Archive for the ‘The Debt and Deficit’ Category
Federal Debt Has Doubled Since 2007
by Ben Bullard
The Congressional Budget Office (CBO) released an update to its ten-year budget and economic outlook report Wednesday. It begins by touting the ongoing reduction in the federal budget deficit – that is, in the simplest terms, the amount of money the government is spending each year beyond what Congress budgeted for that year. In other words, we’re getting nominally closer to hitting the number Congress sets for the budget, but we’re still spending more than that.
Read on, though, and you’ll find the statistic that actually matters: the actual federal debt held by the public is growing rapidly, and is closing in on a figure that parallels three-quarters of the United States’ annual Gross Domestic Product (GDP).
Right now, that number represents 74 percent of the annual GDP – up twofold from 2007 – and it’s on track to hit 77 percent of GDP by 2024. Publicly-held debt is the only type of federal debt reported on the government’s books as a liability. It outpaces the other type of federal debt – debt held by government accounts – by almost three to one. Debt held by government accounts, according to the Government Accountability Office, “represents balances in the federal government’s accounts—primarily trust funds—that accumulate surpluses…Trust funds for Social Security, Medicare, Military Retirement and Health Care, and Civil Service Retirement and Disability account for the vast majority of the total debt held by government accounts.”
Here’s the CBO’s Doug Elmendorf, who authored the official remarks on the updated projections:
Looking ahead, CBO’s baseline projections show what we think would happen if current laws governing taxes and spending generally remain unchanged. Those baseline projections are designed to serve as a benchmark that policymakers can use when considering possible changes to laws.
…We expect that federal debt held by the public will reach 74 percent of GDP at the end of this fiscal year—more than twice what it was at the end of 2007 and higher than in any year since 1950. And in our baseline projections, that debt reaches 77 percent of GDP in 2024 and is on an upward trajectory.
Such large and growing federal debt would have serious negative consequences, including:
- Increasing federal spending for interest payments;
- Restraining economic growth in the long term;
- Giving policymakers less flexibility to respond to unexpected challenges; and
- Eventually increasing the risk of a fiscal crisis.
Remember, that projection operates on the assumption that the next president and Congress won’t approve accelerated borrowing and spending, but will instead maintain the rate of increase that exists now.
The federal debt currently stands (or rises, rather) at $17.65 trillion.
by Chip Wood
Well, the Republican leadership has done it again. In the battle over government spending, they waved the white flag of unconditional surrender. Believe it or not, they gave Barack Obama permission to spend as much money as he wants over the next year — with absolutely no strings attached.
The media are reporting that the House and Senate passed a “clean” bill to raise the debt ceiling. Actually, they did no such thing. They didn’t set a new limit on government borrowing. Instead, they abolished any debt ceiling for the next 14 months.
It’s incredible how this deal will work. By suspending the debt ceiling, your friendly Federal government can spend all the money it wants — or rather, all the money that Congress will allow – between now and March 16, 2015. By an amazing coincidence, that gets everyone past the elections this November.
Then, when this temporary measure expires, the new debt ceiling will be the present debt — which is an absolutely appalling $17.2 trillion (yes, that’s “trillion” with a “t”) — plus however much more debt is created between now and next March. That will be another trillion dollars in red ink added to the total by the profligate politicos in Washington.
In just six years of his Presidency, Obama will have increased the national debt by more than $7 trillion. And what’s most amazing of all is that our so-called leaders in Washington are actually claiming that this latest vote means that they were being “responsible.” Isn’t that incredible?
The Republican surrender began in the House of Representatives when Speaker John Boehner told a startled group of Republican Congressmen that he finally agreed not to attach any spending restrictions to the debt-ceiling measure. That is exactly what the Obama Administration had been demanding all along.
As hard as it is to believe, when Boehner announced his new plan at a closed-door meeting of Republican Congressmen, he actually expected to be applauded for it. When he was greeted by silence at the end of his remarks, he said rather petulantly: “I got this monkey off your back and you’re not even going to applaud?” The docile lawmakers took the hint and gave him a less than robust round of applause.
That was all it took for 28 Republicans, including Boehner, to vote for the measure. All but two Democrats in the House also said “aye,” so the no-debt-ceiling bill passed the House on Tuesday by a vote of 221-201.
Senate Majority Leader Harry Reid (D-Nev.) was absolutely delighted with the result. “A few reasonable House Republicans were willing to join Democrats to avert a catastrophic default on this nation’s obligations,” he said.
