Global Debt Time Bomb explodes soon

[WhoShotJR]

http://www.marketwatch.com/story/our-debt-time-bomb-is-ready-to-go-ka-boom-2010-02-02


This link is a little political, but I don't think biased against one side or the other. I think it's a pretty good summary of the guns we have pointed at our collective heads. I really can't imagine any scenario where we are looking at anything but a very rough ride. Thoughts?

[phil_in_cs]

I've been hearing the "any minute now" on the debt bomb busting since the late 1970's. People were probably saying it earlier, I just wasn't paying attention.

I will bump this to off topic in the morning unless someone can demonstrate this is "Current Events". Howard Ruff and Gary North made a pretty good case for it being immanent 30 years ago.

[bluesquid]

http://www.marketwatch.com/story/our-debt-time-bomb-is-ready-to-go-ka-boom-2010-02-02


This link is a little political, but I don't think biased against one side or the other. I think it's a pretty good summary of the guns we have pointed at our collective heads. I really can't imagine any scenario where we are looking at anything but a very rough ride. Thoughts?

http://en.wikipedia.org/wiki/Guidotti%E2%80%93Greenspan_rule

http://www.thedailycrux.com/content/3989/Porter_Stansberry/mpsa

http://www.businessinsider.com/pimco-california-bond-spreads-about-explode-just-like-greece-2010-2?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%253A+businessinsider+%2528Business+Insider%2529

http://www.businessinsider.com/moodys-will-downgrade-us-debt-for-the-first-time-ever-if-america-continues-on-its-current-course-2010-2

High debt, low liquidity, and less than a trillion in reserves is bad

[raptor]

Nope not a disaster. Certainly not a current disaster. It is a prediction of possible scenarios that can lead to a disaster.

Do not get me wrong I am not saying many (not all but many) of the 20 events listed can lead to a disaster or Great Depression II as he puts it. Only that it has not happened yet.

IMO items number 1, 3 and 7 are real and pressing issues that may come to a head in 2011/2012. Items 8,9,14,17 & 19 are also very troubling but will impact items 1, 3 & 7 and are not tipping events in and of themselves.

[WhoShotJR]

I've been hearing the "any minute now" on the debt bomb busting since the late 1970's. People were probably saying it earlier, I just wasn't paying attention.

I will bump this to off topic in the morning unless someone can demonstrate this is "Current Events". Howard Ruff and Gary North made a pretty good case for it being immanent 30 years ago.

Nope not a disaster. Certainly not a current disaster. It is a prediction of possible scenarios that can lead to a disaster.

I'm trying to understand how this is not a current disaster, or at least a plausible one, still trying to learn the ropes around here.

Sure, people have been predicting a 'debt bomb' for 30+ years, but they have also been predicting every SHTF scenario as long as we have been around. There are many situations in the article which are happening for the first time in American history (AFAIK, when it comes to econ I'm here to learn).

1. Federal Budget Deficit Bomb. The Bush/Cheney wars pushed America deep into a debt hole. Federal debt limit was just raised almost 100% with Obama's 2010 budget, to $14.3 trillion vs. $7.8 trillion in 2005. The Congressional Budget Office predicts future deficits around 4% through 2020. Get it? America's debt at 84% of GDP will soon pass that toxic 90% trigger point.

Over a five year period that is roughly a 14% per year growth rate in debt limit. That's a current disaster in and of itself.

6. Peak Oil and the Population Bomb. China and India each need 500 new cities. The United Nations estimates world population exploding 50% from 6 billion to 9 billion by 2050: Three billion more humans demanding more automobiles, exhausting more resources to feed their version of the gas-guzzling "America Dream."

This directly ties in which many current problems, food and water being up top.

7. Social Security Bomb. We have no choice; eventually we must either cut benefits or raise taxes. Politicians hate both, so they'll do nothing. Delays worsen solutions. Without action, by 2035 Social Security and Medicare benefits will eat up the entire federal budget other than defense.

Baby Boomers and decreasing tax revenues.

11. Underfunded Corporate Pensions Bomb. From $60 billion surplus in 2007 to $409 billion deficit in 2009. And a whopping 92% of the pension plans of companies are now underfunded. Defaults are guaranteed by taxpayers.

16. Fed/Treasury Bailout Bombs. Tax credits, loans, cash and purchase of toxic assets from Wall Street banks estimated at $23.7 trillion as new debt was shifted from too-big-to-fail Fat-Cat banks to taxpayers.

This could "possibly" lead to some sort of disaster.

