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UKT: US faces one of biggest budget crunches in world – IMF

By Edmund Conway Business Last updated: May 14th, 2010

94 Comments Comment on this article

Earlier this week, the Bank of England Governor, Mervyn King, irked US authorities by pointing out that even the world’s economic superpower has a major fiscal problem -“even the United States, the world’s largest economy, has a very large fiscal deficit” were his words. They were rather vague, but by happy coincidence the International Monetary Fund has chosen to flesh out the issue today. Unfortunately this is a rather long post with a few chunky tables, but it is worth spending a bit of time with – the IMF analysis is fascinating.

Its cross-country Fiscal Monitor is not easy reading and is a VERY big pdf (17mb), so I’ve collected a few of the key points. The idea behind the document is to set out how much different countries around the world need to cut their deficits by in the next few years, and the bottom line is it’s going to be big and hard (ie 8.7pc of GDP in deficit cuts around the world, which works out at, gulp, about $4 trillion).

But the really interesting stuff is the detail, and what leaps out again and again is how much of a hill the US has to climb. Exhibit a is the fact that under the Obama administration’s current fiscal plans, the national debt in the US (on a gross basis) will climb to above 100pc of GDP by 2015 – a far steeper increase than almost any other country.


US gross debt as a percentage of GDP

Compare it with the UK, which is often pinpointed as a Greece in the making. As you can see, gross debt increases sharply, but not by anything like the same degree.


UK gross debt as a percentage of GDP

Another issue is that, according to the IMF, the cost of extra healthcare and pensions will increase by a further 5.8pc over the next 20 years. This is the biggest increase of any other country in the G20 apart from Russia, and comes despite America having far more favourable demographics. It is significantly more than the UK’s 4.2pc.

But level of debt isn’t the only problem. Then there’s the fact that the US has a far shorter maturity of government debt than most other countries, meaning that even if it weren’t borrowing any extra cash it would have to issue a large chunk of new stuff each year as things are. The killer table to show you that is this one, which shows a country’s “gross financing needs” – in other words how much debt it has to issue in the coming years to keep itself functioning.



Britain, as you can see from the second column on the left, has one of the biggest deficits in the world. However, because it also has the longest maturity of average debt in the world (far right column), and so doesn’t have to issue as much new debt each year just to keep rolling that stuff over, its gross financing needs are – at 32.2pc of GDP, way bigger than Britain’s, at 20pc. Come to think of it, it’s actually worse than Greece on this measure.

What does this mean? Basically with a large financing need, you are particularly vulnerable if the market suddenly decides it doesn’t want your debt, since those extra interest rates they charge you mount much more quickly. Japan, by the way, is the one with a real problem on this front. It could hardly be any more vulnerable to a sudden drop in investor demand, and many over there fear that the moment domestic savers stop buying JGBs, the country is doomed to Greek-style collapse (though it doesn’t share Greece’s current account deficit and, crucially, has its own currency, so I don’t know about that).

On the flip side, unlike Japan or Britain, the US does not have a central bank with quite such a large stock of government debt. Both the Bank of England and Bank of Japan have done so much quantitative easing (buying bonds with printed money) over the past few years that they have the power to cause a fiscal shock if they decided they wanted to sell off their bonds at once. This table shows you that America, while not entirely guiltless on this front, has less of a shadow hanging over it.



But all of the above is what explains why the US, according to the IMF’s projections, has more to do than any other country in the developed world (apart from Japan) when it comes to bringing its debt back towards sustainable levels. Here’s the killer table. The column to look at is on the far right: note how the US needs a 12pc of GDP chunk chopped out of its structural deficit (ie adjusted for the economic cycle). That’s $1.7 trillion. Wow – that’s not far off Britain’s total annual economic output.



So does all of this mean the US is Greece? The answer, you might be surprised to hear, is no. Now, it is true that the US has some similar issues to Greece – the high debt, the need to roll over quite a lot of debt each year, the rising healthcare costs and so on. But it has two secret (or not so secret) weapons. The first is that unlike Greece it is not trapped in a monetary union. The US, like Britain and Japan, can independently control its monetary policy; it can devalue its currency. These are hardly solutions in and of themselves, but they do help make the adjustment a lot easier and more gradual. Second, the US has growth. It remains one of, if not the, world’s most dynamic economies. It is growing at a snappy pace this year (in comparison to other countries). And a few percentage points of GDP make an immense difference, since they make those debts much easier to repay.

Finally, some might be tempted at this point to cite the fact that the US has the world’s reserve currency in the dollar as another bonus. I am less sure. There is no doubt that this has made the US a safe haven destination (people buy US bonds when freaked out about more or less anything), and has meant that America has been able to keep borrowing at low levels throughout the crisis. However, the flip side of this is that because it has yet to feel the market strain, the US also has yet to face up properly to the public finance disaster that could befall it if it does not do anything about the problem. America is not Greece, but if it does not start making efforts to cut the deficit within a few years, it will head in that direction. The upshot wouldn’t be an IMF bail-out, but a collapse in the dollar and possible hyperinflation in the US, but it would be horrific all the same. America has time, but not forever.

http://blogs.telegraph.co.uk/finance/edmundconway/100005702/us-faces-one-of-biggest-budget-crunches-in-western-world-imf/

COMMENTS

YOu can see from that chart that in 1950 the US debt was 80% of GDP. At that time it was experiencing the biggest industrial consumer boom economy in the history of the world.

The difference now is that the US has off shored practically it’s entire civilian manufacturing base to china. it is that fact, rather than the national debt it is carrying, that will be it’s undoing.

debunker on May 14th, 2010 at 7:25 pm Report comment[...] 1 votes vote US faces one of biggest budget crunches in world – IMF Earlier this week, the Bank of England Governor, Mervyn King, irked US authorities by pointing [...]
US faces one of biggest budget crunches in world – IMF on May 14th, 2010 at 8:11 pm Report comment@debunker

Well that rather depends on political will. The thing I note from these tables is the fact that in most cases the situation is no worse than at the end of WW2, and most countries then knuckled down through the 1950s and 60s to rebuild their economies.

Providing – and it is a huge proviso – that the message can be got across and accepted by the electorate that the situation is as serious as it was after WW2, then there is hope that countries like USA and UK can rebuild their manufacturing economies and chop off funding of the idle, the fraudulent and the wasteful.

If it means erecting some limited forms of protectionism – and remember that currency manipulation as practiced by the Japanese and Chinese* in recent times amounts to that anyway – then so be it. Above all, the coalition government has to recognise the situation for what it is and get out and convince the people.

(* Allegedly)

Mrs t on May 14th, 2010 at 8:26 pm Report commentIt is also worth reading the BIS report which looked at long term national-debt, a rather scary prospect given the conclusion that on Britain’s current trajectory we are headed for a national debt of 400% of GDP by 2040.

http://blogs.telegraph.co.uk/finance/edmundconway/100005702/us-faces-one-of-biggest-budget-crunches-in-western-world-imf/

jethromg on May 14th, 2010 at 9:36 pm Report commentSo….every country in the world is in debt…??

