A Prophecy Of Impending Economic Doom

For nearly four years, President Obama has presided over reckless spending and runaway debt. And now it’s clear that all Americans will pay the price, with another credit downgrade and nearly $6 trillion in new debt that the next generation will be forced to repay. Americans deserve real leadership – not a president who is content to keep passing our bills on to our next generation. Moody's Investors Service warned that Congress will need to strike a deal on the ‘fiscal cliff’ to avoid a second downgrade to the nation's credit rating. The rating agency said that budget negotiations in 2013 will determine the fate of the nation's credit rating, adding that an inability to strike a deal with ‘specific policies’ to change the nation's debt trajectory will mean a second downgrade.  Moody's still rates the nation as a top-shelf AAA credit, but with a negative outlook as it has warned policymakers they must adjust the nation's fiscal course to retain its financial reputation.

S&P removed for the first time the triple-A rating the U.S. has held for 70 years, saying the budget deal brokered in Washington didn't do enough to address the gloomy outlook for America's finances. It downgraded long-term U.S. debt to AA+, a score that ranks below more than a dozen governments', including Liechtenstein's, and on par with Belgium's and New Zealand's. S&P also put the new grade on ‘negative outlook,’ meaning the U.S. has little chance of regaining the top rating in the near term.

The bottom line is that successful presidents, like Ronald Reagan and Bill Clinton, largely worked their will. But you reach the conclusion in this case, in this struggle Barack Obama did not?” Our financial house is not in order. In other words, the big debate last year about the debt ceiling and whether the U.S. government is going to be able to pay its bills ain't over. We’re going to be right back in that soup in October, December and January. And this isn’t a budget issue, or a credit rating issue. It’s a “Is the government going to have the money needed to pay its bills? And in the end, that’s the President’s job, and the Congress’s job too. But there’s also a thing called presidential leadership.

Under President Obama, The National Debt Has Surpassed $16 Trillion: An Increase Of More Than $6.4 Trillion. Every American’s Share Of The National Debt Currently Stands At Over $61,000 – An Increase Of Over $26,000 Under President Obama.

President Obama is responsible for the most rapid increase in the debt under any U.S. President.  The latest posting by the Treasury Department shows the national debt has now increased $6 trillion on President Obama's watch. The debt was $10.626 trillion on the day Mr. Obama took office. The latest calculation from Treasury shows the debt has now hit $16.639 trillion. It's the most rapid increase in the debt under any U.S. president.

The current debt-to-GDP ratio is more than 100%. The Congressional Budget Office estimated last month the budget deficit for the 2012 fiscal year, which ends Sept. 30, will be about $1.7 trillion.

FLASHBACK: Candidate Obama claimed it was “Unpatriotic” and irresponsible for president Bush to have added $4 Trillion to the national debt. OBAMA: “The problem is, that the way Bush has done it over the last eight years is to take out a credit card from the Bank of China in the name of our children, driving up our national debt from $5 trillion for the first 42 presidents - #43 added $4 trillion by his lonesome, so that we now have over $9 trillion of debt that we are going to have to pay back -- $30,000 for every man, woman and child. That’s irresponsible. It’s unpatriotic. Well, that was then and you've just read the current figures. So, I ask you; "Which president was more irresponsible? Bush with his $4 trillion in 8 years or Obama with his $6 trillion in just over 3 years? Remember that 6 is more than 4.

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.

Now the credit rating agency Egan-Jones has downgraded its rating on U.S. debt to AA- from AA, citing Federal Reserve plans to try to stimulate the economy. The firm said the Fed's plans to buy mortgage bonds will hurt the economy more than help it. Egan-Jones said the plan will reduce the value of the dollar and raise the price of oil and other commodities, hurting businesses and consumers.

QE3

The Fed's QE3 will stoke the stock market and commodity prices will hurt the U.S. economy and, by extension destroy credit quality by the central bank. Issuing additional currency and depressing interest rates via the purchasing of [mortgage-backed securities] does little to raise the real GDP of the U.S., but does reduce the value of the dollar... and in turn increases the cost of commodities. We’ve all seen the recent rise in the prices of energy, gold and other commodities.

Egan-Jones said that, since 2006, U.S. debt as a ratio of GDP had grown to 105%, from 66%. By comparison, Spain's debt-to-GDP ratio of 68.5 percent is far less than what we're encountering the firm added. 

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.

Since liberalizing its economy in the 1990s, China has become the world's factory. As a massive exporter, it has to do something with all the money that's rolling in. And like so many investors around the world, China uses the U.S. as a place to keep its spare cash. Not only is its money safe here, but the country even earns a bit of interest on it.

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.

Ronald Reagan

As Americans prepare to mark their ballots, Republicans are hoping that voters' minds will be focused on one (and only one) simple question: Are you better off today than you were four years ago?

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. 

Jimmy Carter

In a speech earlier this week at Eastern Carolina University, he connected those dots, claiming that "Every president since the Great Depression who asked Americans to send them into a second term could say that you are better off today than you were four years ago, except for Jimmy Carter and for President Barack Obama."

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.

Jobs are a good place to start: In July 2008, as the Great Recession was beginning to sink its teeth into America, the country lost 210,000 jobs. Over the following four months, things continued to go downhill: the economy shed 274,000 jobs in August, 432,000 in September, 489,000 in October and 803,000 in November. By the day of Obama's inauguration in January, the economy had shed 4 million jobs.

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.

Jobs aren't the only measure by which the economy has improved on Obama's watch. The personal bankruptcy rate dropped between 2010 and 2011, and the rate of business bankruptcies has been steadily dropping since it hit a peak in 2009. At the same time, RealtyTrac reports, foreclosure rates have also been dropping. According to the real estate information company, foreclosure rates in 2011 were 34% lower than in 2010, 33% lower than in 2009, and 19% lower than in 2008.

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.

The ranks of America's poor remained stuck at record levels, although dwindling unemployment benefits and anemic job gains helped stave off what experts had predicted would be the fourth rise in a row in the poverty rate.

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.