Looming financial disaster in the US?

[SteveF]

According to David Walker, director of the General Accounting Office, testifying last week before the Senate Budget Committee:

As widely reported, the $248 billion fiscal year 2006 unified budget deficit was lower than originally forecast and lower than last year's deficit of $318 billion. While this improvement in the 1-year fiscal picture is better than a worsening in that picture, it did not fundamentally change our longterm fiscal outlook. In fact, the U.S. government's total reported liabilities, net social insurance commitments, and other fiscal exposures continue to grow and now total approximately $50 trillion, representing approximately four times the nation's total output, or gross domestic product (GDP) in fiscal year 2006, up from about $20 trillion, or two times GDP in fiscal year 2000.

The overall picture of the long-term fiscal outlook is not news to this committee. However, the long-term challenge is fast becoming a short-term one as the first of the baby boomers become eligible for early retirement under Social Security on January 1, 2008--less than one year--and for Medicare benefits in 2011--less than 4 years from now. The budget and economic implications of the baby boom generation's retirement have already become a factor in Congressional Budget Office's (CBO) 10-year baseline projections and will only intensify as the baby boomers age. Simply put, our nation is on an imprudent and unsustainable fiscal path.

http://www.gao.gov/new.items/d07342t.pdf

I noticed this at:

http://scienceblogs.com/dispatches/2007/01/our_looming_fiscal_disaster.php#more

[Ryokan]

According to David Walker, director of the General Accounting Office, testifying last week before the Senate Budget Committee:

As widely reported, the $248 billion fiscal year 2006 unified budget deficit was lower than originally forecast and lower than last year's deficit of $318 billion. While this improvement in the 1-year fiscal picture is better than a worsening in that picture, it did not fundamentally change our longterm fiscal outlook. In fact, the U.S. government's total reported liabilities, net social insurance commitments, and other fiscal exposures continue to grow and now total approximately $50 trillion, representing approximately four times the nation's total output, or gross domestic product (GDP) in fiscal year 2006, up from about $20 trillion, or two times GDP in fiscal year 2000.

The overall picture of the long-term fiscal outlook is not news to this committee. However, the long-term challenge is fast becoming a short-term one as the first of the baby boomers become eligible for early retirement under Social Security on January 1, 2008--less than one year--and for Medicare benefits in 2011--less than 4 years from now. The budget and economic implications of the baby boom generation's retirement have already become a factor in Congressional Budget Office's (CBO) 10-year baseline projections and will only intensify as the baby boomers age. Simply put, our nation is on an imprudent and unsustainable fiscal path.

http://www.gao.gov/new.items/d07342t.pdf

I noticed this at:

http://scienceblogs.com/dispatches/2007/01/our_looming_fiscal_disaster.php#more
Yep. Not just the US, though, but Japan, Germany, Italy, France, and even China face major pension and health crisis's. Frankly, people are not going to get what their gvoernments promised them.

[Teallaura]

Yep. Not just the US, though, but Japan, Germany, Italy, France, and even China face major pension and health crisis's. Frankly, people are not going to get what their gvoernments promised them.Yeah, they are, in the US at least - but it's gonna hurt the subsequent generations like crazy. Baby Boomers are notoriously selfish and way too numerous to be out voted for years to come. Shy of an outright collapse they'll find a way to rob Peter, Paul and everybody else to make the darn thing work.

Mind you, I'm not advocating - just looking at the political reality of the thing.

[themuzicman]

And the GOP has a long term and sustainable solution that Democrats oppose, because it makes people less dependent upon their government...

Michael

[Meh_Gerbil]

If the government doesn't pay my promised benefits I'm gonna go to a government owned building and rip out the copper plumbing and sell it for scrap until I get my due.

[Pitchforkpat]

And the GOP has a long term and sustainable solution that Democrats oppose, because it makes people less dependent upon their government...
Translation of GOP speak: leaves less fortunate people to eek out an existence with no health care, barely enough food on the table, and many without a roof over their heads, but somehow alleviates the guilt of the rich by pretending that cutting government aid “helps” the poor.

[themuzicman]

Translation of GOP speak: leaves less fortunate people to eek out an existence with no health care, barely enough food on the table, and many without a roof over their heads, but somehow alleviates the guilt of the rich by pretending that cutting government aid “helps” the poor.
Wow... what a strawman.

Actually, I was referring to privatizing social security, such that the poor get more than the paltry 2% return on their SS money, and actually have a FAR more comfortable retirement than they would on SS alone! (THat's right, the poor can't afford to put money into their 401(k) because the government takes their money and gives it to the rich, and promises a paltry return.)

As for health care, I propose that we relieve the rich of the (Democrat created) guarenteed health care plan (called medicare), and limit it to the poor, and then we reintroduce competition into the health care market by taxing health care benefits and providing tax credits for health care organizations who give free care to the poor.

Then the costs of health care will come back down so the average Joe can afford it again, and the poor are given opportunities to get and stay healthy.

