Last summer, following the political circus that was the country's debt-ceiling fight, Standard & Poor's downgraded America's debt one notch from its coveted "AAA" rating to "AA," an action that many predicted would surely lead to financial doom. Nothing of the sort happened. In fact, what followed was just the opposite: Fearing global instability and even deeper economic troubles in Europe, investors from around the world rushed into U.S. Treasuries, sending yields to record lows, and thus keeping America's cost to borrow at record lows, too.
But wait, there’s more. Another big ratings agencies, Moody's (MCO), is also threatening that if the country doesn't address its rising debt by early 2013, it, too, will rescind its own "AAA" rating of U.S. debt, with the implied potential of sending the country's debt costs soaring.
An increase in borrowing costs will really be hell for our country. But the vastly more scary prospect facing America is the continuing economic slowdown in China.
China is an economic powerhouse; everybody knows this. Its economy is second only in size to America's. China also holds -- and continues to buy -- a significant chunk of America's sovereign debt, which just surpassed the $16 trillion mark. Of that amount, China holds about $1.2 trillion of it, or 7.5%.
That may not sound like a lot, but it makes China America's top foreign creditor. Japan comes in second, with $1.1 trillion. And the next biggest foreign debtor is the U.K., which holds just under $500 billion in U.S. debt. That's a big drop-off.
The point being, the U.S. counts on China to soak up a lot of our debt. And China has always been happy to do so.
For investors of all sorts around the world, then, America operates a bit like a bank. But what happens when that bank's biggest and most reliable depositor doesn't need it anymore? What happens when that depositor stops depositing money in the bank?
The U.S. might be facing just such a situation in the not-too-distant future.
China's economy is slowing. The World Bank puts China's 2011 GDP growth rate at 9.1%, down from 10.4% the year before, and down from 14.2% in 2007. Why is this happening? America's economy is growing at an anemic rate right now, and half of Europe is in recession. Demand for Chinese products is down, and it probably will be for some time to come, so of course China's economy is slowing. As America and as China slows, it will necessarily have less need of the U.S. as a place to stash its money. Consequently, it will slow its buying of Treasuries. And the bond markets could subsequently send the country's cost to borrow soaring to unsustainable levels in the same way they've done with debt-ridden eurozone countries such as Greece, Portugal, Ireland, and Spain.
So the state of U.S. debt definitely matters; its continuing rise must be checked, but not because of Moody's. Who knows; a downgrade by the rating agency could have no effect at all if real market demand sends Treasury yields even lower. Chances are, if it happens at all, it will be a non-event. It's our own house we need to look after now.
On the campaign trail, GOP vice presidential candidate Paul Ryan has repeatedly raised that question, evoking Ronald Reagan's 1980 zinger -- a debate-closer that left Jimmy Carter reeling and set the stage for the Gipper's landslide victory.
Ryan's claim packs a rhetorical punch, but the question remains: Are you better or worse off today than you were four years ago? On the surface, the answer appears self-evident: Unemployment is still high, manufacturing is shrinking, and construction spending remains low.
Unfortunately for the Republicans, the answer isn't quite as clear as they would like.
When Obama took office, the rise of the ocean didn't begin to slow and the planet didn't begin to heal, but joblosses did start to decline. And, while it took until March 2010 for the economy to begin adding jobs again, the first year of the Obama presidency witnessed a fairly consistent drop in the rate of unemployment growth.
Mitt Romney attempted to dismiss the job growth on Obama's watch in a January interview with conservative radio host Laura Ingraham: "The economy always gets better after a recession, there is always a recovery," he declared. While true, this comment presents an interesting rhetorical tangle. Romney seems to be arguing that the question isn't whether the jobs situation has improved since Obama has been in office, but whether or not it could have improved more. For Obama, that's a difficult argument to defend against; after all, hindsight is always 20/20. Then again, it's also a difficult argument for Romney to make.