18. Shadow Banking: The Derivatives Bomb. Wall Street wants no regulation of this $670 trillion, high-risk, out-of-control casino that's highly leveraged versus the $50 trillion total GDP of all nations. We forget that derivatives almost destroyed global economies in 2008-09, finally will by 2012.

This is a no less a disaster than a ticking bomb waiting to go off in Grand Central Station, at least to my knowledge.



Not to be pedantic, but other than being bored with the topic, could you explain how this potential disaster is any less of a current disaster than:

Intel chief: Al-Qaida likely to attempt attack within months
Social Unrest in Russia may be MAJOR problem.
North Korea Saber Rattling
Mexico becoming a failed state?
Private security companies are see big dollar signs in Haiti
Venezuela faces risk of devastating power collapse
Government Doomsday Planning
CLIMATEGATE: Hacked Emails cast doubt on Global Warming
Possible €uro-Zone Market Crash coming?
There's a blurb on the new FEMA head in the Atlantic


All of which are only potential, or not even, disasters at all.

[SiXiam]

America's debt at 84% of GDP will soon pass that toxic 90% trigger point.

This should have said it was all debt, not just government debt (meaning it includes consumer debt like mortgages and credit cards).

Total Debt: $11,909,829,003,511
http://en.wikipedia.org/wiki/History_of_the_U.S._public_debt

GDP: 14,266,201,000,000
http://en.wikipedia.org/wiki/Economy_of_the_United_States

Debt is 83.48% of GDP

Keep in mind that debt isn't always bad. Massive government debt isn't good, but consumer debt like mortgages is good debt to a point.
Without loans and debt, people couldn't afford to buy houses or cars and most businesses couldn't be started, yet alone expanded.

Edit: This is wrong: I got confused by the term "public debt", which isn't public, but just government debt. 83.48% is just the Unites States federal government debt.

[TheSnoo]

Not to be pedantic, but other than being bored with the topic, could you explain how this potential disaster is any less of a current disaster than:

Intel chief: Al-Qaida likely to attempt attack within months
Social Unrest in Russia may be MAJOR problem.

etc.

All of which are only potential, or not even, disasters at all.

He does make a good point. The economy exploding metaphorically could very easily lead to lots of other stuff exploding (not metaphorically), both here and abroad. History says that when America is up against the economic wall, the government declares war on someone.

[phil_in_cs]

I don't dispute this could be an disaster in the short term if things come to pass as he says. My biggest problem w/ this subject is we get one a day or more on it, mostly very political. This is a man made problem after all, and the blame game and what to do are political questions at the root.

There are two other financial crisis threads in the top 10 now; do we need a third?

[WhoShotJR]

America's debt at 84% of GDP will soon pass that toxic 90% trigger point.

This should have said it was all debt, not just government debt (meaning it includes consumer debt like mortgages and credit cards).

Total Debt: $11,909,829,003,511
http://en.wikipedia.org/wiki/History_of_the_U.S._public_debt

GDP: 14,266,201,000,000
http://en.wikipedia.org/wiki/Economy_of_the_United_States

Debt is 83.48% of GDP

Keep in mind that debt isn't always bad. Massive government debt isn't good, but consumer debt like mortgages is good debt to a point.
Without loans and debt, people couldn't afford to buy houses or cars and most businesses couldn't be started, yet alone expanded.

Actually, no he was right about fed gov debt approaching 84% of GDP. Total US debt was closer to 350% of GDP in 2008. It's much higher than that now.


http://american-armageddon.espacioblog.com/post/2009/03/28/the-debt-binge-consumer-debt-outstanding-and-total-us-debt-and

The United States government debt, commonly called the "public debt" or the "national debt", is the amount of money owed by the Federal government of the United States to holders of U.S. debt instruments.

http://en.wikipedia.org/wiki/U.S._public_debt

[WhoShotJR]

I don't dispute this could be an disaster in the short term if things come to pass as he says. My biggest problem w/ this subject is we get one a day or more on it, mostly very political. This is a man made problem after all, and the blame game and what to do are political questions at the root.

There are two other financial crisis threads in the top 10 now; do we need a third?

I'll leave it up to you guys as to whether or not another thread is warranted or wanted. I can see it being beaten to death as a topic, but I'm personally at a very early learning stage WRT it all as I'm sure others are. The point of the post was not to lean toward politics or even solutions but to summarize many huge, interconnected, unprecedented economic problems the world is currently facing.

