U.S. NATIONAL DEBT CLOCK OVERWOUND?

The ridiculously large dollar amount above is an up-to-the-minute count of national debt that must be periodically refinanced by the U.S. Treasury (debt clock courtesy of Ed Hall).

U.S. 2009 gross domestic product was $14T, which means that our debt is more than the value of all of the goods and services that we produced in 2009, putting the U.S. behind only Japan of the large industrialized nations in debt as a percentage of GDP.

It will cost us, as a nation, about $500B in the 2009 fiscal year to meet the obligations of this debt.

Currently, the U.S. population is about 350M and the per capita share of our national debt is about $35,000. The per capita share of the annual interest payment on the debt is about $1,650.

However, not everyone generates tax revenue that the Treasury can use to help maintain the debt burden. Based on 2004 data, there are 131 million tax filers, of whom 43 million owed no tax. At current levels, our national debt is over $120,000 per taxpayer and the annual interest payments are $5,700 per taxpayer.

Of course, this $5,700 excludes expenses for things like social security, medicare, infrastructure, national defense, etc. (click here for a graph), which explains why the Congressional Budget Office forecasts budget deficits of over $430B in each of the next two years, or $1.4T between 2009 and 2013.

Based on the CBO predictions, the federal budget will not be in balance for any of the next ten years, and the total national debt in the year 2018 will be nearly $13T, or about $148,000 per taxpayer (again, using 2004 data), and the interest on that debt will cost each taxpayer about $7,000/year, assuming that the interest rate on Treasury debt does not exceed 4.7%.

However, the CBO is basing these deficit estimates on a projected 5.2% annual growth in nominal GDP, estimates that currently appear to be absurdly rosy. For example, the International Monetary Fund predicts nominal GDP growth for 2008 and 2009 in the U.S. of less than 0.5%. Additionally, Goldman Sachs predicts U.S. GDP to drop 5% in the fourth quarter of 2008 and be flat to slightly down in 2009.

What this means is that, with GDP growth flat to non-existent, the U.S. government engaged in vigorous rounds of Keynsian economic stimulus, and unemployment headed toward 9%, we can expect the U.S. national debt to start climbing at a new, exponential rate. How long this trend can continue before the U.S Treasury starts having problems finding buyers for its debt is anyone's guess.

Finally, it is not clear that the trillions of dollars of stimulus spending and loan guarantees are included in the current debt estimate on which I am basing these calculations, so the actual debt numbers could be up to $7T higher!

P.S.

If the amount of the U.S. debt is distressing to you and you would like to do something about it, you can send a check to the U.S. Government which will be used to reduce the national debt:

Make your check payable to the Bureau of the Public Debt, and in the memo section, notate that it is a Gift to reduce the Debt Held by the Public. Mail your check to:

Attn Dept G
Bureau Of the Public Debt
P. O. Box 2188
Parkersburg, WV 26106-2188

THROW WAGONER OFF THE TRAIN

Kirk Kerkorian (pictured above) had amassed nearly a 10% position in GM, and earned a seat on the board, but GM management blocked Mr. Kerkorian's initiatives (such as a merger with Nissan/Renault) to such an extent that Mr. Kerkorian dumped the entire position at a loss nearly two years ago.

After decades of obstructing the sort of change that Detroit really needed, the management of GM is now in Washington, hat in hand, looking for enough cash to get them through the winter. All I can think is, "I wonder what Mr. Kerkorian would have to say about it?"

I imagine that the first thing he would say is, "Throw the bums out!", referring of course to GM management. The idea that all that GM needs is more cash is absurd. The writing was on the wall as far back as 1973, and again in 1979 when Jimmy Carter was pushing for the kinds of changes that GM is going to have to embrace if they are to prosper. We are talking NEARLY 30 YEARS OF OBFUSCATION AND OBSTRUCTION.

The miracle is that GM has survived this long, which can only be attributed to America's love of American cars, especially the Chevy brand.

However, this love has been long in decline, as Japanese, and now Korean, automakers have really gotten their finger on what the median U.S. car driver in looking for (I can't tell you exactly what it is, but I can tell you that GM doesn't make it).