Reid wanted to rush the bill through on a straight majority vote. But that didn’t happen. Instead, an interesting fight developed when Senator Ted Cruz (R-Texas) refused to go along. The Tea Party favorite forced the Senate to vote to end debate on the matter.
But ending debate can’t be done by a simple majority; cloture requires 60 votes, and there are only 55 Democrats in the Senate (counting two independents who usually vote with them). Unless five Republicans could be found to join them, Reid wouldn’t be able to bring the measure to a vote.
That’s when Mitch McConnell (R-Ky.), the Republicans’ ostensible leader in the Senate and a guy who insisted all of last year that he would never vote to raise the debt ceiling unless some spending restrictions were part of the deal, agreed to switch sides. So did John Cronyn (R-Texas), the Minority Whip in the Senate, and 10 other turncoats.
So Reid had the super-majority he needed to end the debate. The final tally on that one was 67-31, with a dozen Republicans joining all of the members of the Democratic caucus.
Now that the debt bill could be approved by a simple majority, it was safe for the Dirty Dozen to switch back. So every single Republican, including McConnell, pressed the “no” button. The bill to suspend the debt ceiling passed on a straight party-line vote, 55-43.
This means that McConnell will be able to assure the voters in Kentucky that he voted against suspending the debt ceiling. If you live there (or have any friends there), I hope you won’t let him get away with this charade. Please remind everyone you know that McConnell was instrumental in getting the measure approved.
If it sounds like there was an unseemly rush to get the dirty deed done, you’re absolutely right. That’s because the House and Senate had already scheduled a recess from now until Feb. 24. But the Treasury Department said it was close to exhausting all of the “extraordinary measures” it was using to continue spending money. Unless it received new authority to borrow funds, it would begin defaulting on some payments on Feb. 27. Now, that won’t happen.
So now what? In How To Stop More Republican Betrayals, I said that one of the best things conservatives could do was send McConnell packing. I urged you to support Matt Bevins, his opponent in the Republican primary in Kentucky this June.
Many conservative leaders agree with me on this. Amy Kremer, chairman of the Tea Party Express, said that her group will work to defeat McConnell and other Republican leaders this year. “Leadership needs to go — they need to be completely changed,” she said.
Matt Kibbe, the president of FreedomWorks, says the choices are clear: “Do you stand with John Boehner and Mitch McConnell or do you stand for fiscal responsibility?” He says the move to suspend the debt ceiling will encourage his members to work even harder. “It heightens activists’ desire to bring in new blood to Washington, D.C.”
Let’s hope they’re right. In fact, let’s do more than just hope. Let’s work to make sure they are.
Until next time, keep some powder dry.
Sallie Mae: How feds fuel student-loan fiasco
By Kenric Ward
IT’S A MESS: Indiana University senior Randall Burns holds a sign he said represents the average debt a college student has after graduating.
By Kenric Ward | Watchdog.org
WASHINGTON, D.C. — While wringing their hands over America’s student-loan crisis — a $1-trillion debt bubble resembling the 2008 mortgage meltdown — federal officials ought to look in the mirror. Washington started the mess and enables it to worsen.
Sallie Mae, a government-sponsored enterprise turned “private,” exhibits a “pattern of breaking the rules and ignoring its contractual obligations,” said U.S. Sen. Elizabeth Warren, D-Mass.
All the while, Sallie has raked in record profits with Washington’s help.
Years after Sallie went private and dominated the student-loan market, the federal government continues to grant the company favorable loan contracts worth hundreds of millions dollars.
“These contracts are in addition to a number of indirect and direct benefits the government has already provided to Sallie Mae,” Warren said.
A new report finds the “private” Sallie Mae:
- Borrows billions of dollars at “astonishingly low interest rates” through the federally backed Federal Home Loan Bank of Des Moines.
- Reaped profits of $321 million in 2010 (the latest year available) by selling government-guaranteed loans to the federal government.
- Benefits from “an asset-backed commercial paper conduit facility” through which it borrowed billions at the rate of 0.82 percent.
Nearly 39 million borrowers carry more than $1 trillion in federal student loan debt. About $120 million was delinquent in 2012 – a 30.5 percent increase from 2011.
But Sallie, who got her start as a government-sponsored enterprise like siblings Fannie Mae and Freddie Mac, is doing just fine.
“Its profits — boosted by special deals and breaks from the federal government — go to its shareholders,” Warren said.
A slap on the wrist for Sallie
There have been a few bumps along the way.
- In 2007, Sallie Mae paid a $2-million settlement to New York to resolve claims relating to improper marketing of student loans.