[phil_in_cs]

Here's the plan: We managed to get a good 10 pages or so into the "ClimateGate" thread with serious discussion, before it got into people ranting a view point without listening to everyone else. This issue isn't quite the same, as no one doubts it is a problem. The issues here involve the blame game and the governmental type solutions.

A legit post would be news on this from non-political sources. Non-legit posts would be news from political sources. Those I will zap.

Legit posts also include "what as an individual can and should be done"

Please be careful of your sources. Make sure it isn't some lone looney making crap up, and if it sounds too political, it likely is. If I have to zap too many posts for being political I will lock the thread - I don't time to monitor this constantly.

[SiXiam]

Actually, no he was right about fed gov debt approaching 84% of GDP. Total US debt was closer to 350% of GDP in 2008. It's much higher than that now.

Yes, your right I got confused by the term "public debt", which isn't public, but just government debt.

Apparently the government doesn't keep track of total debt amounts of the entire United States.

[phil_in_cs]

None of those numbers include the unfunded Social Security and Medicaid liabilities, estimated at $60 Trillion.

[jnathan]

62.3 Trillion.

Medicare parts A, B and D; Social Security, pensions and (mostly) medical care for Federal and municipal retirees. But this is old hat for us, Phil. Hard to have an argument with someone you disagree with.

I suspect that, more likely, the ignorance bomb is going to explode soon as we're collectively (as a species) becoming less intelligent.

-Jeff

[HHaase]

I have always wondered how much the previous oil price spike contributed to the big collapse that we're still recovering from, given how much of it was driven by people unable to pay off home loans.

And with oil prices on the march again, are we going to see a re-run in the near future?

-Hans

[bluesquid]

What happens if you add fannie and freddies debt to the real number?

6 trillion? of houses that no one can pay for and are vastly over priced? if house prices are falling, liqudity is evaporating, and coexsisting personal inflation and national deflation, arent those homes just unservicable debt? Is our goverment holding 6 trillion of nothing?

work through this. Nate is the man.

http://economicedge.blogspot.com/2010/04/coffee-with-joe-debt-saturation.html

[ShaneofReading]

A Few thoughts:

1) Fed Budget Deficit - It's obvious to me that the Fed plans on inflating the debt away. They can't possibly pay for their spending any other way. Therefore, the Trillions in debt they have accumulated and are acquiring now will be worth much less in the future. This is what normally happens, but slowly. The real worry here is that they don't watch what they are doing and cause hyperinflation, a la the Weimar Republic.

2) Foreign Trade Deficit - This is solved by inflation too. As our goods get cheaper, in comparison, more people buy from us. Seriously, in Europe when the exchange rate has the dollar weak, travel agents arrange shopping trip weekends.

3) Weakening Dollar - This is the solution to the first two. They are doing this on purpose, but controlled. Or so we hope.

4) Cheap Money - The US has pretty low interest now. In time, this will rise with inflation. We just hope it is not hyperinflation. It is really a matter of perspective and opinion on how much inflation is too much.

5) Real Estate Bomb - Yes, people were building like mad for a while due to investors, both individual and corporate, were trying to flip real estate for large gains. However, that time has passed. I'm sure there are still people trying to do it, but there clearly is no illusion any more that it will keep increasing in value for ever and ever. And again, inflation will keep this from getting bad or perhaps from happening at all. The perceived decrease in your homes value could be totally offset by the weaker currency you use to buy it.

6a) Peak Oil - Someday, this could be a real issue. Just not today. And not likely tomorrow. All the doom and gloom scenarios about this forget one thing. There are alternatives. Oil is king now only because it is dirt cheap. Once it's price rises too much, the alternatives become viable, and you won't need to buy it.

6b) Population Bomb - "gas-guzzling" is an American thing. Other cultures do not prize the automobile as we do. Mass Transit, walking, bicycle are how they do things. Still, this is more about food and water than transportation. It will be a problem, but not here. We have plenty of food and water. Other places where corruption and oppression are rampant will have a problem.

7) Social Security - Ah, the old Pyramid scheme. Well, this problem is approaching fast. And inflation is the answer again. It's future debt they plan to make worth less by inflating the currency. We must keep our Baby Boomer voting demographic happy at all costs.

8 ) Medicare - The bomb is going off now. Just the other month I read a report from the OMB that it was the first month on record where payments were greater than the taxes collected. It is only going to get much worse. A Pharmacy chain in a western state is no longer taking any new customers on Medicare due to it the money drain it was on the business. Of course, like the others, the Fed plans to inflate this worry away.

9) Health Insurance - There is so much FUD out there about this. Where to begin? What I do know is this, more insurance means that you can charge more for treatment. Government run anything costs more to run. And their grand plan is to inflate the currency.

