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And the Debt Bomb Ticks On…

With his approval rating moving up to 50 percent and higher in some polls, the pundits are all agreed. President Obama has turned the corner. He is now the winter-book favorite in 2012.

How, two months after his “shellacking,” did he do it?

First, by taking the wheel from Nancy Pelosi and Harry Reid, cutting a deal to extend the Bush tax cuts, bringing aboard Bill Daley, and separating himself from the demonizers of Sarah Palin and Glenn Beck as moral accomplices in the Tucson massacre.

Second, Obama has been the beneficiary of bullish news.

Corporate profits are coming in higher than expected. The stock market has surged. Nine of 10 economists surveyed by USA Today are more positive about the economy than they were three months ago. The ratio of businesses that anticipate new hires over businesses that anticipate new layoffs has not been better in a decade.

There is a feeling that at last we are coming out of the Great Recession.

But has the debt bomb really been defused?

On Jan. 20, The New York Times had two front-page stories that ought to concentrate the mind.

“A Path is Sought for States to Escape Their Debt Burdens,” was the headline over the first, which reported that bankruptcy lawyers were being consulted by congressional aides on how states like California might go into Chapter 9, “leaving investors in state bonds … possibly ending at the back of the line as unsecured creditors.”

Illinois, the story said, might, with federal help, do what GM did.

But GM bondholders were wiped out, as some of us know all too well.

Should states win the right to seek bankruptcy protection against their state bondholders, the $3 trillion municipal bond market, which has lately been taking hits, could crater.

The second Times story wrote of a rebellion in the House Republican Study Committee by conservatives and Tea Partiers who think the leadership is being too timid in cutting this year’s budget.

Rep. Paul Ryan & Co. want to cut $60 billion to $80 billion. But, says, Mick Mulvaney, a freshman from South Carolina, “We want more.” These conservatives want $100 billion cut from discretionary programs.

Among their ideas: a five-year freeze on federal salaries, a 15 percent cut in federal employees, a rollback to 2006 spending levels, $300 billion in long-term funding cuts from such programs as foreign aid, Amtrak, public broadcasting and the Washington, D.C., subway system.

As the Tea Partiers’ proposed cuts do not touch the military, Medicare, Medicaid, Social Security or interest on the debt, the biggest budget items, slashes in transportation, education, domestic security, law enforcement and medical research, said the Times, “would be nothing short of drastic.”

Undeniably. Yet, consider.

The federal deficit for the fiscal year 2011, which ends Sept. 30, is projected at between $1,200 billion and $1,500 billion.

Thus, the $100 billion in cuts the firebrands are pushing, and few think they will get, add up at best to 8 percent of the deficit and 2.5 percent of the $3.87 trillion budget Obama proposed.

Thus, at best, this Congress will only slightly reduce the rate of speed at which we are heading toward a debt default.

The last few days have brought other news bearing on the debt bomb hanging over the Western world.

The Irish, upon whom austerity has been imposed as a condition of an EU bailout, saw their government fall this weekend. Elections are in March, and the ruling Fianna Fail, at 13 percent approval, is expecting a wipeout.

Will the Irish accept endless austerity, or vote for populists who will default and let EU governments and banks take the hit?

Should Ireland default, she will not be the last to do so.

Also this weekend, the European Central Bank chief warned that inflation in the global economy — the rising prices for oil, food, minerals and precious metals — may mandate a rise in interest rates. That would be bad news for bondholders and governments everywhere, including our deeply indebted states that now borrow to cover operating costs.

Then there is the crisis in the housing market that continues to deepen.

“All previous postwar recoveries,” writes Mort Zuckerman, “have been able to depend on a growing U.S. housing market.”

But 8 million homes are today in foreclosure or their owners are delinquent in their mortgage payments. Some 5.5 million are occupied by families whose mortgages are at least 20 percent higher than the value of the property, making them prime candidates for foreclosure.

This weekend, Bank of America reported fourth-quarter losses of $1.6 billion and a 2010 yearly loss of $3.6 billion. Its credit card unit took a $10 billion write-down, and its home loan business is still reeling from the fallout of the exploded housing bubble.

