Notes of Note from John F. Ince

Archive for the ‘TIME-BOMB: America’s Debt Crises – Documentary Film’ Category

How PayPal Almost Erased the National Debt and Ruined the Global Economy – NationalJournal.com

A PR executive from Pennsylvania became the world’s first quadrillionaire. The executive, Chris Reynolds, learned he was the richest man alive when he opened his June PayPal statement and found that he had been credited more than $92 quadrillion. We imagine it felt a lot like finding a $20 bill in the pocket of an old winter coat. Four quadrillion times.

Unfortunately for Reynolds, though, PayPal realized that it had made a mistake and quickly changed his balance back to zero. But Reynolds isn’t the only one who lost out: so did America.

That’s because Chris Reynolds, when asked by CNN what he would have done with his newfound wealth, said that he “would probably have paid down the national debt.” The gross debt of the United States is now over $16 trillion. That’s a pretty big number. But for Reynolds, it would’ve amounted to little more than pocket change. Think of it this way: Bill Gates is worth $67 billion. You could make 1,373,234 people as wealthy as Bill Gates with $92 quadrillion.

What would Reynolds have done with his remaining fortune? Buy the Philadelphia Phillies, he told the New York Daily News. Also, invest.

Although, of course, PayPal would’ve had something of a problem coming up with the money: According to the Federal Reserve, there is only $1.2 trillion in circulation at the moment. By the Federal Reserve’s M2 measure—the broadest money aggregate the Fed tracks, which includes notes and coins in circulation, traveler’s checks and nonbank notes, demand deposits, other checkable deposits, savings deposits, and time deposits—there was $10,598,100,000,000 out there in June 2013. That is still, obviously, way less than even $1 quadrillion.

So PayPal, and the whole global economy, dodged one hell of a bullet in being able to simply erase the accounting error. And the American debt can continue to grow another day.

via How PayPal Almost Erased the National Debt and Ruined the Global Economy – NationalJournal.com.

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Lawrence Goodman: Demand for U.S. Debt Is Not Limitless – WSJ.com

The conventional wisdom that nearly infinite demand exists for U.S. Treasury debt is flawed and especially dangerous at a time of record U.S. sovereign debt issuance.

The recently released Federal Reserve Flow of Funds report for all of 2011 reveals that Federal Reserve purchases of Treasury debt mask reduced demand for U.S. sovereign obligations. Last year the Fed purchased a stunning 61% of the total net Treasury issuance, up from negligible amounts prior to the 2008 financial crisis. This not only creates the false appearance of limitless demand for U.S. debt but also blunts any sense of urgency to reduce supersized budget deficits.

Still, the outdated notion of never-ending buyers for U.S. debt is perpetuated by many. For instance, in recent testimony before the Senate Budget Committee, former Federal Reserve Board Vice Chairman Alan Blinder said, “If you look at the markets, they’re practically falling over themselves to lend money to the federal government.” Sadly, that’s no longer accurate.

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It is true that the U.S. government has never been more dependent on financial markets to pay its bills. The net issuance of Treasury securities is now a whopping 8.6% of gross domestic product (GDP) on average per annum—more than double its pre-crisis historical peak. The net issuance of Treasury securities to cover budget deficits has typically been a mere 0.6% to 3.9% of GDP on average for each decade dating back to the 1950s.

But in recent years foreigners and the U.S. private sector have grown less willing to fund the U.S. government. As the nearby chart shows, foreign purchases of U.S. Treasury debt plunged to 1.9% of GDP in 2011 from nearly 6% of GDP in 2009. Similarly, the U.S. private sector—namely banks, mutual funds, corporations and individuals—have reduced their purchases of U.S. government debt to a scant 0.9% of GDP in 2011 from a peak of more than 6% in 2009.

The Fed is in effect subsidizing U.S. government spending and borrowing via expansion of its balance sheet and massive purchases of Treasury bonds. This keeps Treasury interest rates abnormally low, camouflaging the true size of the budget deficit. Similarly, the Fed is providing preferential credit to the U.S. government and covering a rapidly widening gap between Treasury’s need to borrow and a more limited willingness among market participants to supply Treasury with credit.

via Lawrence Goodman: Demand for U.S. Debt Is Not Limitless – WSJ.com.

Stop Coddling the Super-Rich – NYTimes.com

OUR leaders have asked for “shared sacrifice.” But when they did the asking, they spared me. I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched.While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as “carried interest,” thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they’d been long-term investors.These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places.

via Stop Coddling the Super-Rich – NYTimes.com.

The Decline and Fall of the American Empire | The Nation

A soft landing for America 40 years from now?  Don’t bet on it.  The demise of the United States as the global superpower could come far more quickly than anyone imagines.  If Washington is dreaming of 2040 or 2050 as the end of the American Century, a more realistic assessment of domestic and global trends suggests that in 2025, just 15 years from now, it could all be over except for the shouting.

by Alfred W. McCoy is the J.R.W. Smail Professor of History at the University of Wisconsin-Madison. He is the author of A…

Despite the aura of omnipotence most empires project, a look at their history should remind us that they are fragile organisms. So delicate is their ecology of power that, when things start to go truly bad, empires regularly unravel with unholy speed: just a year for Portugal, two years for the Soviet Union, eight years for France, 11 years for the Ottomans, 17 years for Great Britain, and, in all likelihood, 22 years for the United States, counting from the crucial year 2003.

Future historians are likely to identify the Bush administration’s rash invasion of Iraq in that year as the start of America’s downfall. However, instead of the bloodshed that marked the end of so many past empires, with cities burning and civilians slaughtered, this twenty-first century imperial collapse could come relatively quietly through the invisible tendrils of economic collapse or cyberwarfare.

But have no doubt: when Washington’s global dominion finally ends, there will be painful daily reminders of what such a loss of power means for Americans in every walk of life. As a half-dozen European nations have discovered, imperial decline tends to have a remarkably demoralizing impact on a society, regularly bringing at least a generation of economic privation. As the economy cools, political temperatures rise, often sparking serious domestic unrest.

via The Decline and Fall of the American Empire | The Nation.

The short-term risks of growing national debt – CSMonitor.com

a growing level of federal debt would also increase the probability of a sudden fiscal crisis, during which investors would lose confidence in the government’s ability to manage its budget, and the government would thereby lose its ability to borrow at affordable rates. It is possible that interest rates would rise gradually as investors’ confidence declined, giving legislators advance warning of the worsening situation and sufficient time to make policy choices that could avert a crisis. But as other countries’ experiences show, it is also possible that investors would lose confidence abruptly and interest rates on government debt would rise sharply. The exact point at which such a crisis might occur for the United States is unknown, in part because the ratio of federal debt to GDP is climbing into unfamiliar territory and in part because the risk of a crisis is influenced by a number of other factors, including the government’s long-term budget outlook, its near-term borrowing needs, and the health of the economy. When fiscal crises do occur, they often happen during an economic downturn, which amplifies the difficulties of adjusting fiscal policy in response.

If the United States encountered a fiscal crisis, the abrupt rise in interest rates would reflect investors’ fears that the government would renege on the terms of its existing debt or that it would increase the supply of money to finance its activities or pay creditors and thereby boost inflation. To restore investors’ confidence, policymakers would probably need to enact spending cuts or tax increases more drastic and painful than those that would have been necessary had the adjustments come sooner.”

via The short-term risks of growing national debt – CSMonitor.com.