Webster Defines Stimulus as:
stim•u•lus
noun \ˈstim-yə-ləs\
plural stim•u•li\-ˌlī, -ˌlē\
Definition of STIMULUS
: something that rouses or incites to activity: as a : incentive b : stimulant 1 c : an agent (as an environmental change) that directly influences the activity of a living organism or one of its parts (as by exciting a sensory organ or evoking muscular contraction or glandular secretion)
Seems like we have been on a global stimulus rage for the past 4 years:
Gross debt as percentage of GDP
Sources: IMF, World Economic Outlook (emerging market economies); OECD, Economic Outlook (advanced economies)
Things are not so wundaba in Frankfort at the European Central Bank.
Europe's sovereign-debt crisis is set to continue into 2011
The sovereign-debt crisis in Europe appears poised to continue into the new year, as Greece and Portugal face possible downgrades to their credit ratings and Spain is forced to pay more to issue debt. China has urged European leaders to show that they can contain the region's fiscal woes and rectify the situation in a timely manner. Reuters (21 Dec.)
At least we are not the only ones concerned with the ballooning debt.
Citigroup urges the EU to resolve the sovereign-debt crisis
Willem Buiter, chief economist at Citigroup, said the European Central Bank and EU governments are playing a "game of chicken," paralyzing the eurozone. Citigroup warned that unless EU leaders launch a credible response to the region's sovereign-debt crisis, more banks will collapse and governments will default. "The market is not going to wait until March for the EU authorities to get their act together," Buiter said. "We could have several sovereign states and banks going under. They are being far too casual." Telegraph (London) (21 Dec.)
Aren’t these the guys who were essentially bankrupt before the government handed them $25 billion along with $300 billion in loan guarantees?
Seems like their experience has given them the inside track on these types of things – comforting is it not?
PEOPLE: 308,745,538
DEBT: $13,868,461,000,000
The debt is $44,918.74/per person
The medium household income is $46,346.
On October 19, 2010, the Bureau of Labor Statistics (BLS) reported, “Median weekly earnings of the nation's 101.4 million full-time wage and salary workers were $740 in the third quarter of 2010 (not seasonally adjusted), the
U.S. Bureau of Labor Statistics reported today. This was 0.3 percent higher
than a year earlier, compared with a gain of 1.2 percent in the Consumer Price
Index for All Urban Consumers (CPI-U) over the same period.”
This increase is a relief! ?
Trying to make our economy grow with this much debt is like a couch potato who eats extra helpings of cheesy fries with a bucket of beer and ½ a chocolate cake 4 times a day run a marathon in under 3 hours
– they can try but will fail –
Listen closely and you will hear the huffing and puffing of our economy as it prepares for the inevitable – collapse……
I had a simple rule concerning credit that applied to credit cards – If you only buy something on credit if it will be there the day the credit card statement arrives – in other words food, meals, fuel, etc are consumables – clothes, white goods, etc are durables. When debt is incurred to spending on consumption it is bad debt, when it is for investment it is good debt.
Another example is related to muni debt. I will only buy muni debt if it is backed by something other than fiat or the ability to tax. Full faith and credit is good and all but revenue production through fees is better. I will take a bond with a primary backing by a sanitary facility, toll road, power plant, then backed by fiat any day of the week. These bonds represent investment and as our readers know we like investing.
The second point is in this vein is that we all know government does not create jobs. Government jobs are non productive. They add nothing to the economy. The reason is simple, the government provided services that are regulated. These jobs are “legislated” or created by law not demand for goods and services. The salaries paid are generated by tax levies or operating fees. I’m not saying that government jobs are all un-necessary. A simple rule is to look at any government job and think of the consequences that would result if no one did that job. Is there a private sector replacement for that job? If there is no private sector replacement it is not necessary. Examples are education, there are public and private schools, education is necessary but not necessarily something government should provide. Most parents of school age children would opt for free private school. This simply means they believe that private education is better than public education. Police forces can be replicated by security companies, there are public and private utilities etc, etc. One thing that has recently come to light is that government wages are higher than their private sector counterparts. Curious isn’t it? Why does a non competitive employer (ie: one who operates as a pure monopoly) have to pay so much with unemployment so high? Keep in mind that most public sector employees are unionized then you must ask yourself why?
What happens when you spend more than you make? You do into debt!
For the government this means borrowing through the Treasury.
The following is a list of the Top 10 Foreign Owners of U.S. Treasury Securities as listed by the U.S. Treasury (Major Foreign holders of U.S. Treasury Securities , U.S. Treasury Department.)
% foreign
Country $ value Held % of total
Total US Debt $13,561
Department of the Treasury/Federal Reserve Board a/o November 16, 2010
1/ Estimated foreign holdings of U.S. Treasury marketable and non-marketable bills, bonds, and notes reported under the Treasury International Capital (TIC) reporting system are based on annual Surveys of Foreign Holdings of U.S. Securities and on monthly data.