10) State Budgets - States don't print their own currency so inflation is not an option they can take directly, but it will help them when the Fed does it. They'll do what they need to do to keep suckling from the Fed.

11) Corporate Pensions - Most companies I know of stopped offering pensions a long time ago. They just have to honor the current participants. I'm sure they will find plenty of ways to weasel out of it in the long run. Besides, inflated currency will make the pensions much more bearable to pay.

12) Consumer Debt - This is not a real problem. Fools will declare bankruptcy. Responsible people will pay their debts. And a lot of debt meas that people are buying things which makes the economy run.

13) Personal Savings - Again, not a real problem as long as people keep spending money. And woe to the fool that just sticks cash in a savings account. The inflation of the currency will make your saved money and all it's accumulated interest worth much less than it could be if it were in invested.

14) War Deficits - again, reduced by inflation.

15) Homeland Security Debt - see: inflation

16) TARP - more debt inflation will make paying off easier.

17) Lobbyists - Not sure if he meant that the lobbyists are the problem or the Socialism. Socialism is definitely a major problem for this country. Lobbyists, eh, I'm not too worried about them.

18) Shadow Banking - He's just worried about another stock market crash. Perhaps he sees one coming. Perhaps not. Who knows?

19) Politics - heh....don't get me started on this one.

20) Populous Rebellion - Sounds like he is saying that kids are impulsive, undisciplined, and are on his lawn too much. Well, kids learn, usually the hard way.

[TheGunslinger]

There's a bit more to it than just 'inflation will take care of everything'.

Especially seeing that an ongoing deficit will still require debt to be raised to make up that shortfall. If you're inflating all your debt away, good luck in getting more from others.

I don't think that it will be such a huge problem. It's vogue now to start worrying about the deficit. Action will follow to reduce it.

[Tater Raider]

Current Disaster = picture yourself in NOLA right after Katrina went through.

Possible Disaster = Katrina II. NOLA will flood again when (not if) at cat 4-5 huricane hits, but no one can say for certainty when it will hit. How bad it will be is hotly argued and somewhat preventable but politics has gotten involved so can't really comment on it other than to say I won't be moving there.

The economy is bad and we should be ready for it to get worse. People are saying it will and it won't both. I say it's a possible disaster, even a probable disaster, but not current. It ain't hit Great Depression levels yet.

Yet.

[CaptBrainFreeze]

The link eludes me at the moment but it's somewhere showing Euro countries planning a bailout of sorts for Greece.

[TheGunslinger]

It's all over the news at the moment. The IMF and Euro banks are lending to Greece at a below market rate in order to keep the country solvent.

The Euro has risen a fair bit on the back of it.

Links here
http://www.financialadvice.co.uk/news/i ... -plan.html

http://www.insidefutures.com/article/14 ... 0Call.html

[phil_in_cs]

http://news.bbc.co.uk/2/hi/business/8614782.stm says that Greece is paying $15B month in debt service, and does not have any cash. They were previously going to have to pay 7% or more in interest to borrow money, this $40B is at 5% and the market rate dropped to 6.1%.

The $40B is less than 3 months of debt service. It is hard to see how they will be able to come up with some plan in the next 3 months that will be a permanent solution. They are still borrowing money from one source to pay another - this just gets them a better rate.

[Tater Raider]

Keeping my eye on California and Greece. Both have been in trouble for a while now.

[drunkensurvivor]

http://news.bbc.co.uk/2/hi/business/8614782.stm says that Greece is paying $15B month in debt service, and does not have any cash. They were previously going to have to pay 7% or more in interest to borrow money, this $40B is at 5% and the market rate dropped to 6.1%.

The $40B is less than 3 months of debt service. It is hard to see how they will be able to come up with some plan in the next 3 months that will be a permanent solution. They are still borrowing money from one source to pay another - this just gets them a better rate.

I think you saw a 15B number that needed to be raised and assumed it was a monthly obligation. The Greek deficit has been thrown around to be 13% of GDP, and Wiki lists Greek GDP at 343B. 343x.13=44.59 It looks like this kicks the can down the road a year or so, but I don't know the exact calendar for their obligations. Unless Greece's austerity measures work and their economy starts booming at the same time(chances are slim to none), they are going to be in the same position in a year or so as they are now. That sucks for Greece and the Eurozone, but maybe the US government can learn something by watching a sovereign debt crisis unfold. The next five or ten years are going to be very interesting for both Europe and the US.