FedUpUSA

Archive for the ‘GDP’ Category

Sometimes it isn’t necessary to quote facts and figures about government debt, unemployment and the trade deficit in order to convey how badly America is decaying.  The truth is that millions of Americans can watch America rotting right in front of their eyes by stepping out on their front porches.  Record numbers of homes have been foreclosed on and in some of the most run down cities as many as a third of all houses have been abandoned.  Unemployment remains at depressingly high levels and the number of Americans on food stamps continues to set new records month after month.  Due to severe budget cuts, class sizes are exploding and school programs are being eliminated.  In some areas of the U.S. schools are even going to four day weeks.  With little to no funding available, bridges are crumbling and street lights are being turned off in many communities.  In some areas, asphalt roads are actually being ground up and turned back into gravel roads because they are less expensive to maintain.  There aren’t even as many police available to patrol America’s decaying cities because budget problems have forced local communities across the U.S. to lay off tens of thousands of officers.

Once upon a time, the American people worked feverishly to construct beautiful, shining communities from coast to coast.  But now we get to watch those communities literally crumble and decay in slow motion.  Nothing lasts forever, but for those of us who truly love America it is an incredibly sad thing to witness what is now happening to the great nation that our forefathers built.

The following are 18 signs that America is rotting right in front of our eyes….

1 – Due to extreme budget cuts, school systems across the United States are requiring their students to bring more supplies with them than ever this year.  In Moody, Alabama elementary school students are being told to bring paper towels, garbage bags and liquid soap with them to school.  At Pauoa Elementary School in Honolulu, Hawaii all students are being required to show up with a four-pack of toilet paper.

2 – According to the American Association of School Administrators, 48 percent of all U.S. school districts are reporting budget cuts of 10 percent or less for the upcoming school year, and 30 percent of all U.S. school districts are reporting cuts of 11 to 25 percent.

3 – In Chicago, drastic budget cuts could result in an average class size of 37 students. 

4 – The governor of Hawaii has completely shut down that state’s schools on Fridays - moving teachers and students to a four day week.

5 – According to the Federal Highway Administration, approximately a third of America’s major roadways are already in substandard condition.

6 – All over the United States, asphalt roads are being ground up and are being replaced with gravel because it is cheaper to maintain.  The state of South Dakota has transformed over 100 miles of asphalt road into gravel over the past year, and 38 out of the 83 counties in the state of Michigan have now turned some of their asphalt roads into gravel roads.

7 – According to the U.S. Department of Transportation, more than 25 percent of America’s nearly 600,000 bridges need significant repairs or are burdened with more traffic than they were designed to carry.

8 – In a desperate attempt to save money, the city of Colorado Springs turned off a third of its streetlights and put its police helicopters up for auction.

9 – The state of Arizona has eliminated funding for full-day kindergarten and has shut down a number of state parks.

10 – Over the past year, approximately 100 of New York’s state parks and historic sites have had to cut services and reduce hours.

11 - In Georgia, the county of Clayton recently eliminated its entire public bus system in order to save 8 million dollars.

12 – Elsewhere in Georgia, 30,000 people recently turned out to pick up only 13,000 applications for government-subsidized housing.   A near-riot ensued and 62 people were left injured.  The amazing thing is that all of this commotion was just to get on a waiting list.  There are no aid vouchers even available at this time.

13- In the city of Philadelphia, rolling fire station “brown outs” recently cost a 12 year old autistic boy named Frank Marasco his life.

14- Oakland, California Police Chief Anthony Batts says that due to severe budget cuts there are a number of crimes that his department will simply not be able to respond to any longer.  The crimes that the Oakland police will no longer be responding to include grand theft, burglary, car wrecks, identity theft and vandalism.

15- The sheriff’s department in Ashtabula County, Ohio has been slashed from 112 to 49 deputies, and there is now just one vehicle remaining to patrol all 720 square miles of the county.

16 – Of 315 municipalities the New Jersey State Policemen’s union recently canvassed, more than half indicated that they were planning to lay off police officers.

17 – Not that the criminals are doing that much better.  Things have gotten so bad in Camden, New Jersey that not even the drug dealers are spending their money anymore.

18 – Almost everyone knows someone who has been severely impacted by this economic downturn.  A new Rasmussen Reports national telephone survey has found that 81 percent of American adults know someone who is out of work and looking for a job.

So can’t the states just step up and start spending more money and fix these things? 

