Even the NYT now worries about debt
posted at 12:14 pm on May 4, 2009 by Ed Morrissey
Over the last four months, the federal government has conducted the most rapid expansion of deficit spending since World War II, and now even the New York Times has stopped pretending that it’s not a problem. Treasury bond yields have started upwards, forcing the US to pay more in interest service, but that’s if we can convince people to buy our debt at all anymore:
The nation’s debt clock is ticking faster than ever — and Wall Street is getting worried.
As the Obama administration racks up an unprecedented spending bill for bank bailouts, Detroit rescues, health care overhauls and stimulus plans, the bond market is starting to push up the cost of trillions of dollars in borrowing for the government.
Last week, the yield on 10-year Treasury notes rose to its highest level since November, briefly touching 3.17 percent, a sign that investors are demanding larger returns on the masses of United States debt being issued to finance an economic recovery.
Instead of solving the underlying problem, the Treasury is instead looking to find more buyers through the same kind of creative financing and derivative impulses Barack Obama decries in almost every speech:
To calm nerves and fill the deficit hole, the government is getting creative. The Treasury is ramping up its auction calendar, holding more frequent sales of government debt and selling the debt in expanded amounts. It is now holding sales of its 30-year bond each month, up from four times annually.
It is also resuscitating previously discontinued bonds, such as the seven-year note and the three-year note, to try to mop up any available money all along the yield curve. There is even talk of issuing billions of dollars of a new 50-year bond, though the idea has not won official approval. …
[T]o keep borrowing costs low, the government is trying to expand the group of firms that bid at Treasury auctions. After the demise of such names as Lehman Brothers, the number of these firms, called primary dealers, has shrunk to 16, the smallest since this elite club was formed decades ago. Now the government is in discussions with smaller firms like Nomura and MF Global to persuade them to join.
Well, that’s hardly unusual. Every Ponzi scheme has to find new suckers, after all, and this one’s no different. The escalating deficits will cost the Ponzi structure, though, in interest payments down the line. Right now, we pay about $172 billion a year to service our debt, or roughly 5% of our annual federal budget. By 2019, we’ll be paying over $800 billion a year in interest alone, or over 20% of our annual federal budget in today’s dollars, according to the CBO.
Why? This chart showing deficit projections over the next decade from the CBO and OMB show the reason investors want better return on their bonds:
And that’s if we can get them to buy it at all. Most Ponzi schemes collapse when the con can’t attract any more suckers. Don’t expect this one to be any different.
Blowback
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Massive cuts in entitlements.
Otis B on May 4, 2009 at 1:47 PM
OK, I am going to make an assertion here based on what I scoured. I don’t have the direct link but from what I found we need at least $500 Billion (that’s billion with a “B”) to fix roads, bridges, electrical lines, rails.
And I don’t see why rail would be a waste. Rail is extremely efficient for carrying cross-country bulk items.
What’s better than Rail for bulk cross-country shipping?
ckoeber on May 4, 2009 at 1:51 PM
For the existing elderly generation or new generation?
I don’t support cutting social security/medicare/medicaid for the existing elederly folk (or people approaching that age) as they planned around it and need it.
For people 45 and under, something can be worked out.
ckoeber on May 4, 2009 at 1:55 PM
How about a massive cut in government?
Tom
marinetbryant on May 4, 2009 at 1:55 PM
Just out of morbid curiosity, how much of this is due to the Obama administration’s ridiculous budget and how much of this is due to the Bush administrations’ ridiculous budget?
watson007 on May 4, 2009 at 1:57 PM
Like what? I say make a clean break with it now.
Otis B on May 4, 2009 at 1:59 PM
How about a massive cut in government?
Tom
marinetbryant on May 4, 2009 at 1:55 PM
ckoeber on May 4, 2009 at 2:00 PM
What difference does it make? I think it has more to do with entitlement thinking than the political machinery anyway.
We the people made this mess. We’ve become a nation of demanding children who want everything given to them.
Otis B on May 4, 2009 at 2:01 PM
The DOE can go, for one – take care of that at the State level.