- In 2008, the Treasury Department found that Sallie’s debt-collection arm, Pioneer Credit Recovery Inc., violated its contractual obligations regarding recovery and disclosure.
- More recently, the Department of Education determined that Sallie Mae failed to report verbal complaints it received from student loan borrowers.
PROTECTION RACKET? Sen. Elizabeth Warren, D-Mass., says the federal government enables bad behavior by Sallie Mae.
Warren dismissed the government sanctions as a “slap on the wrist” for a lending giant whose net income rose from $530 million in 2010 to $1.4 billion in 2013.
“While the government has helped Sallie Mae maintain its profitability, it is not nearly as generous when it comes to student borrowers,” the Massachusetts senator said.
“Defaulted borrowers face onerous collection practices, without even the hope of discharging their student loan obligations through bankruptcy. Where is that kind of accountability for Sallie Mae?”
At least part of the answer can be found on Capitol Hill, where Sallie spent $22.74 million lobbying federal officials from 2007-2013.
Sallie Mae officials contend the student-loan marketplace is healthy. It certainly is lucrative for them, with D.C. enablers keeping taxpayers on the hook.
The Federal Family Education Loan Program ensures Sallie against financial losses due to loan defaults.
With the frenzied trading of student-loan paper, Sallie Mae channels the quasi-government roles played by Freddie Mac and Fannie Mae in the real-estate boom and bust.
“It is a climate that has empowered the lending industry to act aggressively at every turn, placing students at risk of paying inflated interest rates and fees on their federal loans and leaving taxpayers to pick up the tab for hundreds of millions of dollars in excessive subsidies,” according to an Education Sector report.
Another Education Sector study found that Sallie Mae’s buyouts of other lenders tighten its relationship with college financial officers. For borrowers, outstanding balances balloon as fees are added every time a loan is sold or repackaged on the secondary market that Sallie dominates.
Sallie’s hand is further strengthened by having more than 20 of its former employees working at the Department of Education, which is supposed to oversee lending and collection practices.
MORE DEVILS: Financial writer Bethany McLean sees excesses in the student loan industry, like the ones she exposed in the mortgage crisis.
“I always thought the strangest notion about Sallie was this idea that it was ‘private,’” said Bethany McLean, who co-authored “All The Devils Are Here” about the 2008 Wall Street crisis.
“Sallie Mae was privatized, but the profits of student loans were still mostly guaranteed by the government. What kind of ‘private’ business is that?” she asked.
Here’s a thought: Stop the cronyism
Are student loans lurching toward a Wall Street-style debacle?
The Reason Foundation, a libertarian-leaning think tank, notes that with bipartisan support, Sallie Mae secured “massive servicing contracts from the expanded Direct Loan Program, acquired a multibillion-dollar bailout of the student-loan industry and removed significant debtor protections from privately issued student loans, of which the company is the largest originator.”
Reason recommends that the federal government “exit higher-education finance altogether.”
“This would stop the cronyism rampant in the system. With no federal guarantee … such an industry would like establish a vetting process to reduce the risk of default.”
Robert Merry, political editor of The National Interest, a conservative publication, said Republicans need not take a backseat to Democrat Warren on free-market reform.
“Republicans too often rail against big government but then give big government a pass when it aligns itself with big business,” Merry said. “The country is being strangled by bigness.”
Merry predicts that “a reckoning is inevitable, but the two (political) parties resist it because they operate in a political culture created by all this bigness.”
“Meantime, ordinary Americans (including debt-laden students) are left feeling more and more like chumps.”
In some extreme cases, the feelings run to suicide. Huffington Post reported on the deadly fallout of student-loan debt.
Kenric Ward is a national correspondent for Watchdog.org and chief of its Virginia Bureau. Contact him at firstname.lastname@example.org or at (571) 319-9824. @Kenricward
Remember all those debt limit fights? Well, apparently Congress got tired of fighting. So now they’re working toward doing away with the debt limit altogether.
In recent years, conservatives fought to get at least some spending cuts, to begin putting the budget on a path to balance—after all, raising the debt ceiling means Congress has spent too much. Cutting spending before increasing the debt limit is necessary if Congress is to exercise some control over the debt.
But not this year. No one put up a fight this time—so Congress is essentially handing President Obama a blank check for the entire year.
“With almost $17.3 trillion in national debt, failing to put a debt limit in place to protect taxpayers from even more reckless spending by Congress is beyond irresponsible,” Heritage’s Romina Boccia, the Grover M. Hermann Fellow, told The Foundry.
That’s $140,000 per household, by the way.
How does this work? And what does this mean for the nation?