Now, facing trillion-dollar deficits as far as the eye can see, House Republicans are balking at agreeing to raise the debit limit of $14.3 trillion, though the national debt just crossed the $14 trillion mark.

Are the happy days really here again?

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#1 Comment By Art R On January 25, 2011 @ 11:06 am

For wealthy municipal bond holders and eventually for U.S. T bond holders, I can see 2 scenarios: either lose a substantial part of your bond principal through a default or lose the equivalent through a currency inflation due to the printing of a massive quantity of fiat dollars. Our politicians do not have the intestinal fortitude to impose the draconian fiscal discipline necessary to bring the budget in balance yet alone pay down the debt.

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#3 Comment By Jane Marple On January 25, 2011 @ 1:05 pm

While we’re imposing fiscal discipline, let’s demand that our leaders guide us through example and give up their golden parachute retirement packages and lifetime guaranteed medical care. Let’s do the same with ex-presidents as well. Let them pay for their own bodyguards out of pocket, or if they must have them, tax them for that taxpayer provided service at fair market value.

Whyever should the children of blue collar Americans have to forgo their insulin while a rich war lord (Cheney) gets a fresh heart from a dead 25 yo at taxpayer expense?

Actions speak louder than words: Let those fat cats lead through example.

#4 Comment By Michael_1 On January 25, 2011 @ 8:06 pm

Jane Marple, on January 25th, 2011 at 1:05 pm Said:

“Actions speak louder than words: Let those fat cats lead through example.”

Jane that’s a wishful thinking. They are elites with different rules applying to them. How dare you ask them to take some pain like ordinary Americans!

As an outsider, I say if there is a will there is a way. For example like dismantling of your empire, closing your bases, bringing your troops home, and freeing other nations you are opressing at the moment.

Every time a corrupt despot is thrown out we see USA behind those thieves, keeping them in power. USA is no longer a power for the good, but it’s a power for the evil. Efforts to extend the shelf life of American empire is bankrupting USA, and people of the World say it can not come soon enough.

We can see faboulus amount of money is made by elites out of the empire, while ordinary Americans are going backward. We watched in amasement how USA was hopelessly inadequate in responding to Katrina disaster.

American empire will eventually be dismantled like Soviet Empire of Russians. It won’t be easy and painless. One million people working in security organisations keeping an eye on Americans and the people of the world to protect the empire won’t disappear quietly. They will do everything they know to preserve their life-style while enslaving the rest of us.

Pitty that Americans will suffer with the rest of us until USA becomes a republic again.

We want a strong USA on the side of freedoms and human rights. Hopefully out of the ashes of the empire we’ll see a strong republic ready to stand against other despotic regimes like communist China trying to enslave people.

#5 Comment By Dave On January 26, 2011 @ 8:41 am

Like anyone who would take the time out to read and post here I love what this country stands for. And like everyone, I am distressed by our current problems. It seems to me that the root cause of our problem is greed, either having too much or not having enough. The rap song “Get rich or die trying” sums it up. If we don’t address the root cause, then everything we do is just masking up the cancer much as our medical system is all about addressing the symptoms and not targeting the cause. As our resources dwindle, and populations grow, Utopian ideas become less fancy and more necessary. The alternative is what we have today. We either convince ourselves that yes there are limits to what we really need, or we all agree to conspire among ourselves to see who can grab the most “toys” while the rest of the world burns. We either agree with the basic founding principles and ideals of this country, or squirrel away as much gold and jewels as we can before the barbarians take over.

#6 Comment By Jane Marple On January 26, 2011 @ 12:40 pm

Michael_1 wrote: “As an outsider, I say if there is a will there is a way. For example like dismantling of your empire, closing your bases, bringing your troops home, and freeing other nations you are opressing at the moment.”

Michael, we Americans need to do a “Tunisia” on our “leaders.”

