IN THIS ISSUE:
1. Another Strong Jobs Report, But Not All Good News
2. US National Debt Topped $19 Trillion on January 29
3. Debt Held by the Public & Intra-Governmental Debt
4. Whatever Happened to the Debt Ceiling/Debt Limit?
5. Blog: “Red” States Now Outnumber “Blue” States
On Monday, February 1, the Treasury Department announced that America’s national debt had topped $19 trillion for the first time ever – and no one seemed to notice. That’s more than $58,000 for every person living in the US today, including children.
When President Obama took office in January 2009 the national debt was at $10.6 trillion; since then the debt has soared by $8.4 trillion during his seven years in the White House — a record pace that the Congressional Budget Office says is likely to continue.
Our $19 trillion in national debt is made up of a combination of “Debt Held by the Public” and “Intra-Governmental Debt” held by various federal agencies. The government maintains that the latter is debt that we owe to ourselves, and shouldn’t be counted towards the national debt. I will argue that such a conclusion is ridiculous.
I will cover that and more regarding our national debt as we go along today. But first let’s take a look at Friday’s unemployment report for February.
Another Strong Jobs Report, But Not All Good News
Last Friday’s unemployment report for February cited a better than expected 242,000 new jobs added last month. The pre-report consensus called for only 190,000 new jobs. The headline unemployment rate remained steady at 4.9% as expected. Friday’s report revised jobs numbers for January and December upward by 30,000 new jobs.
Elsewhere, the U-6 unemployment rate, which includes those who are working part-time because they can’t find full-time employment, fell to 9.7% from 9.9% in January. Strong employment gains were recorded in healthcare, retail trade and restaurants. Yet manufacturing jobs fell by 16,000 last month, more than expected, and mining jobs also tumbled.
The Labor Force Participation Rate, including those working and actively looking for work, edged upward to 62.9% for the second monthly advance. Yet average hourly wages dropped by 3 cents an hour to $25.35 after rising in January. The average workweek also declined slightly to 34.4 hours.
All in all, the February jobs report was positive in that it showed a significant increase in new jobs following the disappointing January report and a second consecutive monthly increase in the participation rate. It was also encouraging in that more Americans are looking for work and finding jobs faster. It was not, however, without a few disappointments.
US National Debt Topped $19 Trillion on January 29
On Monday, February 1 the Treasury Department announced that America’s national debt had topped $19 trillion for the first time ever – and no one seemed to notice. That’s more than $58,000 for every person living in the US today including children. The latest addition of $1 trillion to our national debt – from $18 trillion to $19 trillion – happened in just over 13 months.
When President Obama took office, the national debt was at $10.6 trillion; since then the debt has soared by $8.4 trillion during his seven years in the White House — a record pace that the Congressional Budget Office says is likely to continue.
You will recall that President Obama ran annual budget deficits in excess of $1 trillion in 2009-2012, the largest expansion of debt in history. Even though the deficits have come down significantly in recent years – $483 billion in FY2014 and $439 billion in FY2015 – the CBO projects that the annual deficit for FY2016 will rise to $544 billion. The CBO projects the deficit to rise every year going forward and will top $1 trillion again by FY2022 and will remain above $1 trillion indefinitely.
Debt Held by the Public & Intra-Governmental Debt
The Treasury Department and the CBO break down the national debt into two distinct categories, as you can see in the table above. “Debt Held by the Public” (apprx. $13.7 trillion) represents money owed to the non-government holders of Treasury Bonds, Treasury Notes and Treasury Bills outstanding, which includes individual Americans, corporations, foreigners and foreign governments.
“Intra-Governmental Debt” (apprx. $5.4 trillion) is a term used to define the flow of money and government securities between the federal government and specific government agencies and government trust funds, the largest being the Social Security Administration.
These agencies hold a different type of debt referred to as Government Account Series (GAS) securities. Intra-Governmental Debt is incurred when the government borrows from federal trust funds to help fund current operations.
The government and entities like the CBO argue that Intra-Governmental Debt should NOT count toward our official national debt because, they say, it is money that we owe to ourselves.
To that I say, hogwash!
These GAS securities are just as much an obligation of the federal government as are Treasury securities held by the public. GAS securities mature and are retired, just as with Treasuries. And new GAS securities must be issued to replace them.
The problem is that when the Treasury and the CBO and the financial media talk or write about the size of our national debt, they generally only refer to the debt held by the public. We often see comparisons of the national debt as a percentage of Gross Domestic Product (GDP). Yet in almost all of these comparisons, the source is only using the debt held by the public, not total debt.
For example, GDP was apprx. $17.9 trillion in 2015; debt held by the public was apprx. $13.5 trillion; so debt held by the public was only 75.6% of GDP. Whereas, our total national debt of $19.0 trillion is 106% of GDP at $17.9 trillion.
By this flawed method of calculation, these government entities (Treasury, CBO, etc.) significantly understate our national debt as a percentage of GDP. The CBO, for example, projects that the US debt-to-GDP ratio will only rise to 103% by 2040! Yet as we just saw, if we use total debt, then the ratio is already at 106%.