Who are the Lucky Lenders…???

They will be rolling in it, will they not..???

Crouchback on May 14th, 2010 at 9:45 pm Report commentThe problem for the US – and every other industrialised nation around the world – aiming to grow its way out its debt hole will be, er, the small matter of the end of mankind’s era of cheap energy.

The situation we’re in today is wholly unprecedented. We are at the leading edge of the long descent from the giddy heights of the cheap, fossil-fuelled industrial age to some new era of a world made by hand.

Few economists and commentators seem to factor in this huge issue when they talk glibly about a return to growth and all things consumerism. That era is dead; deceased; no more.

It beats me just how the industrialised nations of the world, now carrying almost unimaginable debt burdens, are going to get out of this unholy mess without absolutely savage reductions in living standards over the coming decade. Without cheap energy, there will be no aggressive economic growth; it’s as simple as that. Cheap energy and (apparently) sustainable economic growth are synonymous.

We really ain’t seen nothing yet. Soon we’re going to see nations looking like the guy in the Great Depression who, when asked how he went broke, replied, “Slowly. Then all at once.”

Moraymint on May 14th, 2010 at 9:56 pm Report commentEdmund well done on extracting the data. America is the Mother of all Tsunamis, waiting to be triggered. I feel that the only way the Fed will be able to stop crazy inflation will be to issue a new dollar at say 70% internally and to China and around 40% to everyone else. I would very much like to be entirely wrong.

Moraymint – you have hit that nail. The new Government just has to get going with Nuclear. The lights will be going off in 2017, as we get held to ransom by Russia and Algeria. “Swampy” will be holding forth in the appeal to outline planning permission as we listen by candlelight, unless something dramatically changes. I was terrified to see Nuclear as the final item on the “Agreement” and what was recorded. However, I took heart from the fact that it was there and given the opposite positions prior to the coalition, it was as good as it was going to get. Harsh reality of an audit of our generating capacity and energy sources should move positions substantially. One of the Nuclear plants is currently still on line, 13 years beyond its 30 year original planned lifespan. Testament to the design but not part of a sensible strategy. Milliband and Wicks were whistling in the wind, with their Energy Review and Response (1st April. So apt.)

fredone on May 14th, 2010 at 10:30 pm Report commentPeter Schiff, who is running for the US Senate and who has been extraordinarily accurate about the US economy for the past ten years writes:

“Don’t let Washington insiders fool you. The economic growth we’ve seen this year is phony – it’s based on consumption and debt financing. If we do not put an end to Congress’ spending spree, there will be an economic catastrophe that dwarfs the 2009 recession.
Mark my words… The bond market will collapse. The value of the dollar will plunge. Interest rates will rise. There will be runaway inflation and unemployment. And the only way to prevent this is to get government spending under control”.

mandeville95 on May 14th, 2010 at 10:40 pm Report comment“One of the Nuclear plants is currently still on line, 13 years beyond its 30 year original planned lifespan. ”

And that is what will happen if there is a shortage of power. Do you think these stations will just shut down because the EU says so ? I think not. A coal fired station can continue to generate just about forever – and will probably have to if we continue to build useless windmills.

PaulW on May 14th, 2010 at 10:58 pm Report commentWhat I find more interesting than anything is the basics here. Except for Japan and Singapore the table of countries in trouble is all about Western capitalist nations with free market models who were until recently the images of success we were all expected to follow.

Singapore and Japan of course are historically bound into Western economies tightly and so they may be expected to be part of the economic collapse that Western media is always trying to paint as worldwide but in fact it isn’t.

I love the way correspondents in the West talk about ‘issuing debt’ rather than borrowing money, which is what they are really talking about. The West is massively indebted to the manufacturing world from which they need to buy ’stuff’ in order to consume and they are desperate to consume because their economies rely on consumption. They are going downhill in relation to how much manufacturing capacity they have to feed a domestic market. Those with a better manufacturing sector are going down slowly and if they rebuild that sector they may even reverse the trend (typically the USA and Germany, say). Those (like Britain) with virtually no manufacturing are going down fast.

These graphs and the article are good but if they are used to try and mask the underlying basic truths they will be just one more bit of economic blether as the problem gets worse.
Duckham.tk
John Duckham

Duckham on May 14th, 2010 at 11:20 pm Report commentCrouchback on May 14th, 2010 at 9:45 pm

That isn’t every country in the world. A typically West centric viewpoint! The countries who are rolling in it are the producer countries and if you don’t know who they are I suggest you start looking on products you buy where there used to be ‘Made in Britain’ and ‘Made in USA’ labels and see what is there now.
Duckham.tk
John Duckham

Duckham on May 14th, 2010 at 11:24 pm Report commentIt depends on more than political will Mrs T. It depends on specific policy changes implemented with immediate effect. None will be forthcoming. The powers that be are fully committed and pregnant with expectation of a resumption of business as usual. Wrapping up assets in phony “black box bonds, real estate, hedge funds etc.

That model is now broken and like humpty dumpty it wont ever be fixed again. Only bringing quality high wage jobs back through manufacturing will solve the various crises affecting the western democracies.

debunker on May 14th, 2010 at 11:46 pm Report commentEdmund, your scales on the first two charts aren’t the same. It looks like the US figures are going from about 60 to 110, the UK figures from just under 50 to just under 100. Both give about a 50 increase – so actually we are about the same as the US!

fredarnolds on May 15th, 2010 at 12:41 am Report commentsorry, should have said i’m looking at the period 2007-2015

fredarnolds on May 15th, 2010 at 12:43 am Report commentCrouchback on May 14th, 2010 at 9:45 pm So….every country in the world is in debt…??

“Who are the Lucky Lenders…???”</i

You know, I've often wondered that myself!

Catweazle on May 15th, 2010 at 1:22 am Report commentPost war economies were supported by baby booms that increased populations and therefore consumption across the board. Now the baby boomers are approaching retirement and the number of workers as a percentage is falling. The absurd economic systems that we have constructed, built on debt, require constant increases in consumption to maintain them so that the interest repayments on the ever increasing debts can be met.

In crowded Europe this will definitely not be possible. The whole monetary and economic system is a great big ponzi scheme that is in the process of collapsing. In the UK pension schemes are built mainly on stock market gains. In Germany they are mostly invested in bonds. Everywhere you look there is debt. Government debt, consumer debt and corporate debt.

The numbers are often frightening. Is there a way out? Yes, but not under the current system and not with the Money Power firmly in control of politicians. They can manipulate markets and popular opinion only for so long before the game is up. The people are revolting in Greece and public opinion in Germany is totally against any bailout. Merkel is finished and is making a last gasp attempt at getting popular backing for more political unification, the opposite of what we need. In Germany she will not get it. She should resign now.

G

ytl83 on May 15th, 2010 at 1:39 am Report commentDuckham on May 14th, 2010 at 11:24 pm……………..