Well, no.  The truth is that the states are absolutely broke.  Quite a few of the states are actually on the verge of default, and there is no getting around the fact that budget cuts that are much more severe are going to be required in the years ahead. 

So can’t the U.S. government step in and bail out the states?  

Well, yes, but as we have detailed previously, the U.S. government is literally drowning in a sea of red ink.  The U.S. government is already spending an amount of money equivalent to approximately 25.4 percent of GDP this year.

How much more money can the U.S. government possibly spend?

To get an idea of just how bad things are already, the IMF says that in order to fix the U.S. government budget deficit, taxes need to be doubled on every single U.S. citizen.

Are you ready to pay double the taxes?

No matter how you slice it, the U.S. is in a massive amount of financial trouble and the American people are starting to realize this fact.  In fact, one new poll found that nearly two-thirds of Americans believe that the U.S. economy will get worse before it gets better.

But unfortunately things are not going to get “better” – at least in the long-term.  The decay and the rot that have already set in are only going to get worse. 

These problems did not appear overnight and they are not going to be solved overnight.  Our leaders have been making very bad decisions for decades, and all of those bad decisions are starting to catch up with us.

The Economic Collapse

Let’s get real. The U.S. is bankrupt. Neither spending more nor taxing less will help the country pay its bills.

What it can and must do is radically simplify its tax, health-care, retirement and financial systems, each of which is a complete mess. But this is the good news. It means they can each be redesigned to achieve their legitimate purposes at much lower cost and, in the process, revitalize the economy.

Last month, the International Monetary Fund released its annual review of U.S. economic policy. Its summary contained these bland words about U.S. fiscal policy: “Directors welcomed the authorities’ commitment to fiscal stabilization, but noted that a larger than budgeted adjustment would be required to stabilize debt-to-GDP.”

But delve deeper, and you will find that the IMF has effectively pronounced the U.S. bankrupt. Section 6 of the July 2010 Selected Issues Paper says: “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It adds that “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”

The fiscal gap is the value today (the present value) of the difference between projected spending (including servicing official debt) and projected revenue in all future years.

Double Our Taxes

To put 14 percent of gross domestic product in perspective, current federal revenue totals 14.9 percent of GDP. So the IMF is saying that closing the U.S. fiscal gap, from the revenue side, requires, roughly speaking, an immediate and permanent doubling of our personal-income, corporate and federal taxes as well as the payroll levy set down in the Federal Insurance Contribution Act.

Such a tax hike would leave the U.S. running a surplus equal to 5 percent of GDP this year, rather than a 9 percent deficit. So the IMF is really saying the U.S. needs to run a huge surplus now and for many years to come to pay for the spending that is scheduled. It’s also saying the longer the country waits to make tough fiscal adjustments, the more painful they will be.

Is the IMF bonkers?

No. It has done its homework. So has the Congressional Budget Office whose Long-Term Budget Outlook, released in June, shows an even larger problem.

‘Unofficial’ Liabilities

Based on the CBO’s data, I calculate a fiscal gap of $202 trillion, which is more than 15 times the official debt. This gargantuan discrepancy between our “official” debt and our actual net indebtedness isn’t surprising. It reflects what economists call the labeling problem. Congress has been very careful over the years to label most of its liabilities “unofficial” to keep them off the books and far in the future.

For example, our Social Security FICA contributions are called taxes and our future Social Security benefits are called transfer payments. The government could equally well have labeled our contributions “loans” and called our future benefits “repayment of these loans less an old age tax,” with the old age tax making up for any difference between the benefits promised and principal plus interest on the contributions.

The fiscal gap isn’t affected by fiscal labeling. It’s the only theoretically correct measure of our long-run fiscal condition because it considers all spending, no matter how labeled, and incorporates long-term and short-term policy.

$4 Trillion Bill

How can the fiscal gap be so enormous?

Simple. We have 78 million baby boomers who, when fully retired, will collect benefits from Social Security, Medicare, and Medicaid that, on average, exceed per-capita GDP. The annual costs of these entitlements will total about $4 trillion in today’s dollars. Yes, our economy will be bigger in 20 years, but not big enough to handle this size load year after year.

This is what happens when you run a massive Ponzi scheme for six decades straight, taking ever larger resources from the young and giving them to the old while promising the young their eventual turn at passing the generational buck.

Herb Stein, chairman of the Council of Economic Advisers under U.S. President Richard Nixon, coined an oft-repeated phrase: “Something that can’t go on, will stop.” True enough. Uncle Sam’s Ponzi scheme will stop. But it will stop too late.

