

Then and Now

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From the Daily Caller in January 2011:

Harry Reid on raising the debt ceiling in 2006:

“If my Republican friends believe that increasing our debt by almost $800 billion today and more than $3 trillion over the last five years is the right thing to do, they should be upfront about it. They should explain why they think more debt is good for the economy.

From The Hill yesterday:

Senate Majority Leader Harry Reid (D-Nev.) is moving legislation to push the debt limit until Dec. 31, 2014, well beyond next year’s midterm election.

Senate aides estimate the bill would increase federal borrowing authority by about $1.1 trillion.

Is there any doubt that this whole discussion is based on politics and not based on what is good for America and Americans? Until we vote professional politicians out of office, this is the kind of nonsense we will have to live with.

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Consequences Of Some Small Print In ObamaCare

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CNS News reported today that the U. S. Treasury has released data stating that the outstanding balance for all of the direct student loans the federal government has issued topped $600 billion in April.

The article reports:

In January 2009, when Obama was inaugurated, the balance was $119.803 billion and has since increased more than fivefold.

The $480.654 billion increase since January 2009 in what is owed to the Treasury in direct student loans represents a climb of about 250 percent in just over four years.

What happened?

The article explains:

Before Obama’s first term, federally guaranteed student loans were made both by the government directly and by private lenders using their own capital through what was called the Federal Family Education Loan program. Language inserted into the the Obamacare law signed in March 2010, however, abolished the latter type of federally guaranteed student loan, giving the U.S. Treasury a monopoly over those loans.

As the Congressional Research Service has described it, this Obamacare provision made the U.S. Treasury the exclusive “banker” for federally guaranteed student loans. Thus, U.S. taxpayers essentially own these loans.

This is the housing bubble played out in student loans. The American taxpayer is the lender in these loans.

The article reminds us:

If the students who have borrowed the current outstanding balance of $600 billion in federal direct student loans default on those loans–or if Congress forgives them their debts–the burden of that $600 billion loss will fall on U.S. taxpayers.

This is not pocket change. This could well be our next financial crisis.

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Another Cost Of Runaway Spending

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CNS News is reporting today that the amount of the U. S. Government debt held by the Federal Reserve has increased by 257 percent since President Barack Obama was first inaugurated on Jan. 20, 2009, and the Fed is currently the single largest holder of U.S. government debt.

The article reports:

Since Obama has been president, the publicly held portion of the U.S. government debt (as opposed to the “intragovernmental” debt the government has borrowed from federal trust funds such as the Social Security Trust Fund) has increased by  $5,264,245,866,257.40. The $.221369 in additional U.S. government debt the Fed has purchased during Obama’s presidency equals 23 percent of all the new publicly held debt the Treasury has issued during that time.

Please read that again. That paragraph refers to the fact that the government has borrowed from federal trust funds such as the Social Security Trust Fund. Remember, this is the government that is referring to Social Security as an entitlement. I don’t think I am too far off base when I say that the way the government has handled the Social Security Trust Fund should convince us that we should give the government as little of our money as possible–they did not handle money well.

Unless we elect people who are willing to curb Washington’s runaway spending, our nation will be bankrupt by the time the next president takes office.