Yes, Ducks I agree it is a Western point of view, as I’ ve never been any where but the “West” ……… Hold on there, though, Ducks…!!! are you trying to tell me, that poor, child slaves in Third World countries are going to reap handsome rewards from the economic travails of Western Nations….???? Is that graph showing American debt, actually showing a vast lake of Honeyed Milk flowing through it’s tributaries to the East….???? Shurely not….!!!!

Might there not be one or two greedy Western rapscallions, who would much rather see all that largess flowing directly in to their wallets….????

Much as I’d dearly like to see all labourers rewarded with a just and honourable wage…….me thinks that the wage slave will be with us for a while yet……!!!!!

Me also thinks that poor child wage slaves are not exactly the first priority of many Third World Governments, or First World Governments either……..Broons odd £M100, here and there, was more of a Smashie & Nicey……..Charidee……….exercise than any real concern for suffering humanity…………else he would have got his hands dirty and told the truth about the state of the Country, rather than playng, to is left every day….?????

Crouchback on May 15th, 2010 at 2:15 am Report commentUseful blogs amd pieces these linked here Edmund. Thanks. I’m clearer in my mind now about the various complexities of the debt crisis.

rinpoche on May 15th, 2010 at 3:19 am Report comment@ jethromg

That 400% of GDP isn’t that scary, mate. It’s bandied about in somewhat of a disingenuous context.

I’m pretty sure it’s a gross figure that includes public, private and corporate debt. And the assets far outweigh debt. For example, the BIS report lists the assets of the UK financial sector alone at over 700% of GDP, what’s that $18 trillion/ish? (could be argued that that is far more scary ;)

But yeah, it begins to read differently when looked at like that.

John Talbot on May 15th, 2010 at 3:30 am Report comment[...] the Telegraph, Edmund Conway summarizes a lengthy report by the International Monetary Fund on sovereign debt that [...]
Capitalism V3.0 Roundtable » Blog Archive » The Looming Obama Debt Disaster on May 15th, 2010 at 4:39 am Report commentPeople correctly reference Britain’s dismal manufacturing base as central to her financial problem. Contrary to what some believe, the US will be suffer from the reduction of manufacturing as well.

They’ve already ceded consumer goods manufacture to the 3rd World, and are following it with other sectors. The automotive industry is on life support and has only survived by government intervention. The steel industry is disappearing along with the things they build with it. The midwest manufacturing belt is closing up shop and is accurately known as the rust belt now. Cities like Detroit and Cleveland are now resembling the very worst of any post-industrial Midlands cities. The case for growing their way out of the mess is overstated in my opinion.

The last factor is natural resources. Those countries rich in them (Canada, Australia, Russia, etc) will have the means to move quickly away from and trade account imbalances. The US’s ruinous flirtation with Ethanol production at the expense of the Agricultural industry is nothing short of scandalous. It’s a Catch 22 for Britain (and to a lesser extent Britain), she doesn’t manufacture and has few resources, therefore ‘limited protectionism’ is not a solution either. It’s a losing hand in anybody’s poker game.

As someone who left for Canada I believe the decision was wise beyond any intent. Depending on your ages, many Brits should be planning the same. Sentimentality or national pride doesn’t alter the facts or the inevitable outcome. I fear Britain will have to go closer to Europe simply to survive. God bless you Gordon McRuin…..

hctroubador on May 15th, 2010 at 5:01 am Report commentMost of these figures are meaningless. Do the US figures include unfunded liabilities, excess interest payments or the multi-trillion Fannie and Freddie liabilities?

No. They are all off balance sheet. The stats you quote are based on Enron accounting values. The true state of affairs is vastly worse.

And the official figures are lies in themselves. In 2009 purchasers of US debt was divided between the Fed (QE), overseas lenders and the household sector. 700 billion in the household sector. This was a 35 times increase in “household sector” purchases from the year before. Household sector is just a catch-all term. Mom and pop did not increase their treasury purchases 3500% from 2008 to 2009. Household sector is a way of diffusing and concealing the true magnitude of QE.

InstantSaver on May 15th, 2010 at 6:20 am Report commentFor PaulW:

“A coal fired station can continue to generate just about forever – and will probably have to if we continue to build useless windmills.”

In the December freeze-up all the windfarms of Britain contributed virtually NOTHING to our energy needs.
There was very little wind.
In pre-Industrial times, if we had a choice of a watermill or a windmill we INVARIABLY chose a watermill.
NASA long-range forecasts of solar activity – the primary determinant of global temperature (and certainly not mankind’s activities) – are that by the 2020s there will be protracted, minimal solar activity.
It will be Icebox Earth in that decade.
We need to be building lots of reliable nuclear, gas and coal-fired power stations RIGHT NOW to make sure that our people are kept alive.
The con-men of the Manmade Global Warming Hoax (and of the Green movement) have done the people of Britain a criminal disservice with their cynical nonsense.

bedfordfalls on May 15th, 2010 at 8:27 am Report commentthe US will never repay it.. why would they pay the chinese.. they will just print more!… and yes, inflation will be caused, but that is the intention of QE, and the inflation game is not yet over.

andrewx on May 15th, 2010 at 8:29 am Report commentThe most probable long-term prediction for the USA is default on its colossal debt mountain.
This would represent the best of all possible strategies, guaranteeing the economic rebirth of America, and re-establishing it as the pre-eminent global super-power for the rest if the century.
The main sufferers would be the oil states,Russia, China, Japan and Britain.
I have little sympathy for the first four.
We would have to hope for special treatment.
China would, of course, have to suck it up. If they refused to supply the USA and accept the New Dollar there would be catastrophic economic collapse in that country and riots on the streets.

bedfordfalls on May 15th, 2010 at 8:39 am Report comment[...] the Telegraph, Edmund Conway summarizes a lengthy report by the International Monetary Fund on sovereign debt that [...]
The Looming Obama Debt Disaster | No Bull. news service. on May 15th, 2010 at 8:46 am Report comment[...] the Telegraph, Edmund Conway summarizes a lengthy report by the International Monetary Fund on sovereign debt that [...]
The Looming Obama Debt Disaster | No Bull. news service. on May 15th, 2010 at 8:46 am Report comment[...] The great interest rate rip off US faces one of biggest budget crunches in world – IMF – Telegraph Blogs [...]
The great interest rate rip off - Page 761 - The Consumer Forums on May 15th, 2010 at 8:59 am Report commentSome good comments here I have to say, mandeville95 I believe Peter Schiff is correct, not because of his track record which is very good but because of the fundamentals.

I dont understand how people can invest based on promises from the state. I dont see an alternative to QE, because politicians will take the least line of resistance.

Reaction to the trillion Dollar money creation (or just promises?) in Europe triggered a big fall in the Euro, simplistic I know it is similar to lots of money leaving Greece.