And it will stop in a very nasty manner. The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills.

Worse Than Greece

Most likely we will see a combination of all three responses with dramatic increases in poverty, tax, interest rates and consumer prices. This is an awful, downhill road to follow, but it’s the one we are on. And bond traders will kick us miles down our road once they wake up and realize the U.S. is in worse fiscal shape than Greece.

Some doctrinaire Keynesian economists would say any stimulus over the next few years won’t affect our ability to deal with deficits in the long run.

This is wrong as a simple matter of arithmetic. The fiscal gap is the government’s credit-card bill and each year’s 14 percent of GDP is the interest on that bill. If it doesn’t pay this year’s interest, it will be added to the balance.

Demand-siders say forgoing this year’s 14 percent fiscal tightening, and spending even more, will pay for itself, in present value, by expanding the economy and tax revenue.

My reaction? Get real, or go hang out with equally deluded supply-siders. Our country is broke and can no longer afford no- pain, all-gain “solutions.”

(Laurence J. Kotlikoff is a professor of economics at Boston University and author of “Jimmy Stewart Is Dead: Ending the World’s Ongoing Financial Plague with Limited Purpose Banking.” The opinions expressed are his own.)

To contact the writer of this column: Laurence Kotlikoff at kotlikoff@bu.edu

Bloomberg

The revisions to GDP published this morning have turned to disgustingly nasty one of my favorite charts.  Specifically, this one:

You’ve all seen this a dozen times.  Well, here’s what it looks like with the revised GDP numbers “corrected” in the Excel file:

“Holy Sheeit” doesn’t even begin to describe this.

These are not small changes, but they also mark the desperation of our government to avoid recognition of even a tiny, 2% annualized decrease in GDP!

That’s right folks – “as-reported”, the maximum y/o/y “depression” that garnered the title “Great Recession” was a minuscule 2% decrease in REPORTED nominal GDP.

But look at the policy response.  Oh, and that last dot – it’s estimated, based on the 2Q preliminary GDP numbers (which are almost-certainly too “hot” and the debt numbers (almost-certainly too “cold”.)

In addition the revisions make clear that there was in fact a zero real growth rate in 2006!  There was your warning…. and likely why we had the nice little dump in the market starting in the early part of 2007.

(Revisions only go back to the e/o/y 2006 numbers.)

If you look to the 2003-2007 period for a clue as to how our government will respond, you’re in for a stunner – there will be no material decrease in deficits while economic “recovery” on a nominal scale will be unlikely to go beyond 4% on a reported basis.

At this rate we’re gonna be Greece – and sooner than you think.

Ponzi Ponzi Ponzi!

The Market-Ticker

Ludwig the II of Bavaria is rarely discussed in history class but most would recognize many of his castles especially the one that is replicated in Disneyland (Neuschwanstein Castle).  Ludwig spent money he didn’t have to indulge in his eccentric desire to build opulent castles.  Even wealthy royalty can put their balance sheet into jeopardy if they indulge every whim and wish.  The banking sector for the last decade has allowed many Americans to satisfy nearly every consumer desire they had.  Boats, cars, vacations, clothing, recliners, Jacuzzis, or anything else you can imagine.  Some took this to the extreme and created a massive market that demanded bigger and more extravagant homes even though average Americans were not getting wealthier or earning more money.  How this was accomplished was by allowing massive amounts of debt to accumulate until a crisis imploded the economy.  The credit bubble bursting has forced many into a new life of austerity.  No more Sleeping Beauty castles.

On a GDP percent basis the U.S. isn’t the worst offender but we are up there on the list.  The above list spans out to 2003 (and it only got worse until 2007) and you can already see what big amounts of household debt will do.  Take for example Iceland or Portugal that are now facing major headwinds ahead.  A country cannot go into massive amounts of debt and expect to have a sustainable economy for years moving forward.  It is a short term indulgence that masks deeper rooted problems.  The middle class in America were allowed to think they were all dukes and countesses but when the crisis hit, the banks retreated to protecting only their kings on Wall Street.  This was an economy built on a fairytale.

Part of this naïve belief was pushed by Wall Street and D.C. propaganda.  For decades the idea was that you can spend more than you earn.  This came all the way from the top so it shouldn’t be a surprise that many in the middle class took their signal from their leaders.  What happened?