Suprise! Democrats are the idiots, here!

Michael

[dizzle]

Funny how murdering millions of children doesn't seem very wise now. I find it ironic.

[themuzicman]

Funny how murdering millions of children doesn't seem very wise now. I find it ironic.
Baby boom Generation (1945-1964): 84 Million

Gen X (1965-1984): 60 million

Babies aborted between 1965 and 1984: 20 million.

Coincidence?

Michael

[semmie'ssister]

Yeah, they are, in the US at least - but it's gonna hurt the subsequent generations like crazy. Baby Boomers are notoriously selfish and way too numerous to be out voted for years to come. Shy of an outright collapse they'll find a way to rob Peter, Paul and everybody else to make the darn thing work.

Mind you, I'm not advocating - just looking at the political reality of the thing.

yeah, that.

[Jimmy Higgins]

Wow... what a strawman.

Actually, I was referring to privatizing social security, such that the poor get more than the paltry 2% return on their SS money, and actually have a FAR more comfortable retirement than they would on SS alone! (THat's right, the poor can't afford to put money into their 401(k) because the government takes their money and gives it to the rich, and promises a paltry return.)How does privatization work better exactly? Higher returns, but what about the hugh new expenses created by the fees of managing these accounts? Some conservatives don't understand that privatization isn't the solution for everything because it's hard to run something for a profit and be cheaper.

As for health care, I propose that we relieve the rich of the (Democrat created) guarenteed health care plan (called medicare), and limit it to the poor, and then we reintroduce competition into the health care market by taxing health care benefits and providing tax credits for health care organizations who give free care to the poor.I'm sorry, is that your idea? Because in the original post, you said Republicans have plans. If that above is your idea, it certainly isn't being fished by Republicans.

More importantly, the key to health care is reducing the direct costs of drugs and treatment, not by making health care companies make premiums lower.

Then the costs of health care will come back down so the average Joe can afford it again, and the poor are given opportunities to get and stay healthy.The simple world of TMM.

[casaba]

Wow... what a strawman.

Actually, I was referring to privatizing social security, such that the poor get more than the paltry 2% return on their SS money, and actually have a FAR more comfortable retirement than they would on SS alone!

I wish that people would stop the fear mongering about Social Security in the US. The program is NOT a savings program; it is a direct tax to keep the elderly out of extreme poverty--and it is one of the most successful programs of its kind! While reducing poverty of the elderly by over 70%, it has a trust fund so big that 10% of its income is interest on savings. It continues to increase its savings and will do so for the next 10 years or so. Assuming no changes in the program, the savings will be used up in between 30 and 40 years. Hardly a program in danger of going bankrupt. The simplest change in program would be to eliminate the cap on social security payments: after paying in around $14K (including employer contribution, equating to salaries over around $100K) people no longer pay the tax. If we eliminate this cap, the program will be solvent indefinitely (or at least however long the models run for, round 60-80 years). The reason conservatives are trying to scare people into thinking that the program is in danger is not to make more money for the program but to make more money for themselves. Imagine billions of dollars suddenly invested in the stock markets--or even gradually invested. The artificial increase in stock values (no actual increase in equity values) will benefit all those who own stock now, i.e. the wealthiest 20% who own the vast majority of stock shares. People, open your eyes, look the nightmare in the eye, and accept that it is exactly that, a figment of our imaginations.

(Sorry for the ranting style but I have been making the same argument since the mid to late 1990's, when the stock market was booming. Funny how the debate disappeared when the stock market fell and is only back now that the stock markets are back to where they were. Social Security is to provide SECURITY, not maximum profit.)

[Cobra]

I think people forget that SS is not just a retirement program. It also pays widows (or widowers) left with young children.

[Telleriab2]

I think people forget that SS is not just a retirement program. It also pays widows (or widowers) left with young children.

Emphasis on young children.

My public school custodian mother was left a widow one month after I turned 18.
We were lucky to get at least one SS check.

[Cobra]

Teller, please accept my sympathies on your loss.

[Telleriab2]

I do. Thank you, Cobra.

[Rubia Warren]

Hey what is all this panic I am reading regarding the subprime mortgage market and foreclosures----- then we end up with a depression?
Weren't subprime mortgages only like 15% of the real estate market or something like that?

Is it this in combination with that Yen thing that people are currently wringing hands about?

[Ryokan]

Hey what is all this panic I am reading regarding the subprime mortgage market and foreclosures----- then we end up with a depression?
Weren't subprime mortgages only like 15% of the real estate market or something like that? Well, most economists don't think it willeven cause a depression, just a slow growth period, but it will put a scare in the whole lending market. Company bankruptcyscare everyone,.

Is it this in combination with that Yen thing that people are currently wringing hands about?
Not really. The YEn thing is happening because Japan's economy actually works again.

[Rubia Warren]

So then what will likely happen is it will just be harder to borrow money, then right? I mean compared to lately.

[Ryokan]

So then what will likely happen is it will just be harder to borrow money, then right? I mean compared to lately.

