AMERICA'S FINANCIAL CHALLENGES

I suspect most people will be inclined to think this subject is boring and of very little interest to them. Even worse; a lot of people think this has no impact on their life. However, that is not quite true. This subject is very important to all of us for many reasons.

The biggest reason is the fact that President Bush and the Republicans have doubled the national debt during his tenure.

It took the 42 previous presidents to push the national debt to five trillion dollars. Bush left office with the national debt at more than 11 trillion dollars. Worse, he left Obama with a budget and "event momentum" generating another trillion dollars of debt bringing it to 12 trillion dollars!

When I use the term "events momentum", I mean such things as two wars and a financial system in virtual collapse!

Remember, Bush kept all of the funding for both wars out of his budget; he used special emergency appropriations for those costs. Obama has put those costs back in the budget where they belong!

How much is $12 trillion dollars? We do not usually deal with things in the trillions. It looks like this:

$12,000,000,000,000.00

This has already sent the national debt beyond $12 trillion dollars! OK you say. How does this impact me?

I have already commented on the corporate executives and the very rich people in this country. I have already shown you several numbers and facts. I will not get into any detail numbers; not here.

If I did, I would blow my mind and yours! If you are curious and want to know more detail about the national debt, the best place I can recommend is:

http://en.wikipedia.org/wiki/United_States_public_debt

OK. The national debt will be twelve trillion dollars and more. There are two basic parts. One part is Intragovernment holdings. This is basically a trust fund and includes social security, medicare, and other funds. These now stand over $5 trillion dollar.

The other part is referred to as Public Debt. This is the money the government owes to various creditors such as bankers, individuals, foreign governments, etc. who have purchased Treasury Bills, etc. This is the part to be most concerned about.

This public debt is about seven trillion dollars. I need to make a comment here. The government is no different than we are. If we spend more than we earn, we too will have debt. We can borrow this money from relatives (sometimes they go a little easier on us) or we can borrow this money from banks, credit unions, loan sharks, etc. (these sources are a little tougher on us). Either way, you have to pay it back!

Why can't the government just print more money? You have to look at the amount of money in circulation as having a fixed value; like 100 pounds of money is worth $10,000 or $100 a pound. If the government just simply printed more money (say, 25 pounds more) we would now have 125 pounds of money still worth the same $10,000. Consequently, each pound of money has dropped in value from $100 to $80. This is called inflation.

If you were one of the people who had a pound of money worth $100 one day and when you woke up the next day it was only worth $80, you would be a little upset, I think. Keep this understanding of inflation.

Lets go back to the Public Debt which we now know is money the government owes to individuals, banks, and in particular, foreign governments. What do you think a foreign government would do if our government started generating inflation causing the value of their holdings to start dropping?

I strongly suspect they would sell their Treasury Bonds immediately and demand to be paid now! Here you are, the government, having borrowed all this money and now you must pay it all back immediately. Seems like you, the government, would be in pretty serious trouble!

You have probably heard something about the value of the dollar dropping or rising. What does that mean?

We can understand this when we relate it to something else. Years ago, the dollar was backed by gold (called the gold standard). If the government had 500 pounds of gold in Fort Knox and the world price (in American dollars) was $600 an ounce, we simply multiply 500 pounds times 16 (ounces in a pound) equals 8,000 ounces. Next, multiply 8,000 ounces times $600 an ounce which is $4,800,000.00.

If we had five million one dollar bills in circulation, each bill would be worth $.96 (96 cents). (The $4,800,000.00 divided by 5,000,000 one dollar bills)

If we increased the amount of gold to 600 pounds and the world price stays the same and we still have five million dollar bills in circulation, each of those dollars would now be worth $1.15 on the world market. The dollar has risen in value.

The opposite is also true; if we decreased our gold from 500 pounds to 450 pounds, the dollar will drop in value to $.86 (86 cents).

You see, when using the gold standard it is reasonably easy to have a basic understanding. You can see the impact if you change the amount of gold; change the world price; change the number of dollar bills in circulation. The basic value of the dollar bill goes up and down.

The gold standard was replaced by fiat money. This gets to be something way beyond my intent here.