Energy, clean water, land, ammunition, a barn full of grain and maybe precious metals are the way forward if or when the bond markets fail. BUT how would one hold on to these things? No doubt many will argue it is not fair this man has these things and as for the hungry mob well…..

forsaken2 on May 15th, 2010 at 9:06 am Report comment“Energy, clean water, land, ammunition, a barn full of grain and maybe precious metals are the way forward if or when the bond markets fail. BUT how would one hold on to these things? No doubt many will argue it is not fair this man has these things and as for the hungry mob well”

There will be no Mad Max scenarios, Forsaken2.
This is the safest of all predictions.

bedfordfalls on May 15th, 2010 at 9:10 am Report commentCosmos needs no explanation, Kosmos is the Greek word used to describe the end of mans system. Judeo Christian tradition teaches not to concern ones self with economics that the Lord will provide. I prefer “God helps those who help themselves”. If persons and entire nations indulge in brainless borrowing and consumption bury their heads in the sand and ignore the warnings I am not sure what He can or will do.

I have reason to believe to an extent we have been left to our own devices, for a while.

forsaken2 on May 15th, 2010 at 9:16 am Report commentOf course America is screwed. But this has been known for years, even decades. The Austrian school of economics has predicted everything that has been happening (and will happen) and is being lead by great people like Texas Congressman Ron Paul and economist Peter Schiff.

Jamika on May 15th, 2010 at 9:40 am Report commentPointing out that the US “has growth” as somehow the answer to its debt problems is like saying an alcholic is OK, because he has a bottle of whisky to take his mind of his drink problems.

Surely the reason the US *has* growth is all the horrendous borrowing it is doing to finance it? What would the US’s “dynamic” economy be doing if they hadn’t been borrowing like crazy to buy all that stuff? And you have only talked about government debt here – the US’s problem is also that on top of state debt there is massive personal borrowing to content with as well.

Whilst some of Europe’s government’s have been spending other people’s money like its going out of fashion, its citizens (on the whole) haven’t.

NickinFrance on May 15th, 2010 at 9:49 am Report commentNot convinced the maturity of debt is that important, unless the country in question be in the habit of significantly varying the average length of her bonds. The amount to be rolled over at any time is what matters ; what makes it important is what the market thinks of the country’s performance and prospects at the time of roll-over.

“The US, like Britain and Japan, can independently control its monetary policy; it can devalue its currency. These are hardly solutions in and of themselves, …”

Important about a sovereign currency is that, in the mind of the market, the country in question could adjust monetary aspects of her economy. I return to my old saw : everything depends upon sentiment ; a belief that markets are entirely logical is unrealistic.

Cracking good summary of the I.M.F.’s publication and much more easily digested. Thank you.

??

Pericles on May 15th, 2010 at 10:20 am Report commentA great and informative article. However to properly evaluate it one would need the data from the surplus counties too, above all China, but there are many other important players.
Why is this so important?
Because however bad the situation in the West, it will be mitigated if the world economy carries on chugging along, and made much worse if it collapses.
Interesting times!

davewmart on May 15th, 2010 at 10:29 am Report commentScary stuff, all round I guess….but if this is such a problem how the heck does Japan keep going with those numbers!!

dude15 on May 15th, 2010 at 10:43 am Report commentDavid Cameron’s coalition, born of failure, may make the new politics succeed

I see that the DT’s package for “not finding pages” is in good working order this morning; hence the need to post in less obstructive areas
__________________________________________________________________________

I note that the IMF is already warning this new Govt. to up taxation quickly; particularly by putting VAT on food! It just shows how serious the current debt position of UK PLC really is!

Question: Why did they not tell Brown this months ago?

Question: What is the TRUE DEBT of UK PLC? Why are the politicians no telling the TRUTH?

OOPS! May be the last question is stupid! It should have been: Why do politicians NEVER tell the truth?

As an after thought: Senator OBAMA was a major supporter of sub-prime lending! Now he is bitten by the results of that profligacy

MikeC on May 15th, 2010 at 10:51 am Report commentBuy gold.
Move to Slovakia, esp. if they decide to get out of EURO.

The guy who grows his own food and live away from the masses will be in fine shape.

bsardi on May 15th, 2010 at 11:51 am Report commentPaul W. Accepted – coal generators have nothing in them that prevents maintenance prolonging life indefinitely. My understanding is that erosion of the graphite moderator blocks within the core, by the CO2 coolant being blown through, is an irreversible ageing process for nuclear. Local and temporary (several years)relief can come with selective placement of fuel rods (unspent/partially spent) in eroded areas. This is where we are at with many of the older Nuclear generators. NuLab dithered and committed as many lies over energy supply as ever they did over the economy. As at 1st April they were still leaving messages for the tooth fairy to drop of replacement nuclear generators that would be running in 2017 and making predictions based on such “facts”. [GDP up to 3.5% in 2011 anyone?] We are living on borrowed time in so many areas it is truly frightening. What would be a tragedy is that over the next 15 months, the scales are lifted and we eventually get going with a sensible nuclear rebuild, only to have one of the, by then, 50 year old nuclear plants suffer some minor disaster, which the public and press blow out of all proportion. Bringing the pain of real energy costs on earlier will help push through the tough decisions necessary, both from an energy point of view and financially. VAT up to 23% straight away (at least the Masters of the Universe cannot avoid that too much, they buy “stuff” with their highly deserved bonuses). Retirement up 6 months every year for the next 10 years. Take a number of the old nuclear stations off line and increase electricity bills, with greater incentive for off peak use. That will drop peak demand. Let the market take care of energy saving strategy and then I would not be fielding 3 calls a week from Delhi call centres asking me if I want to take advantage of government grants to insulate my loft. “I would love to but sadly I spent my own money 20 years ago and did it myself”.

hctroubador 5.01am Detroit as bad as the worst of the post industrial Midlands. The great “invest in property myth”. With house prices at under $1,500 in some areas and whole districts being flattened by local Govt, because it was cheaper to “purchase and flatten” rather than provide lighting and services to crime and drug ravaged neighbourhoods, I think Detroit is out there in a league of its own. Estimates put it that total vacant land in Detroit is equal in area to the city of Boston. However as an absolute precursor to what could come to a “town near you”, both Detroit and Greece are most eloquent and timely warnings. One trip I would pay for. Sending every MP to go for 3 days, 2 nights, to inner city Detroit and just $100 to live on for the 3 days. No swanky hotels. Now sunshine, what are you going to do to make sure Armageddon doesn’t land here.

fredone on May 15th, 2010 at 12:06 pm Report comment“However as an absolute precursor to what could come to a “town near you”, both Detroit and Greece are most eloquent and timely warnings.”

We already have experience in Britain, Fredone, of what happens when an industry dies in a city, as it has in Detroit.
Margaret Thatcher wrecked a large number of communities in the 1980s when she destroyed the coalmining industry for union-hating, doctrinaire politic reasons.

bedfordfalls on May 15th, 2010 at 1:23 pm Report commentOne needs to look to Canada. They were in a situation similar to ours in the 1990s. It actually was a quite good time and they cleared out the stables of waste and entitlement. I lived in Vancouver at that time, and it was a good reality check for all. Too many people expecting to be paid to do nothing. We really could do with that here.

noimspartacus on May 15th, 2010 at 2:32 pm Report commentBedfordfalls;

Detroit died because the unions refused to accept a pay cut so production went elsewhere.