Watch and share our new video, where Boccia explains in one minute.
The Washington press corps was all atwitter yesterday with the news that the budget deficit is shrinking and the red ink will hit a seven-year low of $514 billion this year and $478 billion next year.
Wait. This is progress? Half-trillion-dollar deficits would have been unthinkable a decade ago; now they are cheered as progress. We are living in an Obama era of diminished expectations.
But what hasn’t been advertised is the disgraceful longer-term outlook for our fiscal future, which took a turn for the worse. And Obamacare is the main culprit. In the long run, the budget deficit will be slightly more than $1.5 trillion WORSE than previously estimated.
In 2015, the deficit starts exploding again—to $912 billion in 2020, and then above $1 trillion annually from 2022 until the end of days. Is this really the path of fiscal righteousness?
By the way, one of the biggest ballooning expenses is interest on the debt, which rises from about $250 billion a year now to more than $800 billion in a decade. Wonderful: We will be paying more taxes not for vital public services, but to finance our past sins.
Meanwhile, the debt burden gets worse, not better. Our debt as a share of national output skyrockets from 72 percent to just shy of 80 percent of GDP within a decade. Obamacare contributes to this thanks to the massive costs of Medicaid expansion and driving an expected2 million people from the workforce. The budget deal that relaxed the budget caps and sequestration also has ratcheted up spending in every future year.
This budget report is full of mostly rotten news, and it only fortifies the case for challenging President Obama’s demand for a “clean debt ceiling” extension with no reforms to get us off this reckless borrowing binge. A “clean” debt ceiling bill is a green light for Washington to keep up the binge spending. Ronald Reagan said it best: “This is like giving an alcoholic another drink.”
In modern psychology, this is called being an “enabler,” and let’s hope conservatives in Congress have better sense than that.
America doesn’t have to go bankrupt and it wouldn’t if the American people were to rise up and demand serious action, but sadly, most Americans are too intimidated by the size and scope of the problem to demand major changes to the irresponsible way the government does business. Without the American people insisting that Congress move, the Republicans have shown that they’re not serious about dealing with the deficit and the Democrats remain so intent on increasing spending that they wouldn’t be behaving much differently if their goal was to create a debt-driven economic collapse.
Our nation’s future is slipping away right in front of us and that’s why it’s important for those of us who care about our nation’s future to point out quotes like these while we still have a short window of time where we can make a difference. Those of us who love this country need the American people to stand up, speak out, and force our government to behave responsibly before it’s too late.
1) What would you think of a person who earned $24,000 a year but spent $35,000? Suppose on top of that, he was already $170,000 in debt. You’d tell him to get his act together — stop spending so much or he’d destroy his family, impoverish his kids and wreck their future. Of course, no individual could live so irresponsibly for long. But tack on eight more zeroes to that budget and you have the checkbook for our out-of-control, big-spending federal government. — John Stossel
2) John Kitchen of the U.S. Treasury and Menzie Chinn of the University of Wisconsin published a study in 2010 entitled:Financing U.S. Debt: Is There Enough Money in the World — and At What Cost?
The fact that sane men are even asking this question ought to be deeply disturbing. As to the answer, foreign official holdings of U.S. Treasury securities have usually been less than 5 percent of the rest of the world’s GDP. By 2009, they were up to 7 percent. By 2020, Kitchen and Chinn project them to rise to 19 percent of the rest of the world’s GDP, which they say is….do-able. Whether the rest of the world will want to do it is another matter. A future that presumes the rest of the planet will sink a fifth of its GDP into U.S. Treasuries is no future at all. But on Big Government’s streetcar named Desire we have come to depend on the kindness of strangers. — Mark Steyn
3) The Federal Reserve is propping up the entire U.S. economy by buying 61 percent of the government debt issued by the Treasury Department, a trend that cannot last, Lawrence Goodman, a former Treasury official and current president of the Center for Financial Stability, writes in a Wall Street Journal opinion article published Wednesday. — Newsmax
4) In fact, in 2006, the Census Bureau found only 2.2 million households earning more than $250,000. And most of those are closer to the Lubbock city manager than to Carlos Slim, income-wise. To jump from the 50th to the 51st percentile isn’t that tough; jumping from the 96th to the 97th takes a lot of schmundo. It’s lonely at the top.But say we wanted to balance the budget by jacking up taxes on Club 250K. That’s a problem: The 2012 deficit is forecast to hit $1.1 trillion under Obama’s budget. (Thanks, Mr. President!) Spread that deficit over all the households in Club 250K and you have to jack up their taxes by an average of $500,000 — which you simply can’t do, since a lot of them don’t have $500,000 in income to seize. Most of them are making $250,000 to $450,000 and paying about half in taxes already. You can squeeze that goose all day, but that’s not going to make it push out a golden egg.