It’s become impossible for honest people to ignore that since our SCOTUS made GWB president and the rise of the neocons, our nation has become a tyranny to its people and to the rest of the world. Ironically, though through the “free” market, we’ve arrived at the same point The Soviet Union was at when she fell: Political, economic and media power are concentrated in the hands of a shrinking “elite,” which plunges the nation into futile military misadventures and pursues economic policies that benefits almost entirely those at the top and leaves the oridinary citizens to more belt-tightening.

Would that our “best” and “brightest” could see how much better it is to be a good republic than a tottering trollope of an empire.

#7 Comment By Jane Marple On January 26, 2011 @ 12:44 pm

Dave wrote: “The rap song “Get rich or die trying” sums it up. If we don’t address the root cause, then everything we do is just masking up the cancer much as our medical system is all about addressing the symptoms and not targeting the cause.”

Soon people will realize that you cannot serve God and serve Mammon. In time even John Hagee and Joel Osteen will understand.

#8 Comment By Insightful Ilias On February 4, 2011 @ 1:21 pm

While greed is one of the 7 deadly sins, it is not the one that is killing the American dream and what America is and formerly stood for.
Gluttony, immaturity and self deception is what is destroying the American dream and America.
We have replaced a society that was based on wide spread and growing general affluence with a society where wealth and powe are becoming more and more concentrated in fewer and fewer hands.
For the last 30 years, America has made a faustian bargain where the neglected 90% of Americans have slowly and steadily had the real incomes lowered while having their credit limits raised.
A double whammy of being poorer but being allowed to be more overindebted to unsustainable amounts.
Nationally we speak of tax cuts while ignoring the fact that taxes have been going up for the last 30 years; while lowering tax rates.
Before Presdident Reagan the national debt was under a trillion dollars.
By the end of his first term, his policies had doubled it.
Before Reagan, American was the world’s greatest global creditor with America owning or being owed of the world more that two trillion than the world owned and was owed by America. By the end of President Reagan’s second term, America had become the world’s biggest global debtor and beholden to foreigners.
America has not had three decades of tax cuts, it has had three decades of paying its taxes by abusing it national credit card.

#9 Comment By Richard Wicks On February 7, 2011 @ 4:51 pm

The debt default is certain now. The national debt has grown ON AVERAGE of 9.4% a year since 1970. You can see this yourself if you take the national debt in 1970

370,918,706,949.93 * (1.094^(2011-1970))
370,918,706,949.93 * (1.094^41)
370,918,706,949.93 * 39.7841608303

14,756,689,492,300

That’s what the debt will be at the END of 2011 – or would be, if 9.4% growth continues. The average yearly debt rate increase has been getting larger in the last decade, but 9.4% will be fine to use, since it’s a lowball estimate.

Now, if the debt ONLY grows at 9.4% we’ll be at

370,918,706,949.93 * (1.094^(2020-1970))
370,918,706,949.93 * 89.3030105419
33,124,157,196,900 by the end of 2020

That’s basically a BEST CASE scenario. That means we need to cut our deficit, reduce the government, etc. to get that conservative number.

But from 2008 to 2009 the national debt grew at 13.86%. I realize that’s an exceptional time and everything, and it’s probably going to not be that high, but I’m going to use it just for illustrative purposes anyhow – the just in case scenario.

Starting from 2009 actual debt of 11,909,829,003,511

11,909,829,003,511 * (1.1386 ^ (2020-2009))
11,909,829,003,511 * 4.16949036154
49,657,917,237,700 by the end of 2020

That’s worst case scenario for the end of 2020. That would be if continue spending at the current rate and borrowing at the same rate. That’s not probably going to happen, but it could happen.

Why aren’t these figured ever published anywhere in media? Can our nation actually go 33 trillion dollars in debt, and still function?

I don’t think so. I was surprised we made it past 10 trillion.

This isn’t all Obama’s fault either. I blame Reagan, he’s the one that made it possible for BOTH parties to spend like there is no tomorrow, and what do you know – there isn’t going to be any tomorrow in less than 20 years.

All we’ve had are a string of lousy presidents, a crappy complicit media, and an ignorant lazy populace. Suffering is said to be a good teacher. Learn well Americans.