Yeah. but that effects the whole economy, yah know?

[Rubia Warren]

Yes I know.

[Ryokan]

Yes I know.
It was gonna happen sooner or later. It just sucks for lower income borrowers and their lenders.

[Rubia Warren]

It was gonna happen sooner or later. It just sucks for lower income borrowers and their lenders.
Yeah, kinda. But maybe it will be good in a way in the long run to have bad lenders and bad borrowers plucked from the vine. Perhaps the consequences will encourage a higher income goal or something like that for the lower income rather than a goal of higher consumption, which was a lot of cases.

But now help me understand the Yen thing, see if I am on the right track. Investors have been borrowing Yen because of the lower interest rate and investing it, right? Is it because the rate of return on the investment was a lot higher than the rate of interest charged? So then if they lose money or what they've invested in dips then they pay the money back.... but now the interest rate on borrowing Yen won't be as low because it's getting raised.... am I understanding it right so far? So then what will happen? What will people borrow? (<-- that's not rhetorical). I have read about this in 3 different gloomy articles (to be fair, one wanted to sell me silver and gold so that cancels that out) :hehe: but the other two didn't. But anyway, they suggested that there could be eventually a global depression as a result of the Yen carry trade thing combined with the mortgage part. Now everybody knows I love a good drama, but surely there will be a readjustment period from the housing market cooling off, and the subprime market falling by the wayside, right? This will be uncomfortable, but a depression? What, Ryokan, could cause a global depression in this day and age? What would have to happen?

And will you explain the Yen carry thing to me? Because if speculators or whoever don't do that, won't they just find another currency to borrow?

[Ryokan]

Yeah, kinda. But maybe it will be good in a way in the long run to have bad lenders and bad borrowers plucked from the vine. Perhaps the consequences will encourage a higher income goal or something like that for the lower income rather than a goal of higher consumption, which was a lot of cases. Best case scenario they will save a larger portion of their income. Which would be good for them, for the trade deficit, and the economy in the long run as it would eventually push those rates down again.

But now help me understand the Yen thing, see if I am on the right track. Investors have been borrowing Yen because of the lower interest rate and investing it, right? Is it because the rate of return on the investment was a lot higher than the rate of interest charged? Exactly. Japan had just about a 0% interest rate, so if you thought the exchange rate was going to be alright (the yen doesn't appreciate vs. the currency you take the bond in usually dollars or euros) then you could just buy a bond and print money. So then if they lose money or what they've invested in dips then they pay the money back.... but now the interest rate on borrowing Yen won't be as low because it's getting raised.... am I understanding it right so far? So then what will happen? What will people borrow? (<-- that's not rhetorical). What will they borrow? Its hard to say. For right now, Yen. In the future as rates climb? It depends on what the markets doing. These kind of carry trades tie up alot of money, but there are other ways to invest in the world. It just won't be as easy money. I have read about this in 3 different gloomy articles (to be fair, one wanted to sell me silver and gold so that cancels that out) :hehe: but the other two didn't. But anyway, they suggested that there could be eventually a global depression as a result of the Yen carry trade thing combined with the mortgage part. Now everybody knows I love a good drama, but surely there will be a readjustment period from the housing market cooling off, and the subprime market falling by the wayside, right? It won't be fun. This will be uncomfortable, but a depression? What, Ryokan, could cause a global depression in this day and age? What would have to happen? Well, if China dumped its dollars both of our economies would be wrecked in the short term, especially if Europe and Japan decided to be vindictive rather than look out for their own best interest and bail the dollar out. A major oil shock could do it, but it would have to be very serious, worse than 1973, and longer. A major war in East Asia, if it was protracted and or nuclear. A shock like the yen carry trade subprime melt down thing followed by wanton stupidity on the part of national banks could too, I guess. I think most countries learned their lesson after the Great Depression though. And the stock market has more regulations and fail safe in it, so it won't help feed the beast as much.

And will you explain the Yen carry thing to me? Because if speculators or whoever don't do that, won't they just find another currency to borrow?They will. You've got it dead to rights.

[aardvarkcore]

I think the financial security of the US lies in oil. If countries start trading oil in Euros (as Iraq did before the US army took control as soon as they invaded, don't you love how that works!) it would result in a major problem for the US economy.

[JusticeMachine]

So then what will likely happen is it will just be harder to borrow money, then right? I mean compared to lately.

Not really harder, depending on who you are. The FHA/VA markets are still fine, but they didn't offer the limited doc/no doc "lier loans" that the agency/private investor/jumbo markets offered.

There has been a tightening up of mortgage guidelines, that is all. If you have decent to good credit (660 for conventional & 620 for government) you should still be okay to get a loan, provided you can document you income accurately.

However, the panic and fear is out there, I just dodged the first round (and hopefully the last round) of lay offs at my company. CountryWide laid off a bunch of their originations staff, but they still seem to been in trouble and BofA lent them more money to keep them somewhat liquid.