What did Detroit do in the face of massive market-share loss in the all-important midsize sedan segment? They put all their energies into the next generation of the large-platform SUV segment which had been generating most of their profits. However, in the face of nearly $4 gasoline, and after more than a billion dollars in R&D, GM completely pulled the plug on this project (which, allegedly, was developing an even BIGGER family of SUV's than the current crop of Suburbans and Tahoes).

So, what can or should the U.S. public do in the face of an impending Chapter 11 filing by GM? Some say nothing at all, let GM be controlled by their creditors to reemerge a different company. However, I don't think that GM would emerge on the other side. I believe that the combined weight of market-share loss, loss of public confidence, legacy costs, labor unrest, and the credit crisis would doom GM to implode in absolutely horrendous fashion, bringing down with it a large swath of the U.S. manufacturing sector.

So, if this is true, we probably should craft a plan to inject capital into GM, but the new U.S. administration should have at least one seat on the board and the capital should come in the form of convertible preferred shares (assuming we as a nation are committed to maintaining a domestic auto industry). And, I'm sure the plan would be better received if it came with Rick Wagoner's head on a platter.

Update 12/2/2008

DRIVING FROM DETROIT TO DC? How much clearer can they make it that they just don't get it than by making the announcement that Rick Wagoner will drive a Malibu Hybrid from Detroit to D.C.? Who drives that distance for ONE DAY OF HEARINGS? What, is he going to DRIVE BACK TOO? A quick check on Expedia shows that, by booking as little as one week in advance, Rick could have flown non-stop from Detroit to Washington in coach on Northwest Airlines for $194, including taxes. Detroit to Washington, round-trip, is 1,048 miles; at $0.27/mile, driving will cost him $283.00, never mind the cost of his time. Rick Wagoner costs shareholders of GM $2,833/hour plus benefits, so his decision to spend an extra 14 hours driving is costing the company $39,662 vs. flying non-stop in coach.

TARP, PERP, OR 'WHAT, ME WORRY?'

On October 2nd I observed that the TARP program was unworkable due to the taxpayer guarantee clause, and now Hank Paulson has essentially confessed as much.

About 1/3 of the TARP program is being used to buy preferred equity in U.S. banks in an effort to provide liquidity to these institutions. However, the Treasury could not find a way to guarantee that the taxpayer would not be caught holding the bag if they went ahead and purchased the toxic assets on bank balance sheets (duh), so they are not buying the stuff. And, it is completely unclear what they plan to do with the remaining $500B.

While the legislation is still called "TARP" for "troubled assets", the implementation should be called "PERP" for "preferred equity", or, more appropriately, "WHO THE HELL IS RESPONSIBLE FOR THIS CRAP?" From the look of Hank Paulson above, it seems like he's saying "Don't Blame Me!"

What does this mean? I means that a great big heaping pile of uncertainty has been dumped on the financial markets and that the current administration is doing its best to wriggle, or slither, all the way to January 20th.

Of course the markets, which abhor uncertainty, sold off on the mere announcement that Paulson was to speak. If the banks have to continue to carry their toxic assets on their balance sheets, and if these assets continue to be marked down, what does this mean for their ability to lend? Frankly, it means that they won't lend even if Hank Paulson turns red in the face exhorting them otherwise.

A bad loan, or any other toxic asset on the books, is only a problem when you write it down or write it off. In the mean time, it can happily sit there like a rosy turd and basically do no damage (apart from the stink). If the Treasury can't buy the crap, then nobody else will and there essentially is not a market with which to put a price on these little piles of poo. Therefore, the SEC should place a moratorium on "mark-to-market" accounting practices.

While this isn't going to make the banks balance sheets smell any nicer, it will postpone the day of reckoning and will enable them to put the cash infusions to work in the form of new loans.

If this Administration waits until January 20th to take these steps, Fannie, Freddie, and a whole mess of regional banks are going to fall into receivership and the Fed, the FDIC and the Treasury will be overwhelmed.

--Christian Antalics

OBAMA 2009 or FDR 1933?

My Father astutely observed that he hears echoes of FDR in Obama's speeches. It is an interesting observation in that history may paint G.W. Bush with the same brush as was used to paint Herbert Hoover, and the Obama administration will similarly inherit a nation in the throes of a deep financial crisis.

The following is FDR's first inaugural address, in January 1933. Tell me Obama couldn't make the same address and have it sound pertinent.