Source:  Lew Rockwell

The personal savings rate went so low that it went from the double digits in the early 1980s and actually hit a negative percentage not too long ago.  At the same time, the amount of household debt went off the charts.  It is hard to remember that there was a time in our history when debt was actually something to be handled with caution.  In the last decade, the careless risk taking banks did with debt created a massive housing bubble but also created bubbles in the auto industry, student loan market, and other areas that were financed induced.  Industries where banks are heavily involved have somehow turned out to harm the working and middle class of the country.

Many financed their lifestyles through credit cards:

We have dropped from the peak of nearly $1 trillion in credit card debt down to approximately $850 billion in credit card debt.  Yet this contraction didn’t happen because people started paying down debts.  This has occurred through bank write-downs and many of the bailed out banks constricting access to credit cards to the American public.  In a way, this is what should have been done decades ago.  But what is troubling is that banks used this as an excuse and reason for receiving trillions of dollars in U.S. taxpayer money.  The bailout funds were to keep lending going so people could use the funds to live in their debt fantasy.  Well that fantasy has ended for the middle class but banks can continue on pretending and living in their fairytale world where taxpayer money and bailouts are somehow congruent with a free market.  Retail spending has contracted because people no longer have access to the amount of debt that was available only a few years ago.

If you want to see the new royalty in America, just look at the below:

Source:  Institute for Policy Studies

I’ve talked about the distribution of wealth in the U.S. in many articles but the above shows a solid plutocracy is already here.  Wealth is the key issue.  As many people are now finding out simply having a massive home with a jumbo mortgage and a leased foreign car is no sign of wealth.  In fact, that can be taken from you quickly (and it is by the number of foreclosures and repossessions we are witnessing).  But true wealth is actually owning the stock, or share of ownership in companies in the U.S.

“The above chart shows that half of all stock wealth is concentrated with the top 1 percent.  In fact, over 90 percent of Americans in the lower rungs own roughly 9 percent of all the stock wealth.  This is why the stock market is largely a game for the rich and jobs are largely a game for the rest of us.”

We are at a major crossroads for the U.S.  If action isn’t taken soon this massive inequality will dig deeper and the middle class will lose more and more people as the economy knocks people off the treadmill.  If we follow the money, our government, Democrat or Republican is largely bought out by the Wall Street cause.  Money is shifted to the least productive sector of finance at the expense of building real tangible assets that help the majority.  The real fairytale going on today is believing that our government and Wall Street are looking out for the economic good of the entire country.  Ask the 40 million people on food assistance how things are going.  Ask the over 15 million Americans with no job how the economy is progressing.  Let us ask the millions that are being foreclosed on how solid growth is.  For big banks, all is well and this is reflected by their billion dollar profits since they are stealing from taxpayers and gambling on Wall Street.  Not even a Disney fantasy is this outlandish.

My Budget360

By Karl Denninger

Keep up the lying, legislators, about how it’s all “those other guys” fault…..

Yesterday gave me the opportunity to update this chart with an extrapolated forward number for this year through the first six months.

Yeah, tell me it’s all the Republicans’ fault.  Or all the Democrats’.

Nonsense.

Our government refuses to deal with the facts – there is no recovery in the private economy, there has been no recovery, private final demand collapsed in 2008 and has not come back one iota and the Feral Government is LYING – on both sides of the aisle.

You want a stock market crash and economic collapse Mr. Grayson?  Mr. Reid?  Ms. Pelosi?  Mr. McCain?  Mr. Hoyer?  Mr. Issa?  Mr/Ms (Pick a name)?

You’re going to get one and the longer you keep this crap up the worse it’s going to be.

Want to argue with me?  Go ahead and try – argue with the math.  I double-dog-dare you.  Tell me how we can keep doing what we’re doing, and for how long.  How long we can borrow and spend 10, 11, 12% of GDP on an annual basis before those who fund our national credit card say this:

Are you in Congress and the White House so damned arrogant as to think that this can’t or won’t happen?  What are you going to threaten people with?  6,000 nuclear weapons?  For what?  Refusing to fund an ever-spiraling higher Ponzi Scheme?  For how long will that game work?  Can such a threat be effective beyond the mathematical limits of capacity, even if the leaders of said nations want to continue doing so? 

No.