Otis B on May 4, 2009 at 2:01 PM
Department of Education, that is…
Otis B on May 4, 2009 at 2:02 PM
And replace it with what? Have people manage their own retirement?
I don’t know if that will fly well with most voters, especially the elderly.
Entitlements are tricky. Everyone says let’s cut them until its something that directly affects them.
ckoeber on May 4, 2009 at 2:03 PM
Yes! ABSOLUTELY! I say why not? Why would I want anyone else managing my retirement?
Which is part of the reason why a conservative won’t get elected running on this kind of platform – but you asked, so there you go.
Betcha can’t find one that effects me directly. ‘Cept for all the ones I pay for.
Otis B on May 4, 2009 at 2:05 PM
I 100% agree here. A lot of people don’t know that we spend as much (if not more) on education as a fraction of our GDP as opposed to other countries. Our problem is that the parents are not involved, period. Kids on other countries get ahead with abacuses!
Once the parents and communities are involved education will fix itself, independant of how much (or little) money we put into the institution of education.
ckoeber on May 4, 2009 at 2:08 PM
Hey, no worries. We can always just print more money, eh?
smellthecoffee on May 4, 2009 at 2:09 PM
Exactly.
I believe a similar principal would work with social security, to tell you the truth.
If communities had to rely on each other, and didn’t look to the government for solutions, I believe they would.
Look, I don’t have any detailed plans for which entitlements to cut and budget diagrams and things like that, but I do believe that what is ailing us is this basic premise that the government somehow will solve all of our problems for us.
So my apologies – you just caught me right at the perfect “ranty” time.
Otis B on May 4, 2009 at 2:12 PM
The problem here is that Bush II tried this with privatizing Social Security but it didn’t work out. The Bill got shot down and people most likely would have lost a large portion of their savings with the downturn in the market.
The only other route to go if you want to cut the Social Security entitlement would be to just stop collecting the tax and completely do away with it for people under a certain age bracket.
ckoeber on May 4, 2009 at 2:13 PM
I don’t have a problem with that. I’ve put about 45,000 dollars into it, but I don’t expect to see a dime of that returned to me.
I wonder how many people around my age really do expect to see any return from social security – I’m in my mid-40s.
Do you?
Otis B on May 4, 2009 at 2:16 PM
This notion is just silly to me.
If it were truly “privatized,” I’d get to do what I wanted with it.
And, the thing is, if I didn’t prepare myself for retirement with the money by saving it, well that would be my own fault, wouldn’t it?
Otis B on May 4, 2009 at 2:18 PM
So the question becomes how do conservatives create policies that get people more involved in their own lives?
I feel the standard “You’re on your own” won’t work; people are looking for an activist style government.
Maybe just sold differently by a better communicator.
ckoeber on May 4, 2009 at 2:22 PM
devolve welfare system to the states. let them decide if they want to keep it or not and how to fund it.
get rid of the federal minimum wage. most states have one set anyways. let states compete for these “minimum wage” jobs.
remove federal education mandates. let states decide how to educate their citizens.
same with federal regulations, etc etc etc.
lorien1973 on May 4, 2009 at 2:24 PM
You would get a return, it just would be equal to what you put in. The investment just rises with the rate of inflation.
As mentioned, probably a good way to go but a better communicator is needed. None of the current people in the GOP knows how to communicate core values well.
ckoeber on May 4, 2009 at 2:25 PM
Yeah, Reagan probably had a much better way of delivering it than I do, I suppose.
Oh well.
Otis B on May 4, 2009 at 2:26 PM
You know what’s funny is I don’t really even want the return at this point.
The whole thing has sickened me so much that I want for them to just cut it off so I never have to see it again or know that I am contributing to this madness.
Otis B on May 4, 2009 at 2:28 PM
SS pay-ins rise a little faster than inflation.
Too bad, though. If you put your money that was forced into SS into the stock market, over that same period of time, you end up with like 20 to 30 times more money in the end.
Congressmen get to do this – they can put a certain % of their money into the stock market. Wonder why they won’t let the peasants.
lorien1973 on May 4, 2009 at 2:29 PM
lorien1973 on May 4, 2009 at 2:24 PM
You just earned my vote.