2/ United Kingdom includes Channel Islands and Isle of Man.
3/ Oil exporters include Ecuador, Venezuela, Indonesia, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates, Algeria, Gabon, Libya, and Nigeria.
4/ Caribbean Banking Centers include Bahamas, Bermuda, Cayman Islands, Netherlands Antilles and Panama and the British Virgin Islands.
Look who owns so much of our debt – China, followed closely by Japan.
But look at the oil countries – why so little?
My guess is that the overall holdings are related to a need for hard currency (China) and a desire to keep a low profile (Japan).
The currency market is the largest traded market in the world.
We trade with China and Japan every time we buy a good or service manufactured in their country or they buy one manufactured here in the good ‘ol US of A.
Recently, we have bought more from them than them from us.
This means they have a net US dollar surplus, in other words we buy more stuff from them than they buy from us so at the end of the day they have more US dollars than they started with.
What to do with these US dollars?
They have a few choices but boiled down basically two choices:
1) Sell the dollars back to anyone who wants to buy them,
2) Buy stuff to return the excess dollars they into circulation.
Mostly China and Japan to take the second option and the use the excess US dollars to buy US Treasury Bonds – very patriotic of them.
If they chose to return the US dollars via buying their own currency or that of another nation the results would be a lower dollar – the old supply/demand econ 101 stuff.
The fact they are holding US Government debt seems to be a whole lot better than them choosing to sell US dollars.
However, if the day came where they chose to sell the US Government debt and buy their own currency all at once, the results would be a much weaker bond market (ie: yields would go straight up) and a weaker US dollar.
If seems to me they either 1) have a lot of faith in our Government, 2) are afraid of retaliation, 3) want to keep US dollars for security and stability reasons, or 4) are not too bright.
Most likely, it is a combination of 1, 3 & 4. After all, how could we retaliate?
There are a lot of ways but basically this is a stand off with mutual fear – they fear we will issue a lot of dollars and dilute the value of their investments and we fear they will sell without prior notice – FYI = these fears are unfounded as everybody involves in interested in preserving the status que or improving it and neither of these actions would benefit either party.
So basically this aspect of the “problem” is a non starter.
What else is there to the problem? PLENTY
Really silly stuff putting us in more debt:
Did you know that the US via the Office of the Secretary of State pledged $30 billion or $10 BILLION a year to fight Global Warming?
http://www.state.gov/documents/organization/135888.pdf
Do not forget to read:
“Our work is ambitious. Our times demand nothing less. We are working
with partners around the world to bring stability to volatile regions, reverse the
spread of violent extremism, stabilize the global economy, decrease extreme
poverty, demolish transnational criminal networks, fulfill President Obama’s
vision of a world without nuclear weapons, stop health pandemics, and address the
threat of climate change.”
On page 7 – What the H E L L does the office of the Secretary of State have to do with Climate Change? I guess since they cannot correctly spell “RE START” in Russian they must protect the politically correct vision of Al Gore – Isn’t that the fellow who abandoned Bill Clinton the husband of the current Secretary of State?
I am lost in my ability to understand the complexity of the Government, For the People & By the People – or is it Buy the People?
You cannot make this stuff up – read further (pg 9):
Targeted investments
We are shifting our focus toward making targeted investments in a few key
areas of convergence—that is, fields that play a central role in the overall
prosperity and stability of a country and region.
Department focus:
“The third is climate change. This global crisis has left its mark on many
countries in the form of floods, droughts, and devastating storms, all of which
further poverty, foster instability, and hold back progress. As part of our efforts to
meet the climate challenge, the United States has committed to provide its fair
share of prompt start financing approaching $30 billion over the next three years
for mitigation and adaptation. This includes the mobilization of $1 billion between
2010-2012 for programs that will reduce emissions caused by deforestation and
other land use activities. The FY 2011 foreign assistance request includes $200
million toward this goal, along with $147 million in multilateral contribution from
the Department of Treasury. All told, the Department of State, USAID, and the
Department of Treasury are requesting nearly $1.4 billion for core global climate
change assistance in FY 2011. That’s more than four times the level of assistance
in FY 2009 – a reflection of the urgency of and broad support for this effort and a
first step in our longer term effort to finance solutions to support necessary
international policies and programs to solve climate change.”
The mandate of the Office of Secretary of State posted on their web site is:
“Department Mission Statement
Advance freedom for the benefit of the American people and the international community by helping to build and sustain a more democratic, secure, and prosperous world composed of well-governed states that respond to the needs of their people, reduce widespread poverty, and act responsibly within the international system.”
Can anybody point out Climate Change to me?
THIS IS WHY WE ARE IN TROUBLE
None of this profligate spending has anything to do with stimulating our economy
TO BE CONTINUED……
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