But these improvements, while significant, are not particularly impressive. For example, although the economy is no longer losing jobs, it is adding them at a rate that barely keeps up with the new workers entering the job market. In other words, the unemployment rate is holding steady in the low 8% range. Obama himself has given his administration an "incomplete" grade on its handling of the great recession, arguing that the economy is still in the process of recovery.
Ultimately, comparisons between today and four years ago may not be apt. A better question may be whether it's better to be in a car hurtling off a cliff or in a hospital afterwards, suffering through a long, slow recovery. In that context, the ultimate decision for voters will be whether Dr. Obama or Dr. Romney offers a better treatment plan.
With joblessness persistently high, the gap between rich and poor increased in the last year, according to two major census measures. Also, the median, or midpoint, household income was $50,054, 1.5 percent lower than 2010 and a third straight decline.
A Census Bureau report release provides a mixed picture of the economic well-being of U.S. households for 2011, when the unemployment rate improved to 8.9 percent from 9.6 percent in the previous year. The numbers are coming out just before the Nov. 6 election in which the economy is the Number 1 issue and President Obama is trying to make the case that the labor market, while not fully healed, is on the right track. overall poverty rate stood at 15 percent, statistically unchanged from the 15.1 percent in the previous year. The rate was better than a consensus estimate of demographers who had predicted, based on weak wage growth, a gain that's up to half a percentage point, to levels not seen since 1965.
For last year, the official poverty line was an annual income of $23,021 for a family of four. By total numbers, roughly 49.7 million people remained below the poverty line, unchanged from 2010. That figure was the highest in more than half a century when records started being kept. The 15 percent poverty rate was basically unchanged from 1993 and was the highest since 1983.
Broken down by state, New Mexico had the highest share of poor people, at 22.2 percent, according to rough calculations by the Census Bureau. It was followed by Louisiana, the District of Columbia, South Carolina, Arkansas and Georgia. On the other end of the scale, New Hampshire had the lowest, at 7.6 percent.
"This is good news and a surprise," said Sheldon Danziger, a University of Michigan economist who closely tracks poverty. He pointed to a continuing boost from new unemployment benefits passed in 2009 that gave workers up to 99 weeks of payments after layoffs and didn't run out for many people until late 2011. Also, job gains in the private sector that helped offset cuts in state and local government workers.
"It would indicate the two stimulus packages were completely ineffective," he said.
Bruce D. Meyer, an economist at the University of Chicago, said it was disappointing that poverty levels did not improve. He described it as a sign of lingering problems in the labor market even with recent declines in unemployment. "The drop in the unemployment rate has been due in significant part to workers leaving the labor force, because they are discouraged, back in school, taking care of family or other reasons," he said.
The official poverty level is based on a government calculation that includes only income before tax deductions. It excludes capital gains or accumulated wealth, such as home ownership.
As a result, the official poverty rate takes into account the effects of some stimulus programs passed in 2009, such as unemployment benefits, as well as jobs that were created or saved by government spending. It does not factor in noncash government aid such as tax credits and food stamps.
David Johnson, the chief of the Census Bureau's household economics division, attributed the better-than-expected poverty numbers to increases in full-time workers over the last year. He also estimated that expanded unemployment benefits helped keep 1.6 million working-age people out of poverty.
Social Security also lifted roughly 14.5 million seniors above the poverty line. Without those cash payments, the number of people ages 65 and older living in poverty would have increased five-fold, he said. Johnson also noted that that income inequality was widening. He said the top 1 percent of wage earners had a 6 percent increase in income over the last year, while income at the bottom 40 percent of earners was basically unchanged.
"A lot of the increase is driven by changes at the very top of the distribution," he said.
The share of Americans without health coverage fell from 16.3 percent to 15.7 percent, or 48.6 million people. It was the biggest decline in the number of uninsured since 1999, boosted in part by increased coverage for young adults under the new health care law that allows them to be covered under their parents' health insurance until age 26.
Congress passed the health overhaul in 2010 to address the rising numbers of uninsured people. During this election year, the law has come under increasing criticism Republicans, including presidential nominee Mitt Romney, who has pledged to push a repeal if he is elected. The main provisions of the health care law will not take effect until 2014.