Otis B on May 4, 2009 at 2:33 PM
In short, absolve most things to the states?
I am leaning this way but not sure about leaving the minimum wage to the states. Set’s up a “Race to the Bottom” scenario where the states that pay the lowest wages gets the highest amount of traffic.
I agree with abolishing the welfare system completely. There has to be a better way to take care of kids without setting up an entire dependency class. I just don’t know how.
Not sure about the other federal regulations you refer to. Banking/food/medical regulations should be Federal IMHO.
ckoeber on May 4, 2009 at 2:36 PM
Let’s face it, the majority of people won’t get into the stock market. They just want to dump their money it a pot and collect it later.
That’s essentially the entire premise of Social Security. And people like that they don’t have to think about it. Same way with the Employer’s 5% Retirement plan.
What would be really cool is if I can just divert the money I put into social security into my retirement plan. Seems like a small change in law to me.
If you have a retirement plan, no SS.
If you don’t have one, you use SS.
Maybe this has been tackled before. Not sure.
ckoeber on May 4, 2009 at 2:41 PM
At some point, people will refuse to work if the pay is too low. the free market will settle this problem.
lorien1973 on May 4, 2009 at 2:43 PM
That’s really their problem, though, isn’t it? Before SS, people weren’t eating rats off the street. History didn’t begin when SS was enacted.
Feds shouldn’t be removing money from your check to ensure you have a retirement plan. End of story. If you want to, excellent. If not, well, that’s your choice.
lorien1973 on May 4, 2009 at 2:45 PM
If the NYT is worried about it — then it really must be a problem!
Aronne on May 4, 2009 at 2:50 PM
I have seen this mentioned infrequently in the past. It wouldn’t surprise me to see Obama propose a wealth tax. It will be billed as “one-time” and wrapped in language of fairness and a simple way to equalize the advantages that the “wealthy” have realized by living in the US. I base this on two observations. First, the vast amount of money (even with the market decline) that is sitting in IRAs, 401Ks, etc will become too tempting for the polititcians to resist. Secondly, please notice that when the argument is made about how the richest people are paying a huge proportion of the taxes already the response invariably turns to what proportion of the nation’s wealth do they control. Raising income tax rates simply won’t cover this out of control spending, they will come for our savings next.
mrveritas on May 4, 2009 at 2:53 PM
It’s a fair question and I’ll give a general answer. The answer is that we’re going have to take our medicine. We have companies that are inefficient and losing money (GM) and the solution is that they file for bankruptcy. Sorry union workers. We have a housing bubble with people who overextended on their mortgages on houses they should never have been allowed to buy and loans they never should have gotten. The solution is that people are going to lose their home and their mortgaged shirts.
In the end you can’t legislate water to flow uphill, repeal the Law of Gravity or overturn the 2nd Law of Thermodynamics. When you try to legislate an economic down-turn out of existence you fail and only make the down-turn bigger. That’s what we’re facing right now.
Bambi’s in a hole and he’s working up a real good sweat digging deeper. But all he’s ever known is how to “shovel it” and he’s been shovelling a lot of it lately.
Look for him to shovel more …
PackerBronco on May 4, 2009 at 3:01 PM
My friend asked his wife, who votes GOP, if she knew where the money for all these government programs was coming from. She hadn’t thought about it, she just assumed Uncle Sam had some sort of contingency fund.
When he pointed out that in fact, all of this spending was only possible as a result of borrowing, she didn’t think that sounded like a good idea.
Moral of the story: talk to your friends. Educate them. You’d be amazed what people assume.
hawksruleva on May 4, 2009 at 3:19 PM
There’s no question, rail is great for freight. If it costs less to ship bulk items by rail than by truck, businesses will ship large containers by rail to major distribution centers, then let trucks carry them short distances to market. None of this requires any government involvement.
The problem comes in trying to develop mass-transit railways for passenger travel. Except in congested areas where parking is a problem, passenger railways are often slower than traveling by car, and in many areas there are a few overloaded trains during rush hour, followed by nearly-empty trains during off-hours, which are not more efficient than cars. Rights-of-way can be expensive in congested areas, and passenger trains can be forced to slow down due to slower freight trains.