You might be wondering why these government entities want to deceive us by using only debt held by the public in their calculations. As noted earlier, they apparently believe that Intra-Government Debt is debt that we owe ourselves and should not be included in the national debt. But more importantly, they don’t want us to know how large our total debt really is, and they want to keep the debt-to-GDP ratio below 100% for as long as they can.
There is a great deal of history which shows that when a country’s debt-to-GDP ratio exceeds 100%, bad things start to happen. It’s that simple.
If you want to see where our national debt is in real time, visit http://www.usdebtclock.org/.
Whatever Happened to the Debt Ceiling/Debt Limit?
At the end of October last year, President Obama and congressional leaders struck a controversial deal to suspend the debt limit and set the federal budget for the next two years to end yet another threat of a government default. The debt ceiling suspension is until March 15, 2017. In the meantime, the government can spend as much as it wants – no limits.
Before getting into the details, let’s revisit, once again, how we got here. In 2011, Congress passed the Budget Control Act, which tasked a “SuperCommittee” to come up with at least $1.2 trillion in deficit reduction over the next 10 years. When that Committee failed to come up with a dime of savings, spending for fiscal year 2013 was cut across-the-board through the “sequester” process. This legislation also set discretionary spending caps through fiscal year 2021.
A year later, seeking to ease the spending caps once again, Congress adopted the Bipartisan Budget Agreement which increased the spending caps for two years and kicked the deficit reduction measures down the road for another two years.
Last October’s new agreement increased spending caps for defense and non-defense programs by $25 billion each in fiscal year 2016, and $15 billion each in fiscal year 2017. An additional $73.7 billion is available in each of the next two years through the slush fund known as the Overseas Contingency Operations Fund.
Spending on defense programs gets “not less than” $58.7 billion for each of the next two years and the agreement more than doubles the amount requested for the State Department this year to roughly $15 billion, keeping it at that level next year. In total, the deal represented an additional $112 billion above the Budget Control Act levels over the next two years.
I could go on and on with details but the point is, Congress and President Obama struck this deal in late October which suspends the debt ceiling until March of 2017, just after this president leaves office. In the meantime, they can spend unlimited amounts of taxpayer money.
Get ready for a national debt of more than $20 trillion by that time.
Is It Possible to Stop America’s Federal Debt Explosion?
I think about this question a lot. I’m sure many of my conservative clients and readers do too. Many of us worry if the nation is now past the point of being able to reign-in our deficit spending, run surpluses and start to reduce our gargantuan national debt.
As noted above, our national debt is now at 106% of GDP – not that the government will admit it. So realistically, is there anything that can be done to stop our runaway debt now that almost half of the population receives some kind of government benefits? And this number will only move higher as our population ages.
The answer is, I don’t think so. The federal budget goes up every year, no matter who is in the White House or which party controls Congress. Every four years, conservative presidential candidates promise to reign-in federal spending, cut the deficit and even balance the budget, but nothing is done.
President Obama has proposed the largest federal budget in history for FY2017 at $4.15 trillion. He may not get all of it, but mark my words: the ultimate budget for FY2017 will be higher than that for FY2016. It always goes up no matter what.
Today, the government is selling 10-year Treasury Notes yielding around 1.8%. That is a testament to the confidence foreigners have in America’s ability to repay that debt. Yet these same holders of our Treasuries have to know that our national debt is the highest in the history of any country in the world.
Likewise, they have to know that our annual budget deficits, which have declined from over $1 trillion in 2009-2012 to $439 billion in FY2015 are on-track to go back above $1 trillion a year in 2022 (if not sooner) and continue above $1 trillion a year indefinitely thereafter.
At the end of the day, the question is not really whether we as a nation could stop increasing spending and start to reduce our national debt. We won’t. The real question is how long will foreigners continue to finance our profligate spending by buying and holding our government debt paper?
I don’t know the answer to that question. I would never have thought it could last this long. But when that day comes, it’s game-over.
Blog: “Red” States Now Outnumber “Blue” States
I learned something last week that I didn’t know. “Red” states now outnumber “blue” states by a comfortable margin. Red states are those that reliably vote Republican and blue states reliably vote Democrat.
According to Gallup, there are 20 states which are now solidly or leaning red (meaning Republican voters outnumber Democrats) and only 14 that are solidly or leaning blue. Did you know that? Neither did I. The mainstream media never mentions this.
And I learned something else last week. Again from Gallup, the number of Republicans who identify as“conservative” increased from 62% in 2000 to 68% in 2015 – I would have thought it moved lower. This is good news!
Meanwhile, Gallup found that the percentage of Democrats who identify as “liberal” has soared during that same time period from 29% to 45%. The number of white Democrats who identify as liberal has nearly doubled, from 28% to 50%.
And finally, a new report from the American Enterprise Institute found that only about one-third (37%) of Democrats describe Hillary Clinton as a “liberal,” while about half consider her to be a “moderate.” If Hillary is not a liberal, I don’t know who is!
All the best,
Gary D. Halbert
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