I’m sure a lot of the redundant works hate their union now they’ve lost their jobs.

Blue Rock on May 15th, 2010 at 2:55 pm Report commentComparing only Federal debt doesn’t capture the whole problem.

What many people in the US and Europe often fail to account for is the US states, counties and cities all issue ADDITIONAL bonds/debt on top of the federal debt. I’ve read this adds 20% to the author’s numbers and would make the US worse than Greece even now.

In addition, Americans carry much more personal debt than most Europeans – that must also be serviced out of the same GDP.

It’s irrational to assume Americans will forever be able to borrow at 0-3% to service ALL this debt – and when those rates inevitably rise, the tsunami will hit.

saxifraga on May 15th, 2010 at 2:58 pm Report comment[...] [...]
The Looming Obama Debt Disaster | NewsReal Blog on May 15th, 2010 at 3:18 pm Report commentBedfordfalls. I worked in the motor industry in the Midlands during the period of the good Mr Robinson and then moved to South Wales just in time to experience the same Union led insanity there. In one way I was so proud of the South Wales coalfield workers. No split in ranks, such spirit of community. Sadly their faith in their leadership was wholly misplaced. Scargil was a fantasist much as Brown has been so recently.

You cannot buck the markets.

Working out where the line is drawn between “A fair wage for fair work” and “we can steal higher wages than the market can sustain because the Union have created a monopoly and weak management and legislation allows exploitation of that monopoly”, requires wisdom which was so sadly lacking in so many of the Union leadership of the 60’s and 70’s. However, having lived pleasantly in South Wales as the every single deep pit was closed, I can assure you that not a single bomb was thrown, as opposed to two in the last week in Greece. One idiot did throw a paving slab off a dual carrigeway bridge and killed one taxi driver (quite how that served the Union cause I have never fathomed). To compare the 1980’s UK with Detroit or Greece is not appropriate and to do so reflects a wholly misplaced understanding of what lies ahead for us. Within the coal fields, more than generous settlements were made for those direct employees who lost their jobs. The private sector jobs supporting the coal industry did not receive such feather bedding. Did that feather bedding enable re-generation or mitigate against it ? Too much thread creep to argue here. However, I well remember the Labour council of Coventry insisting on charging full business rates on up-occupied industrial property in Coventry, such was their empathy with their ratepayers. The ultimatum they gave factory owners was, take the roof off and then we will not bill you. So with no other choice, “taking the roof off” was exactly what many did. Despite such lunacy passing for council resolutions, the good people of that city did not trash their houses and have a crime and drug spree that ripped nearly every vestige of their personal decency from them. Rather, their stoicism and spirit allowed them to rise above the quality of their elected leadership.

I have far more sympathy with the miners. Adverse geological conditions made it uneconomic to mine. Each ton brought to the surface, required a massive subsidy, not quite of the order of the subsidy currently being paid to photovoltaics curtesy of Mr Milliband, but near.
The markets could not be bucked. Productivty could only advantage just so far.

However not several hundred miles away in Germany is an example of a industiralised nation managing its way in automotive manufacture against cheap labour competition. In the UK, spoilt and stupid union leadership and inept management ensured that the golden goose was killed and its ashes danced upon. Mrs T gave us all a perfect lesson on the facts of economic life. Sadly come Major and Lamont those facts were translated to myth and ignored, by those who would have described themselves as the disciples of Mrs T.

In recent years we have again lived famously beyond our means. A bitter harvest awaits. Let us hope the same good sense of its citizenry that we have seen so many times in the past is replicated and people bear difficulty with stoicism, rather than bombs in the street, or in the burning of the innocents (Greece), and allow us agin to stand up to the challenge in front of us.

fredone on May 15th, 2010 at 4:53 pm Report comment[...] the national debt in the US will climb to above 100% in less than 5 years. Edmund Conway at The Telegraph reported, via Power Line: [T]he really interesting stuff is the detail, and what leaps out again [...]
Gateway Pundit on May 15th, 2010 at 5:17 pm Report comment[...] [...]
IMF: The U.S. has a debt problem - SoWal Beaches Forum on May 15th, 2010 at 5:32 pm Report comment[...] are a few charts from an IMF report (via the Telegraph) which show the US to be in very bad shape indeed. The punch line of this piece is at the [...]
Dinocrat » Blog Archive » A picture is worth a trillion words on May 15th, 2010 at 5:49 pm Report comment@ fredone,

Fair points all, and I concede that Detroit is perhaps not a completely fair comparison to post-industrial British cities – but with the caveat ‘yet’. Britain is far ahead of the US (actually US states) in the development of the welfare state. I believe it is only wealth transfer that has propped these cities up to even the low standards they currently have. The question is what happens when councils can’t afford to maintain estates at even the most rudimentary levels and the inhabitants lose their government benefaction?

In no way should the British people be compared to the Greeks or any other of the Mediterranean nations, but they have yet to experience true desperation in the recent generations. Is there a communal spirit and ’stiff upper lip’ embedded in British DNA? As a romantic I like to believe so, but I think the world that instilled it is long since past. When the lights go out for extended periods and people are cold and hungry there is no telling what will happen. I’m relatively certain those conditions are coming to Britain sooner than later. Sadly I don’t believe there is any way to avoid the ‘perfect storm’. I hope I’m wrong.

hctroubador on May 15th, 2010 at 6:11 pm Report commentI also wanted to add that a look at the current electoral map shows that people in the red bastions (Northeast, Midlands, Northwest) all know this as well. They know at some level the Labour government can’t stop the momentum, but might put off the end game a while longer.

hctroubador on May 15th, 2010 at 6:17 pm Report comment[...] 6) US faces one of biggest budget crunches in world – IMF [...]
Weekend News - May 15, 2010 « InvestmentWatch on May 15th, 2010 at 6:36 pm Report commentIn the US, there are a couple of easy ways out of this mess.
1. Pull out of all foreign wars for the protection of Israel (Afghanistan, Iraq). War only if the US is immediately threatened.
2. Rescind the left-wing schoolteacher pensions. They retire at 55 on 75% salary. So when they top out at an unbelievable $100000 or more a year for 9 month’s work ($133000 on a 12 month basis) they get $75000 a year in retirement, much more than I make working full time as a PhD for over 20 years.

edw234 on May 15th, 2010 at 7:31 pm Report commentOur problem is that we are unwilling to cut our domestic spending and foreign aid. We are continuing on as if there is no problem whatsoever. We are pretending like we are the US of the 50’s and 60’s, with a huge manufacturing economy. That economy is gone, we don’t take raw materials and make them into finished goods anymore. We can’t pretend that the service economy is as good as the manufacturing economy, and our politicians are pushing the “green” economy as if it is going to save us. It is going to make things much, much worse.