Some people have advocated high-speed passenger trains, such as those in Europe. France’s TGV has a cruising speed of 180 mph, but it must run slower in congested areas (to avoid mowing down idiots who cross the tracks), and the high-speed trains must run on special tracks in rural areas, with extremely gentle curves and slopes, no grade crossings, and fences to protect livestock and wildlife.
A high-speed train will only attract riders if passengers get to their destination faster than in a plane. Allowing a half-hour taxi ride between downtown and an airport, and an hour to get through security, a 150-mph train beats a 500-mph plane for a trip less than about 500 miles. This can work for two large cities within 500 miles separated by relatively flat, open land, such as in the Great Plains or along the southeast coast or Florida. Routes such as Dallas/Houston, Chicago/St. Louis, Houston/New Orleans, or Atlanta/Raleigh might be feasible for high-speed rail, but the Washington/Baltimore/Phila/New York/Boston corridor is far too congested, and most other areas of the country are too hilly for it to be economical.
The question becomes, is the Obama Administration ready to STUDY these situations on a case-by-case basis, or just throw money at everything, whether or not it works?
Steve Z on May 4, 2009 at 3:26 PM
gain(loss)=revenue minus expenses. I’ll bet my S&W 9mm that half of Congress doesn’t understand this. In order to get out of the problem we have now we have 4 options, one is to cut spending, we all know the mindless libs can’t understand that, probably a lot of the Repugs also, this is the expense side of the equation. The second option is to print more money and Obama has the presses working, this leads to higher inflation, simple supply and demand (revenue side). The third option is to raise taxes (increase revenue). This has the effect of punishing innovation and hard work because your personal gains go to the government. The fourth option is to sell debt. Who is buying the debt? The Chinese, who gets the proceeds from our hard work to pay off the debt? The Chinese. The other big buyer is us, we are buying our own debt and then paying for it with our taxes.
Sorry for being so basic, but athensboy in his green leisure suit needs some basic economic understanding.
hip shot on May 4, 2009 at 3:54 PM
Your short question is perfectly good, but requires an essay length answer to do it justice. What follows is not that essay.
First, there is a limit to the amount of complexity one generation can handle before it dies and our societies have become far too complicated for us to control.
Furthermore the society has grown into something that is inherently unstable.
This has arisen because power (in all situations: neighbourhood, business, and especially government, … and in all forms: economic, political and physical force, …) has been distributed to people who, on account of of their lack of self-control, their bad character, their inexperience, etc, are uncapable of using that power wisely. When power (energy) is applied to the wrong parts of a complex system, the system will inevitably break.
This poor distribution of power has arisen for many reasons. One is that corporation laws when originally drafted did not forsee how much power corporations, and as a result individuals, would one day have. Another reason is that topics such as ‘fairness’ and ‘equality’ have come to dominate the debate about who should do what and when. There are other reasons too.
Another problem is that, in practice if not in theory, we presently have government by minority vote, whereby the people who stay silent (because they are perfectly satisfied with the status-quo) are presumed to be in favour of whatever change is being proposed. This means that, in practice, decisions are made by those who make the biggest disturbance, not by those who have wholesome experience, wisdom or virtue, and almost never by the people who are actually doing the ground work of creating and nurturing a great society (by working diligently and honestly, minding their own business, looking after family and neighbours, cleaning their yards and generally keeping the world turning). The result is that we now have a ‘political nobility’ (who could be poverty-stricken student activists or wealthy financiers) who live as parasites whimsically rearranging the lives of those whose work gives them the social and phsyical infrastructure in which they act.
Without writing the whole essay, the basic requirements for a solution are:
(1) Central government must be simplified and reduced, not a little, but perhaps by 50%, 70%, 90% … Government must be devolved more widely.
(2) Power must not be allowed to accumulate in a small number of hands. This might require big changes in the rules about company ownership or land ownership and inheritance laws and will probably annoy a lot of good people, but a society that is long-term stable cannot be achieved unless this is done.