However, you can think about this in the same terms as you thought about the gold standard. Each dollar bill has a defined or perceived value on the world market. This value can change based on any number of things such as printing more dollar bills (will drop the value); the condition of the particular government in the eyes of the world (seen as doing well or doing poorly will increase or decrease the value of it's currency); a change in government will impact the world view; action by the government will impact the world view; etc.

Our total debt is about twelve trillion dollars.

Of this, Public Debt is seven trillion dollars. This debt is owed to Americans (Treasury Notes, Savings Bonds, etc.). This debt is also owed to foreigners such as China, Russia, Middle Eastern Countries, England, etc. etc. Not all of these people and/or countries necessarily like us.

They buy these Treasury Bills (lend us money) because we pay them interest. This is generally considered a pretty safe investment unless the value of these Treasury Bills begins to drop due to a drop in the value of the dollar or some other event. This investment will now look risky.

To get people to hold these Treasury Bills it is necessary to increase the interest they are being paid or do something to lessen the perceived danger to their investment. This becomes a very serious National Security problem!

These unfriendly countries and this escalating debt could and would destroy our entire financial system if they suddenly dumped this on the world market. If we cannot pay our own bills, how the hell or where in the hell is the money coming from to pay off these people immediately?

Do we print a ton of money and devalue our currency and consequently triple (or worse) the price we have to pay for oil and other commodities on the world market? Is some magic fairy going to triple your wages or savings to help you buy gas and groceries?

You have already seen the impact of the falling dollar and the escalation in the price of gas, groceries, etc. Not pretty to look at or fun to experience!

Remember, no one has dumped their Treasury Bills or told us to pay back what we owe them!

Our dollar does not have to drop to cause these foreign countries to sell their Treasury Bills; we just have to piss them off even more than we have already!

Now think about Bush's eight years. The Republicans doubled the national debt from five trillion dollars to over ten trillion dollars and set in motion events pushing the debt over 12 trillion dollar. This mass spending of borrowed money was used to support an unnecessary war, buy oil from the Middle East, provide massive tax cuts to the rich, etc.

Just look at the official record!!! Note the slow rate of growth during the Clinton years and then look at the growth rate in the Bush years!

Clinton 12/31/1993 $4,535,687,054,406

Clinton 12/31/1994 $4,800,149,946,143

Clinton 12/31/1995 $4,988,664,979,014

Clinton 12/31/1996 $5,323,171,750,783

Clinton 12/31/1997 $5,502,388,012,375

Clinton 12/31/1998 $5,614,217,021,195

Clinton 12/31/1999 $5,776,091,314,225

Clinton 12/31/2000 $5,662,216,013,697 (Note the decrease!)

Bush 12/31/2001 $5,943,438,563,436

Bush 12/31/2002 $6,405,707,456,847

Bush 12/31/2003 $7,001,312,247,818

Bush 12/31/2004 $7,596,165,867,424

Bush 12/31/2005 $8,170,424,541,313

Bush 12/31/2006 $8,680,224,380,086

Bush 12/31/2007 $9,229,172,659,218

Bush 12/31/2008 (Ended over 12 trillion)

Hell of a way to run a railroad don't you think?

I have already told you and shown you which political party is really the big deficit creator!

At this point, I want to make one comment. Be sensible! This is your country as well as mine! (You know, as good as Reagan was, he also increased the National Debt). That is all I am going to say about the National Debt. All the numbers speak for themselves!

Somebody has to start paying taxes again and it is not the working people; they pay too much already!

I will now say something about your children and grandchildren. You hear people saying things like "What are we doing to our children and grandchildren when we have these kinds of deficits and increase our national debt in this way?"

Remember, I said we have to pay interest on this Public Debt. In 2006 the government paid $406 Billion dollars in interest payments! That is what we are leaving to our children and grandchildren; the need to spend this kind of money to service the debt we are leaving them!

Just think of the things we could do for the country with $406 Billion dollars! How about jobs fixing our infrastructure? How about medical insurance for all the people? How about cutting taxes for the working people for a change?

I am sure you would have no trouble thinking of many alternatives for $406 billion dollars, other than paying interest to foreign governments and the very wealthy here and abroad.

An interesting point associated with taxes and our National Debt is the fact that 68% of foreign companies operating in this country pay no taxes.

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