….Every time you raise the threshold for eating the rich, you get a much, much smaller serving of meat on the plate — but the deficit stays the same. The long division gets pretty ugly. You end up chasing a revenue will-o’-the-wisp. — Kevin Williamson
5) Within a decade, the United States will be spending more of the federal budget on its interest payments than on its military. You read that right: more on debt service than on the armed services. According to the CBO’s 2010 long-term budget outlook, by 2020 the government will be paying between 15 and 20 percent of its revenues in debt interest. Whereas defense spending will be down between 14 and 16 percent. –Mark Steyn
6) (In Pennsylvania, a) single mom is better off earning gross income of $29,000 with $57,327 in net income & benefits than to earn gross income of $69,000 with net income and benefits of $57,045.” — From Gary Alexander, Secretary of Public Welfare, Commonwealth of Pennsylvania
7) For every 1.65 employed persons in the private sector, 1 person receives welfare assistance. For every 1.25 employed persons in the private sector, 1 person receives welfare assistance or works for the government. …The punchline: 110 million privately employed workers; 88 million welfare recipients and government workers and rising rapidly. — Tyler Durden
8) My name’s Ronnie Bryant, and I’m a mine operator…. I’ve been issued a [state] permit in the recent past for [waste water] discharge, and after standing in this room today listening to the comments being made by the people…. [pause] Nearly every day without fail — I have a different perspective — men stream to these [mining] operations looking for work in Walker County. They can’t pay their mortgage. They can’t pay their car note. They can’t feed their families. They don’t have health insurance. And as I stand here today, I just … you know … what’s the use? I got a permit to open up an underground coal mine that would employ probably 125 people. They’d be paid wages from $50,000 to $150,000 a year. We would consume probably $50 million to $60 million in consumables a year, putting more men to work. And my only idea today is to go home. What’s the use? I don’t know. I mean, I see these guys — I see them with tears in their eyes — looking for work. And if there’s so much opposition to these guys making a living, I feel like there’s no need in me putting out the effort to provide work for them. So as I stood against the wall here today, basically what I’ve decided is not to open the mine. I’m just quitting. Thank you. — Ronnie Bryant
9) Wyatt Emerich of The Cleveland Current analyzes disposable income and economic benefits among several key income classes and comes to the stunning (and verifiable) conclusion that “a one-parent family of three making $14,500 a year (minimum wage) has more disposable income than a family making $60,000 a year.
10) The typical husband and wife who reach age 66 and qualify for Social Security — Starting next year, this typical couple, receiving the average benefit, will begin collecting a combination of cash and health-care entitlement benefits that will total $1 million over their remaining expected lifetime.According to my calculations based on government data, such married couples will begin receiving monthly Social Security checks that will, on average, total about $550,000 after inflation. They will receive health-care services paid for by Medicare that, on average, will total another $450,000 after inflation. The benefactors will be a generation of younger workers who are trying to support themselves and their families while paying taxes to finance the rest of government spending.
…Medicare premiums paid by senior citizens once covered half of the cost of physician and related services. They now cover one-fourth. Copayments once covered nearly 40% of these services’ costs. They now cover only 20%. — Joe Cogan
11) The CBO numbers foresee net interest payments rising from 9 percent of revenue to 36 percent in 2030, then to 58 percent in 2040, and up to 85 percent in 2050. If that trajectory holds, we’ll be spending more than the planet’s entire military budget on debt interest. But forget mid-century because, unless something changes, whatever goes by the name of “America” under those conditions isn’t worth talking about. — Mark Steyn
12) The total present value of payments expected under Social Security and Medicare beyond what is expected to be collected under current tax laws is about $100 trillion. One way to put that amount of money in context is to note that it is about twice the amount of all the net private assets that exist in America today. To answer cw’s question directly, the best back-of-envelope estimate is that meeting this unfunded portion of our Social Security and Medicare commitments would require roughly an immediate 80 percent increase in federal income taxes, sustained forever. — Jim Manzi
13) The total fiscal overhang of our federal, state, and local governments — their combined debt and unfunded liabilities — is around $140 trillion, and growing. That is about twice the annual economic output of human civilization, and nearly the value of all the financial assets in the world. It is something close to a mathematical certainty that those debts and obligations will not be made good on at their present value. –Kevin Williamson