President Hoover, Mr. Chief Justice, my friends:

This is a day of national consecration. And I am certain that on this day my fellow Americans expect that on my induction into the Presidency, I will address them with a candor and a decision which the present situation of our people impels.

This is preeminently the time to speak the truth, the whole truth, frankly and boldly. Nor need we shrink from honestly facing conditions in our country today. This great Nation will endure, as it has endured, will revive and will prosper.

So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself -- nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance. In every dark hour of our national life, a leadership of frankness and of vigor has met with that understanding and support of the people themselves which is essential to victory. And I am convinced that you will again give that support to leadership in these critical days.

In such a spirit on my part and on yours we face our common difficulties. They concern, thank God, only material things. Values have shrunk to fantastic levels; taxes have risen; our ability to pay has fallen; government of all kinds is faced by serious curtailment of income; the means of exchange are frozen in the currents of trade; the withered leaves of industrial enterprise lie on every side; farmers find no markets for their produce; and the savings of many years in thousands of families are gone. More important, a host of unemployed citizens face the grim problem of existence, and an equally great number toil with little return. Only a foolish optimist can deny the dark realities of the moment.

And yet our distress comes from no failure of substance. We are stricken by no plague of locusts. Compared with the perils which our forefathers conquered, because they believed and were not afraid, we have still much to be thankful for. Nature still offers her bounty and human efforts have multiplied it. Plenty is at our doorstep, but a generous use of it languishes in the very sight of the supply.

Primarily, this is because the rulers of the exchange of mankind's goods have failed, through their own stubbornness and their own incompetence, have admitted their failure, and have abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men.

True, they have tried. But their efforts have been cast in the pattern of an outworn tradition. Faced by failure of credit, they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence. They only know the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish.

Yes, the money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of that restoration lies in the extent to which we apply social values more noble than mere monetary profit.

Happiness lies not in the mere possession of money; it lies in the joy of achievement, in the thrill of creative effort. The joy, the moral stimulation of work no longer must be forgotten in the mad chase of evanescent profits. These dark days, my friends, will be worth all they cost us if they teach us that our true destiny is not to be ministered unto but to minister to ourselves, to our fellow men.

Recognition of that falsity of material wealth as the standard of success goes hand in hand with the abandonment of the false belief that public office and high political position are to be valued only by the standards of pride of place and personal profit; and there must be an end to a conduct in banking and in business which too often has given to a sacred trust the likeness of callous and selfish wrongdoing. Small wonder that confidence languishes, for it thrives only on honesty, on honor, on the sacredness of obligations, on faithful protection, and on unselfish performance; without them it cannot live.

Restoration calls, however, not for changes in ethics alone. This Nation is asking for action, and action now.

Our greatest primary task is to put people to work. This is no unsolvable problem if we face it wisely and courageously. It can be accomplished in part by direct recruiting by the Government itself, treating the task as we would treat the emergency of a war, but at the same time, through this employment, accomplishing great -- greatly needed projects to stimulate and reorganize the use of our great natural resources.

Hand in hand with that we must frankly recognize the overbalance of population in our industrial centers and, by engaging on a national scale in a redistribution, endeavor to provide a better use of the land for those best fitted for the land.

Yes, the task can be helped by definite efforts to raise the values of agricultural products, and with this the power to purchase the output of our cities. It can be helped by preventing realistically the tragedy of the growing loss through foreclosure of our small homes and our farms. It can be helped by insistence that the Federal, the State, and the local governments act forthwith on the demand that their cost be drastically reduced. It can be helped by the unifying of relief activities which today are often scattered, uneconomical, unequal. It can be helped by national planning for and supervision of all forms of transportation and of communications and other utilities that have a definitely public character. There are many ways in which it can be helped, but it can never be helped by merely talking about it.

We must act. We must act quickly.

And finally, in our progress towards a resumption of work, we require two safeguards against a return of the evils of the old order. There must be a strict supervision of all banking and credits and investments. There must be an end to speculation with other people's money. And there must be provision for an adequate but sound currency.

These, my friends, are the lines of attack. I shall presently urge upon a new Congress in special session detailed measures for their fulfillment, and I shall seek the immediate assistance of the 48 States.