Russell on May 15th, 2010 at 8:41 pm Report commenthctroubador. We need to keep our fingers crossed here in the UK. As you say it is no winning hand. I fear for the worst, particularly as the concept of the dollar defaulting will bring with it such a change to the World order. However, everything I hear about our troops in Afghanistan fills me with hope. They do seem to have exactly the same dna as those who went to the Falklands or put up with being the “enemy” in NI. OK there are the odd slip-ups but weren’t there always. And if it can be in our troops it can be in our wider population. All my peers looking forward to retirement are all of one mind. If working longer until retirement means not leaving our children with debt, then tell us “how long?” and our shoulder is on the plough. But we do need some quality leadership. What we don’t want is some idiot pretending there will not be cuts everywhere, including the sacred NHS.
You correctly identify the point of weakness and mode from which civil unrest would emanate, were that to be the case. Rolling back the client state and undoing all the non-jobs is going to be a hell of a lot more difficult than rolling them out. As to America defaulting will that not be the power-pay with their largest creditor – China.

fredone on May 15th, 2010 at 8:42 pm Report comment[...] Telegraph [...]
Budget crunch « Newsbeat1 on May 15th, 2010 at 9:04 pm Report commentAs a follow up how things likely to unravel, READ “A US way out?”.

This article is over a year old but it is more up to date than ever. The times ahead of us are indeed fascinating.

andrewtaller on May 15th, 2010 at 9:22 pm Report commentEdmund, there is either a bit missing in this paragraph in your article after ‘Table 6' or it is incoherent as you’ve written it and needs to be re-edited.

“Britain, as you can see from the second column on the left, has one of the biggest deficits in the world. However, because it also has the longest maturity of average debt in the world (far right column), and so doesn’t have to issue as much new debt each year just to keep rolling that stuff over, its gross financing needs are – at 32.2pc of GDP, way bigger than Britain’s, at 20pc. Come to think of it, it’s actually worse than Greece on this measure.”

bamboom on May 15th, 2010 at 9:38 pm Report comment@Debunker:

“The difference now is that the US has off shored practically it’s entire civilian manufacturing base to china. it is that fact, rather than the national debt it is carrying, that will be it’s undoing”

It is both. There is a limit to debt and Greece has reached theirs right now and Spain and Portugal will soon follow. The thing that counts, rather than where the manufacturing is done, is the debt to GDP ratio. If the US has 6% growth, whatever it does, then we can grow out of this debt IF we cut spending and neither of those will happen.

The fact is that, sadly or not, the US is being driven into the ground by the far left and that spending is the only weapon they have against capitalism.

If you raise taxes severely then the GDP will fall. If you go green and tax gasoline some 2-3$ per gallon to put it on a par with the EU then small businesses collapse and consumers will howl.

If Fitch or S&P downgrades the AAA rating due to the massive US debt then interest rates will rise and business will be stifled. The ONLY push to the DOW in the past year has been low interest rates.

We have spent too much and do not have the kind of leadership that can revive the economy. WE still have people who want to push ‘affordable housing’ [http://tinyurl.com/2c49qay] and have the banks just forgive a major portion of mortgages given to people with poor credit.

We are heading for high inflation [http://tinyurl.com/yepumqh] and the formation of asset bubbles like the solar systems in Spain. [http://tinyurl.com/ylcujeq]

“The debtor nations are heading down and the only reasonable avenue is default.A reading of two recent books: Ascent of Money by Niall Ferguson’ and the newer book This Time is Different: Eight Centuries of Financial Folly by Carmen M. Reinhart and Kenneth Rogoff show, very clearly, that the vast majority of governments cannot manage finances with any long term competence. They make enormous mistakes as outlined by 1957 book: War and Aftermath 1914-1929 by Pierre Renouvin that offers us a critical but objective scrutiny of the political and military actions of various government agencies starting in the 1890s and leading up to August 1914 where most world stock markets suddenly shut down for months; this history is enlightening. By 1916 most governments had spent all they had and were wildly printing money to fund the Great War. We achieved 51 million deaths out of that adventure and enough hate and discontent to set up the next world war for 31 million more to pay the ultimate price. This is government operating in full bloom and proves that diplomacy can recurrently solve no problems. Failed governments have no discernable history in the political sense.” [http://tinyurl.com/2dt47er]

Debt and defaults are in the future. We have to live with that and may have to move to do so.

[e-mail]

rycK on May 15th, 2010 at 9:52 pm Report comment[...] United States – One of the Biggest Budget Crunches in the World – Telegraph [...]
Site Maintenance and Additional Articles Worth Reading | Rebel Traders - Market Analysis Without The Hype on May 15th, 2010 at 10:02 pm Report commentThere could be naught better than the US Govt going BANKRUPT. THis would eliminate the myriad of Un Constitutional, suckling piglet-Agencies overnite, with the further positive result of not having to go to war to get rid of the mess. Civil war, that is. Alls required is CONgress, President and the Court, not FBI, CIA, IRS and a whole alphabet of corrupt agencies.

The US isnt printing money, its all ledger entries.

2010 US Census ILLEGAL http://second-amendment.tripod.com/d2a

doubtingthomas on May 15th, 2010 at 10:19 pm Report commentThe trouble with liberals is that they eventually run out of other people’s money.

brucealexy on May 15th, 2010 at 10:24 pm Report commentRicki you’re overlooking the obvious. Thye government is running up massive debt because it is spending more than it is taking in in tax revenue. Therefore it must rebuild manufacturing jobs in America (and the UK must do the same) to generate the vast quantities of revenues it did in the late 40s, 50s, 60s. and early 70s.

You can see also in the chart above, that the US debt started to rise again as soon as the Reagan era began, and the mass off shoring of high wage jobs.

This is so simple to understand yet so few can see it.
People should review some old videos of Ross Perot to see how right he was.

The broad tax base, and national debt is mitigated not by a few billionaire plutocrats, but by millions and millions of ordinary people orking hard, earning a decent living wage and paying their share of income tax. not the minimum wage burger flipping nation that the black box phony bond swindling hedge fund fraudsters have created. It has crashed and burned, as has the entire globalization project.