Here’s reality folks: We’ve written checks for 30 years with our political mouths we cannot cash with our producing fingers.  We’ve papered over this with fraud in virtually every nook and cranny of public and private life.  We have allowed producers to depart for lands where effective slavery exists for labor, refusing to enact parity tariffs to put a stop to it.  We have allowed blatant and outrageous theft of our producers’ intellectual property and conferred upon these nations “most-favored nation” trading status.  We have blown serial bubbles in the stock and housing markets and would love to blow another one in “carbon trading”, but all three were and are frauds without foundation in reality – or sustainability. 

Jeff Immelt, GE’s Chief Executive, came out today against the Chinese – and Obama:

He warned that the world’s largest manufacturing company was exploring better prospects elsewhere in resource-rich countries, which did not want to be “colonised” by Chinese investors. “I really worry about China,” Mr Immelt told an audience of top Italian executives in Rome, accusing the Chinese government of becoming increasingly protectionist. “I am not sure that in the end they want any of us to win, or any of us to be successful.”

Of course they don’t.  You slept with Satan and you woke up with a sore butt.  Who’s fault is this, exactly?  A government that’s communist, a workforce that operates under effective slave conditions, a population that has license to steal anything intellectual from anyone without recourse or the rule of law, indeed, a government that has stolen military secrets and warhead designs – when they couldn’t just buy them (as they did during Clinton’s term.)  Suddenly Mr. Immelt shows outrage and shock when the snake does what a snake does – and it was very visibly a snake before he got involved over there? 

Who’s responsible for intentionally sticking one’s hand on a lit BBQ?

There is no “lack of clarity” in the economy.  What has been done is transparent to anyone who cares to look.  The Federal Debt picture is published each and every day and it is clear, convincing, and irrefutable.  The same bluff was run in both Iceland and Greece, and got called twice by the market.  Europe has recognized this and has pledged to stop playing Ponzi (whether they’ll actually do it until cities burn at the hand of angry mobs is another matter, but at least they’re claiming intent.)  We, on the other hand, keep pressing for more and more Ponzi.

I don’t care if people want to talk about austerity – and implement it – or not.  I don’t care if people want cradle-to-grave medical care with the “best” we can offer.  I don’t care if people want to be able to have $100/month cell phones while unemployed, or 99 weeks of unemployment so they don’t have to save for their own tough times, or $40,000 annual tuition and fee costs at universities to learn about “woman’s studies” or “primary education.”

None of what I want, you want, or the government wants has a thing to do with the mathematics of the situation we have before us today and the instabilities we built into the economy over the last 30 years.

In 2000 we had to accept a 10% contraction in GDP, along with a reduction in debt levels in the system to 150-175% of GDP, to get back to some reasonable resemblance of parity.

In 2007 the contraction we had to accept was 20%.

Today, it’s approaching forty percent, and the commensurate reduction in debt in the system – in total - is about 60%.

This means the federal government must shrink in size by that same 60%.

As I said a couple of weeks ago, get the BBQ sauce and pick several sacred cows, because we must size the Federal Government to roughly 15% of a $10 trillion economy, or $1.5 trillion in total.  Here’s the pie chart you need to reduce by sixty percent:

Go ahead and tell me how you’re going to do it.  Or tell me, if you wish, that you’re NOT going to do it, and then extrapolate to how long our creditors will permit that situation to persist, because it is not under our control – it is under theirs.

We are in the beginning stages of a global asset market collapse.

When did the stock market take off?  At the same time the debt Ponzi took off.  The debt Ponzi is now collapsing.  What’s going to keep the stock market from losing all of the “gains” it put on during those years?  Yes, all the way back to early 1980s levels.

Go ahead – make the case that it won’t happen when the leverage capacity disappears – and it is disappearing.  The “establishment” folks know damn well this is in the cards, which is why they’re scrambling to lie, lie and lie some more lest you figure it out and hold them to account.  They’re well-aware that while most of the time the “elites” manage to do just fine there are historical exceptions when extreme imbalances are cranked too far and the arrogance of the elites continues beyond all reason.  Hold a seance and ask Marie Antionette’s ghost about the consequences of such actions and how quickly they can appear.

What you saw in 2008 was the opening act.  2009 and early 2010 was the intermission – the eye of the hurricane when everyone came outside and marveled at the pretty blue sky.

The back half of this Cat 5 storm is far worse as instead of an offshore wind this time we’ll get the onshore wind and a 30′ high storm surge. The wind is starting to pick up.

We either act right now or our choices will be made for us.

Now go watch the pretty Fireworks over the 4th of July weekend – and consider what it’s going to feel like when those start going off in your face in the coming weeks and months.

“Here it comes”

The Market-Ticker

By Karl Denninger