(3) The “do nothing” option should always be included in every list of proposals and anybody who doesn’t vote should be presumed to have chosen the do-nothing option. This would take a lot of power away from the inexperienced, the foolish, the activists and the agitators and effectively give power to the people who are quietly minding their own business keeping society afloat.
(4) Immigration must be strictly controlled to prevent instability. People must be assessed for their ability to contribute to the society, not just for their individual needs.
This is just the briefest of brief *ahem* outlines (no, really it is!). Anybody who has seen a few of my posts here at Hotair can probably guess that “I could go on” (and write the entire essay) but I won’t!
YiZhangZhe on May 4, 2009 at 4:01 PM
I find it both laughable and tragic that there is such a thing as selling debt.
All you can hope for is that the US stiffs China on all that principle. Serves the Chinese right for lending money to a country addicted to pork.
Peter Schiff has warned about the bond bubble bursting. When that happens, if it happens, that will be the end of the US as we know it. I’ve been eating a lot of peanut butter recently. It’s cheap and it stores a long time.
keep the change on May 4, 2009 at 4:56 PM
Ah. You think that long-term social stability is achieved through the abrogation of property rights.
Adam Smith thinks that long-term social stability is achieved through every person acting in his own self-interest with only a bare minimum of restraints on his actions (thou shalt not steal, murder, etc.)
Adam Smith’s idea creates a wealth of inexpensive, readily available resources that anyone can buy, because it is in everyone’s best interests to be as productive as they can.
Your idea re-creates, inter alia, Stalinist Russia.
Oh, FWIW, under your idea I think that you will find your 4th point unnecessary. No one is coming to your country. Emigration, on the other hand…
Troll Feeder on May 4, 2009 at 5:28 PM
This isn’t correct. Putting aside the question of “privatizing,” which is actually something else (private administration of the system), it’s not true that the President’s proposal would have led to people losing a large amount of savings (at least, not based on events to this point.)
The President made his personal account proposal in 2005, with the accounts to begin taking contributions in 2009. No one now receiving benefits would have been eligible for an account.
Younger workers eligible for the accounts would just be starting contributions, and would be buying in a down market. For every year of contributions to Social Security accounts by a typical worker, the total percentage of their overall Social Security benefit that would have been subject to investment risk would have been less than 2%.
Obviously, no one can predict the future with accuracy, but market declines to date would have had a very slight adverse impact on Social Security benefits, even future benefits.
Chuckles3 on May 4, 2009 at 5:32 PM
Hmmm… any downside to ‘mopping up any available money’? Like, nobody else in the economy might have need for some credit, right?
‘Sorry, Mr. Entrepreneur, we can’t lend you money to build your new job-creating factory because the Treasury has already borrowed from anyone who has money to lend, to pay for … well, we’re not sure where it all went, but we know part of it was for a unicorn sanctuary.’
MikeInOhio on May 4, 2009 at 6:03 PM
If you had thought a little harder about points (1) and (2) it might have been obvious to you that what I am proposing is much more aligned with “every person acting in his own self-interest with only a bare minimum of restraints on his actions” than to any kind of Stalinist state.
Power and wealth tends to flow most easily to those who already have it. If people/corporations can inherit and accumulate wealth and power then very quickly that power and wealth becomes concentrated in few hands … exactly what has happened.
Those few hands, acting in their own interests with minimal restraint, can then effect very great restraint over everybody else. The system of minimal restraint must therefore include a mechanism to prevent that concentration of power and wealth, and in-particular prevent it from concentrating in the hands of the foolish, the greedy, or a clique of proactive liberals.
I have already indicated that we need to reduce the power and influence of central government so it follows rationally that we cannot allow the state to become the ‘owner’ of the wealth.
Is that so? Thank you for telling me, because I would certainly never have worked that out by myself; probably because I let facts influence what would otherwise be nothing more than a comprehensive set of ignorant assumptions. More fool me I suppose?
Besides, what made you think I was referring only to my own country (whatever you happen to think that is)?
Do be careful, Troll Feeder, there’s enough ambiguity in your screen name for you to be in danger of becoming your own next meal.
YiZhangZhe on May 4, 2009 at 6:14 PM
Uh-huh. Well, that really is a concerned, Christian, conservative argument that everyone from Madison to Hayek to Reagan and beyond can really get behind.