Through this program of action we address ourselves to putting our own national house in order and making income balance outgo. Our international trade relations, though vastly important, are in point of time, and necessity, secondary to the establishment of a sound national economy. I favor, as a practical policy, the putting of first things first. I shall spare no effort to restore world trade by international economic readjustment; but the emergency at home cannot wait on that accomplishment.

The basic thought that guides these specific means of national recovery is not nationally -- narrowly nationalistic. It is the insistence, as a first consideration, upon the interdependence of the various elements in and parts of the United States of America -- a recognition of the old and permanently important manifestation of the American spirit of the pioneer. It is the way to recovery. It is the immediate way. It is the strongest assurance that recovery will endure.

In the field of world policy, I would dedicate this Nation to the policy of the good neighbor: the neighbor who resolutely respects himself and, because he does so, respects the rights of others; the neighbor who respects his obligations and respects the sanctity of his agreements in and with a world of neighbors.

If I read the temper of our people correctly, we now realize, as we have never realized before, our interdependence on each other; that we can not merely take, but we must give as well; that if we are to go forward, we must move as a trained and loyal army willing to sacrifice for the good of a common discipline, because without such discipline no progress can be made, no leadership becomes effective.

We are, I know, ready and willing to submit our lives and our property to such discipline, because it makes possible a leadership which aims at the larger good. This, I propose to offer, pledging that the larger purposes will bind upon us, bind upon us all as a sacred obligation with a unity of duty hitherto evoked only in times of armed strife.

With this pledge taken, I assume unhesitatingly the leadership of this great army of our people dedicated to a disciplined attack upon our common problems.

Action in this image, action to this end is feasible under the form of government which we have inherited from our ancestors. Our Constitution is so simple, so practical that it is possible always to meet extraordinary needs by changes in emphasis and arrangement without loss of essential form. That is why our constitutional system has proved itself the most superbly enduring political mechanism the modern world has ever seen.

It has met every stress of vast expansion of territory, of foreign wars, of bitter internal strife, of world relations. And it is to be hoped that the normal balance of executive and legislative authority may be wholly equal, wholly adequate to meet the unprecedented task before us. But it may be that an unprecedented demand and need for undelayed action may call for temporary departure from that normal balance of public procedure.

I am prepared under my constitutional duty to recommend the measures that a stricken nation in the midst of a stricken world may require. These measures, or such other measures as the Congress may build out of its experience and wisdom, I shall seek, within my constitutional authority, to bring to speedy adoption.

But, in the event that the Congress shall fail to take one of these two courses, in the event that the national emergency is still critical, I shall not evade the clear course of duty that will then confront me. I shall ask the Congress for the one remaining instrument to meet the crisis -- broad Executive power to wage a war against the emergency, as great as the power that would be given to me if we were in fact invaded by a foreign foe.

For the trust reposed in me, I will return the courage and the devotion that befit the time. I can do no less.

We face the arduous days that lie before us in the warm courage of national unity; with the clear consciousness of seeking old and precious moral values; with the clean satisfaction that comes from the stern performance of duty by old and young alike. We aim at the assurance of a rounded, a permanent national life.

We do not distrust the -- the future of essential democracy. The people of the United States have not failed. In their need they have registered a mandate that they want direct, vigorous action. They have asked for discipline and direction under leadership. They have made me the present instrument of their wishes. In the spirit of the gift I take it.

In this dedication -- In this dedication of a Nation, we humbly ask the blessing of God.

May He protect each and every one of us.

May He guide me in the days to come.

History Repeating Itself

Tonight, Barack Obama accepted and John McCain conceded.

This is historic because of the ethnicity of Barack Obama. This is more importantly historic because we are seeing the same sort of transition that occurred between President Hoover and President Roosevelt.

To my Father, who was alive for FDR's "Fireside Speeches", he sees the same leadership in Obama that FDR exhibited when he led our country out of the Great Depression.

I argued that Obama's oratory style is more JFK, but he disagreed with me strongly: Obama's style is FDR. He is a calming yet motivating force that unites us in the common goal of national economic recovery.

I love my Dad and I greatly respect his opinion, and in this case it is no different. While Obama possesses the youth and charisma of JFK, he also possesses the wisdom of FDR.

God Bless America, and may we unite in our efforts to work our way out of our morass.

--Christian Antalics