Time to bring the jobs, and the real treasure of the western world home, and take it back from communist china.

debunker on May 15th, 2010 at 11:03 pm Report comment[...] This article from the Telegraph summarizes the dreary conclusions of an IMF report which says, contrary to Alfred E. Krugman, the United States faces one of the most daunting fiscal crunches in the years ahead. [...]
Streetwise Professor » Further My Last: The IMF Calls BS on Alfred E. Krugman on May 15th, 2010 at 11:19 pm Report commentThis is no problem! The obamanation will just print more money. This is hope and change baby.

lel2007 on May 15th, 2010 at 11:50 pm Report commentThe problem is with the currency because funny money is no laughing matter. As long as bank loans are little more than numbers on paper and banks are allowed to collect payments on loans they mostly never made, no one will have any financial peace, including the banks. The imposing facade of our Federal Reserve headquarters is the merest stage prop and behind it is nothing but air and shadows, because the Fed deals in what they cleverly call an expandable currency, which simply means that whatever real value it has, which isn’t much, can be made to seem like more or less at will, a sort of dream-pantomime that turns into a hideous nightmare every time. Those who collect the loan repayments get very rich, and those who take out the loans and try to make the payments go bust. A sorry system for a sorry world, and yet it could be a lovely world if all human hearts were fair and generous.

marcusintl on May 16th, 2010 at 2:13 am Report comment[...] [...]
Debt to GDP Ratio to be 100% by 2015 | Republic Now on May 16th, 2010 at 3:23 am Report commentI’m writing this as someone from the USA…

How easily can we “produce” our way out of this? Well, let’s remember that some of our economy is tech. Some of our growth will be there. You can outsource some of it, but you get what you pay for. Someone has mentioned cheap energy and coal, so let’s talk about those:

The wild card in economic analysis is climate change.
The risk is real and we are already seeing some of the consequences. Actic sea ice had been predicted to melt in 2080, then in 2040, and now much sooner depending on which research group you talk to.

(
http://news.bbc.co.uk/2/hi/science/nature/7461707.stm
old link, but gives the years
)

Now, if you know your house will burn down at some point within 10 years, do you wait until afterwards to buy fire insurance? Do you hope someone will sell you fire insurance after the bathroom has caught fire? Do you start remodeling with the most flamable fire-starting tinder material you have? Or remodel with fire-proof/resistant materials?

Coal is tinder. Coal is not an option.

Randomly hoping things will magically get better is not an option unless you are willing to work to make them better. Fund research into making alternative options cost-effective. They aren’t an option yet.

Nuclear is an option.

We need to use it. Our plants are aging and need to be replaced. We need to build more. We need to convince people that the risk from climate disasters is worse. Because it is.

zecka on May 16th, 2010 at 3:32 am Report commentNo matter how much real money people come up with to build their state the way they want the government can just print up fake money and get their way.

Maybe this will help make the danger of fiat money clear.

Imagine you and me are setting across from each other. We create enough money to represent all of the world’s wealth. Each one of us has one SUPER Dollar in front of him.

You own half of everything and so do I.

I’m the government though. I get bribed into creating a Central Bank.

You’re not doing what I want you to be doing so I print up myself eight more SUPER Dollars to manipulate you with.

All of a sudden your SUPER Dollar only represents one tenth of the wealth of the world!

That isn’t the only thing though. You need to get busy and get to work because YOU’VE BEEN STIFFED with the bill for the money I PRINTED UP to get YOU TO DO what I WANTED.

That to me represents what has been happening to the economy, and us, and why so many of our occupations just can’t keep up.

stokeybob on May 16th, 2010 at 4:46 am Report comment[...] isn’t that far off for North America… if you want to see the scary picture, here’ a great article comparing the different counties debts titled: US faces one of biggest budget crunches in world – [...]
US State Governors Speak out | Vancouver Secrets on May 16th, 2010 at 5:15 am Report commentThe only thing that is being busted out is the US Citizen. http://www.cafr1.com Plenty of money.

sdchanman on May 16th, 2010 at 6:13 am Report commentDebunker: how are these rebuilt manufacturers going to make enough money to pay the labor costs in the US? Who will pay more for the same thing just so an American worker can make $20.00 per hour plus benefits when they can buy it cheaper from China?

kmyost on May 16th, 2010 at 6:13 am Report commentkymost, anyone who wants to afford to buy a house. That’s most people. They fortunately are more intelligent than you, and see the bigger picture.

debunker on May 16th, 2010 at 6:48 am Report commentTake a good look at the US debt-to-GDP chart in the article. The ratio of debt bottomed out below below 40% of GDP just after 1980 – which coincides exactly with the steep tax cuts Ronald Reagan enacted soon after assuming office.

Reagan steeply cut tax rates without cutting spending by a like amount. The result was a tripling of the US national debt during his eight years in office. The two Bushes increased the debt more. Only that ‘tax and spend Liberal’, Bill Clinton, actually cut the debt and (temporarily) restore fiscal balance.

From the time Reagan cut taxes, to election of Barack Obama, the US national debt increased by a factor of 11 in nominal terms. The economy grew only 5 times during the same period. For 28 years, under mostly ‘fiscally conservative’ Republican presidents, the debt was allowed to compound at twice the rate of economic growth. Sheer madness.

Obama’s fiscal performance is not encouraging. But the wildly hypocritical profligacy of his Republican predecessors set the stage for the fix the USA now finds itself in.

There can be no doubt: the Reagan boom was a sham based on massive debt. Combined with deregulation and a growing wealth gap, the ‘fiscally conservative’ policies of the Reagan Republicans eventually led straight to economic disaster.

searchlight on May 16th, 2010 at 6:52 am Report comment“However, everything I hear about our troops in Afghanistan fills me with hope. They do seem to have exactly the same dna as those who went to the Falklands or put up with being the “enemy” in NI.”

The British are essentially a warrior nation.

bedfordfalls on May 16th, 2010 at 7:35 am Report comment>Gasp< What is this heresy?

It is not the axis of evil in Paris Brussels and Frankfurt to blame?

Ahhhh……of course – this is someone writing about what they know, not the one track mind of Ambrose Evans Pratchild

markbarber on May 16th, 2010 at 7:45 am Report comment[...] Conway, Economics Editor of the Telegraph, provided excellent insight into the International Monetary Fund’s analysis, Navigating the [...]
Mr. Conservative » The Socialists Have Spent All of Our Money and Much More on May 16th, 2010 at 7:50 am Report comment[...] Read entire article [...]
US Becoming Like Greece? America Has Time, But Not Forever. | Nicolas Minacapelli: An Independent Authentic Conservative Voice on May 16th, 2010 at 8:26 am Report commentI’m sure that the bankers will still be able to pay themselves enormous bonuses despite the terrible fiscal collapse they are engineering for the rest of us.

nimbus on May 16th, 2010 at 8:40 am Report commentThe real question is what is the common man to do? Sell your stocks and buy Gold from the coin pushers? Become a survivalist and stock up on bottled water freeze dried prison rations? What is the end game for the world rulers parading as leaders?

thesavagenation on May 16th, 2010 at 9:41 am Report commentSo….every country in the world is in debt…??

Who are the Lucky Lenders…???

They will be rolling in it, will they not..???
******************************************************

If you owe the bank a million dollars and cannot repay it, you are in trouble. But if you owe the bank a billion dollars and cannot repay it, the bank is in trouble.

joev11 on May 16th, 2010 at 10:06 am Report commentDear Sir,

This is a most excellent diet of economic exegesis and so comforting to know others are in a worse state than ourselves, the States vis-a-vis the Kingdom.