Or, actually, it is totalitarian nonsense from one end to the other, and it is lazy to boot.
So, instead of outlawing corruption and coercion, let’s outlaw wealth. It’s so much easier to prohibit liberty to everybody than it is to find a few bad apples who take some criminal advantage of it.
Also, let’s also outlaw weapons, because someone somewhere might do something bad with one. Individual and collective rights to self-defense are nothing compared to that.
We should get us some of them speech codes, too, for similar reasons.
Yeah, let’s make sure that Bill Gates and Steve Jobs and Michael DeBakey can only have, oh, I dunno, a few million dollars each. Is that OK? I mean, you’re going to be in charge, right? You get to decide, right? Or somebody or some group of somebodies just like you: incorruptible, glistening, and pure; halo shining in the moonlight? Is a few million dollars too much?
Yep, we should have prohibited them from ever getting beyond that. Then we would all be so much better off.
I have a natural, God-given right to work as much as I want.
I have a natural, God-given right to get paid as much as the market will bear for all the work I can do.
I have a natural, God-given right to keep and spend all of the wealth I generate howsoever I see fit, without regard for the envy of my neighbors.
I have a natural, God-given, Declaration-affirmed right to overthrow any government that declares otherwise, too.
The general restriction of liberty is not the only way to circumvent the evil of a few men; it is, if fact, the worst possible method. It is the antithesis of fighting bad speech with good speech and fighting bad governance with the next election cycle.
Your argument is as old as the blood-soaked hills. It is the credo of every two-bit, wanna-be, populist dictator who ever lived: “You cannot be safe until you surrender your liberty.”
Do be careful, Jackie Chan; there is enough evil crap spilling from your mouth and keyboard that people may realize what an awful person you are and stop paying to see your movies.
Of course, in your world, that’s to be desired, so no problem, I guess.
Troll Feeder on May 4, 2009 at 10:31 PM
You are having an argument with yourself, because I haven’t raised or suggested any of the things you are talking about and none of them follow from my proposals.
I am very curious to know how you think it would even be possible to have a national dictatorship (with me in control!) with the power to “prohibit liberty”, “outlaw wealth” and “outlaw weapons” if, as I have proposed, it is a country where “government is devolved” and “power is not allowed to concentrate in a small number of hands.”
???
Wouldn’t really be possible would it?
What you fear and what I have proposed are somewhere near opposite ends of the spectrum, so why you are directing your angst towards me is a bit of a mystery.
Nothing in my proposal would stop you from working as hard as you like or charging a market price for it and getting as rich as you could, owning guns or speaking your mind. You could even carry-on being rude and making foolish assumptions if you like.
“You say my argument is as old as …” but you are not even addressing my argument. You seem to be merely regurgitating your own fears and projecting them onto my proposal. If you live in the USA then you certainly have some reasons to think the present government might try to do what you fear, but as far as this online HotAir thread goes, you are fighting a bogey man who exists only in your own imagination.
YiZhangZhe on May 5, 2009 at 1:55 AM
Because, you idiot, you state in point 2 of your original post that the government should have the power to limit the amount of wealth that any “citizen” can accumulate.
The rest of the items follow by extension from your willingness to prevent the corruption of a few by punishing the property rights of everyone. If you are going to use a sledgehammer to kill the first fly, it is reasonable to assume that you would follow the same logic to kill others.
Here is your point 2 again, because you can’t seem to recall what you wrote yourself:
And yet you claim:
You are going to limit company ownership, land ownership,and inheritance rights, but I can still get as rich as I like? Really? I can haz cash, but I can’t buy land or companies with it, and I can’t will it to whomever I choose? Gee, that’s mighty white of you.
Or maybe that’s an Obamaism: “as rich as I could” meaning “as rich as you’re willing to let me get.”
What interpretation — other than you will limit individual company ownership, land ownership, and ability to pass on your estate as you choose — do you intend when you state that you will “require big changes” in order to prevent the accumulation of power?
You don’t even understand your own arguments, so I really don’t expect you to understand mine.
Troll Feeder on May 5, 2009 at 1:46 PM
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