I would also like to congratulate the hoi polloi for the restrained and mature nature of the proceeding discourse, with the usual exceptions of course.

Sir, please in the future would you turn your formidable intelect and forensic analysis in the direction of the Kingdom’s external debt, more than a trifling sum I do hear.

Your humble servant…

onmybike on May 16th, 2010 at 11:05 am Report comment[...] and guess who will be buying those up. If we look at the figure of the IMF in this report US faces one of biggest budget crunches in world – IMF – Telegraph Blogs then we clearly see that the 2 countries that are in the biggest crapper are the 2 countries that [...]
Euro/Eurozone viability - Page 2 on May 16th, 2010 at 11:05 am Report commentA worldwide re-structuring of debt is on the way.Bond holders will take a 30% haircut.Within 6 mos.U.S. municipal bonds issued by state and local governments will be guaranteed by the Fed,much like the Greece Bailout.Austerity in America will include the shrinking of the military and base closures in secure parts of the world such as Japan and Germany.Private health insurance companies will disappear and government will pay and regulate prices of procedures.A VAT tax will be coming to the U.S. in 2011 or 2112.Companies dodging taxes by locating HQ in low tax countries will pay large tariffs to the countries in which they do business.Expect a coalition of the worlds central banks possibly going to one worldwide reserve currency.Big changes are coming.buy gold/silver this is the worlds oldest reserve currency and the best bet to preserve what you have.Although this could backfire as well if the gold price is pegged to a worldwide currency.I’ve heard $1,000/oz. thrown around.Google revalue gold,interesting.

bondageguy on May 16th, 2010 at 12:28 pm Report commentI’m American in my 60’s. I watched this whole thing develop. It’s obvious to me that we (all the formerly industrialized nations) have been led down the rosy path to ruin by the money lenders and their agents the politicians. It’s an age old story: you engineer a situation so a person must borrow to live. With a little time and compound interest, that person (entity) is no longer a free person. He/it is controlled by debt. He is a slave, if you will. As Edmund Rothschild said “let me control a nation’s money and I care not who makes the laws.” At the other end of the spectrum, the song “Sixteen Tons” by Tennessee Ernie Ford tells the story.

Conway is only looking at one side of the coin: the debt side. The other side is that someone has a receivable of exactly the same amount – only much better because it earns interest! 5% interest will double the principle in 14 years. As bad as things are, they’re going to be twice as bad in 14 years, give or take whatever extra we can come up with to keep the game going. The score now is 99 – 0 and we’re playing to 100.

I remember back in the 1960’s, when the Johnson administration began the borrowing binge that led to the present topic, the public was very unhappy about it. The popular slogan put out by the politicos to rub the people’s bellies and put them to sleep was “we just owe it to ourselves.” Oh, we do, do we? Well, it we just owe it to ourselves, why don’t we just pay ourselves? Why is only the liability side of the transaction talked about and never the asset side? Obviously, it is not a “we” situation. As George Carlin said, “it’s a big club, but you’re not in it.”

The tragedy that faces all mankind is that it was all a great deception. The money lenders contributed nothing – and in exchange received everything. The debt we are drowning in is simply an entry on a ledger. It’s the perfect crime because not only did they steal everything, people willingly work to pay them back (so they actually stole it twice), and pay compound interest. Good work, if you can get it.

carmudgeon on May 16th, 2010 at 1:01 pm Report commentConcerns about public financing in the USA?

The USA has a puny tax per capita of 8.6k?
Social services are totally lacking.
Corporate welfare in the health care industry.

America’s problems are nothing that a snap of the fingers wouldn’t solve.

Roll tax cuts back to the Clinton/Reagan era.
Increase cap gains taxes.
Reform health care and the Pharma industry.
Cut defense spending.

The USA has an incredible amount of wriggle room precisely because it is a low tax, low social spending area. I know the hawks at the IMF must be eyeing social services cuts but they should look at those projections and realize they imply an increase to 30% of GDP for health care.

danasta on May 16th, 2010 at 4:07 pm Report comment[...] US faces one of biggest budget crunches in world [...]
Right-Wing Links (May 16, 2010) on May 16th, 2010 at 4:13 pm Report commentA number of posters have asked who the creditors are in this global debt orgy. They are you. They are your pension funds. Your social security systems. Your ‘Low Risk’ mutual funds and unit trusts. To an extent they are also net exporters like China and the Gulf Petro-states.

When these bond holders take a haircut or lose everything, there will be hell to pay. For example, the US social security system has been taking in more cash from the baby-boomers than it has paid out every year since it was founded. Unfortunately, the US Government has, over the years, taken every penny of this money and replaced it with IOU’s in the form of US Treasuries.

Now, when the Babyboomers come to retire and start drawing on that Social Security pot, all they have is a promise from future taxpayers to pay interest on those treasuries. If the US Govt defaults or inflates away the value of those treasuries…it’ll get ugly.

Here is a must watch video on the true nature of the situation the US is in. It’s nearly an hour long, but addresses most of the key points.

Some highlights:

1. If the US took 100% of all it’s citizens income this year in tax, it would still run a deficit.

2. If the US cut 100% of all government expenditure excepting only Social Security, Medicare and Medicaid, it would still run a deficit.

http://www.youtube.com/watch?v=eb1n1X0Oqdw&feature=player_embedded

francis on May 16th, 2010 at 4:48 pm Report comment[...] be violently sucked in. Consider what it might be like facing the sort of numbers outlined in Edmund Conway’s review of the IMF’s recent cross-country Fiscal Monitor [...]
On the Pensioning of Roman Veterans | Finance Blog on May 16th, 2010 at 6:32 pm Report comment[...] be violently sucked in. Consider what it might be like facing the sort of numbers outlined in Edmund Conway’s review of the IMF’s recent cross-country Fiscal Monitor [...]
On the Pensioning of Roman Veterans | Stocks! on May 16th, 2010 at 7:21 pm Report commentThe left hand axis on the first graph runs from 0-120. On the second it goes from 0-250. Since both graphs are supposed to show the same thing, debt as a percentage of GDP for the two countries, shouldn’t they be the same?

williamy on May 16th, 2010 at 9:16 pm Report commentGreetings from America! LMFAO! Our news outlets here don’t report much regarding our financial crisis here. When they do report anything, they lie and what I call, “sugar coat the poison.” FACT:Everyday, 7,000 American “Baby Boomers” are now on Social Securty, Medicare, and Medicare Rx Drug coverage! Foreclosures are getting much much worse. Some people are just “squatting” in thier homes or other homes! Sadly, I need to go on other news sites around the world to get the facts. Try this website: wwww.usdebtclock.org

gary4452003 on May 16th, 2010 at 10:22 pm Report commentThe English would expand themselves to death, the Germans would arm themselves to death, and the Americans would loan themselves to death.

Author unknown.

makan on May 17th, 2010 at 3:31 am Report commentdebunker; They are going to pay more for things so they can afford to buy a house? That does not make sense, big or small picture.