What is the Federal Government Debt Limit?

The dow has now risen above the 8,000 mark which is my measurement stick.  Below that is very disconcerting, as I have mentioned in my previous blogs.  Just naming Obama's  Treasury Secretary to replace Paulson and rescuing Citi, the biggest bank in the U.S.  has allowed a huge rebound in the market that is amazing at best because there is no substance to these two, only a psychological 'feeling good.'

I was going to write about the 'moral decay' in this country, but decided that the time isn't right.  Keep in mind that we as a country have exceeded the 200 year measurement time when governments collapse.  So we are climbing against what is historically normal.  

Today, on CNN, I heard where 18 U.S. soldiers have died because of faulty electrical wiring when they were showering.  The company is RBK, and the consensus is that their contract is in the multli-billions and too big to cancel.  If I was a mother of one of these lost soldiers due to this ineptness of a corporation, I would let no road go unturned in getting justice.  This is part of our moral decay when we let what the government decide 'too big' to fail, like Citi this past week-end.  

When you look at the big picture, we are at least $7,500,000,000,000 in additional debt due to the 'rescue' that our fed. and president think we have to do.  I am furious that we would burden our kids and grandkids and beyond given that our own behavior created it.  After talking to a friend today about what is the limit of the United States in going into debt, he said it depends on our capability of paying the interest on these trillions.  So I am now monitoring what we are paying on the national debt in interest and how fast it grows.  

Look Through the Eyes of the Ant

To restate what I said in my last blog; to provide loans to the auto companies is like using a credit card to pay off other credit cards.  

Also, to define the title I chose today, the Ant is patient, hard-working, and organized to serve its community. I have been reading the pros and cons of helping people refinance and stay in their homes.  There is a unknown number of home owners who pay on time and are watching their neighbor be 'rescued' with a new loan that is far more advantageous than those who are being like the Ant.  Some of these people are losing their will to continue in this manner as they see that the opposite behavior is being rewarded.  Given this view, I think the government should be careful about the mortgage rescue plan.  It could snowball and become quite unwieldy.  Having a pristine credit report is not a priority now.

We just have to bite the bullet and take the hit collectively.  By hit I mean that our standard of living may decrease for a period of time.  The world does not have the might, strength, or ability to create enough money to hold up a financial structure that needs to fall to the level of finding its own footing.  The test is for each individual to decide where he/she stands with his/her integrity and doing what is 'just.' Stand up for what is true for you because you have to live with yourself when everything else that you thought was important seems to have disappeared or has has been moved to a different location in the order of priorities.

A Beacon of Light in the Darkness

Paulson's statement of not buying toxic mortgages was great to hear today, especially since I was opposed to the $700B bailout.  This move is in the direction that I am moving myself, away from debt.  The focus needs to be at the bottom, helping people refinance.

The market managed to stay above 8,000 which I use as a measurement stick for stability.  Another fact to note when you hear that this crisis is the worst since the depression is the employment numbers.  Keep in mind that unemployment is 6.5% and will get larger.  But in the early 1930s unemployment was 25.6%, and the early 1980s 10.8%.  It's true that the cause of this recession and unemployment is different than the past, but historically 'bubbles' do pop and we get to experience the downside.  I think since the world is now tied together in one financial web, it creates more fear and hysteria than before.  That is the unknown as far as what lies ahead.  How effective are we as a country in working with all the other countries who economies are tied into ours?  We are finding this out step-by-step.

I have been watching the insurers AIG, GNW, and MBI and can see that based on the stock price movement, more government action will be needed beyond The $145B loan to AIG.

And the big three automakers, GM, Ford, and Chrysler should NOT be bailed out without wholesale changes.  GM and Chrysler should be combined to save on overhead, management, and general and administrative costs.  All of them should reduce the price of their vehicles to recapture costs only for a defined period of time to keep the cash flowing.  Doing business the same way means more bailout money required.  There should be an accounting of what has been planned and accomplished according to this plan with the $25B they have already received from the government.  Rescuing without a comprehensive radical change in the way they do business is only delaying the inevitable.  With 1 in 10 jobs being at risk, it is even more critical to act in a manner that is decisive to stop the cash hemorrhaging.  

Another item of interest today was GE has been backed by the FDIC for $139B of their capital debt.  Look at how fast this $700B is being spent.  Do we really have an understanding of how much money has been loaned in total beyond the $700B approved by Congress?  It has to be in the trillions.

On A Personal Note

As dire as all the news portrays, there is movement of the sale of homes where I live.  Some have been vacant for over a year.  Within the last 2 months, 4 homes have sold.  I live in a mountainous area, in a community of about 1000 people in Northern California, with the nearest city about 35 miles away.  This indicates that the price of homes is now representing the fair market value of the quality of the homes.  I think what is happening here is happening elsewhere on a small scale. Keep an open mind and look for the bright spots in this financial desolate landscape.  They are there to be noticed.  

Also, there are great companies who are trading so low below their book value, that anyone who buys their stock will weather this nuclear storm well.  If there is an interest to interact with me on specific companies, please feel free to contact me at shirleyrwood@yahoo.com.  

Quantum Leap

This country certainly took a 'quantum leap' electing Barak Obama as our 44th president.  I did not believe that my generation would live long enough to see a black or woman president.  It seems like destiny stepped and said that it is time.  The first biggest plus that I can see is that world is already looking at us in a more benevolent way in comparison to what our current administration created through arrogance and the belief that military might is stronger than communication and spiritual strength.  

I want to discuss debt again as I did in my last blog.  I read that the Federal balance sheet began in 2008 with $890 billion in assets made up on 100% in treasury bills..  Currently, the assets are $1.9 trillion, and treasury bills now account for less than 1/3 of the assets. 2/3s are the toxic mortgage securities.  By January 2009, it is estimated that the balance sheet will be around $3 trillion.  As a former accountant, this is quite startling, to see how quickly we went from being risk averse to being giant risk takers with questionable assets as to their value.  

The dollar has recently strengthened against other currencies, but I think this is only temporary because of the amount of money we are investing and loaning financial institutions, plus the programs to come from a Democratic congress that will need funding.  This is all added to our $10-13 trillion debt.  As I have said before, there is an 'unknown' point where our debt load will be so large that selling treasury bills will be more difficult because there will not be enough buyers here and abroad.  That means printing more money to make up for it.  This is where I have my focus, looking for signposts of what appears the inevitable.  If and when this occurs, our dollar will no longer be considered a safe haven.

My hope would be that the president elect shows fiscal constraint in an environment of immense pressure to spend because of the financial struggles of the top and bottom.  We need to keep contracting and paying off debt or having it written off.  This will strengthen our country's balance sheet and also our individual ones. 

Total U.S. Debt Load

Whew, I'm glad October is over.  Just think, the start of the Great Depression when the market crashed on October 29, 1929, the October 1987 23% crash, and 2008's wild ride all occurred in October.

In the 1920s to 1985, our debt load (that is all debt; consumer, companies, government), was 155% to the GDP.  Today it is 355% to the GDP.  If you look at a chart, it's almost straight up for the last 10 years.  The total debt is estimated at $51 trillion.  To get it back to 155%, debt would have to contract either in being paid off or written off by about $25 trillion.  That is clearly beyond comprehension.  The estimates are that the banks have written off at least $800 billion of that from mortgage failures.

As you have noticed from this blog and the last, I am focused on the word 'debt' because the more it controls us, the less freedom we have.  When it becomes extreme collectively, like now, more people lose perspective and end their lives.  Also, those in power decide too quickly on multi-billion dollar deals with far reaching consequences without considering the impact of the fallout from their actions.  True reason at the bottom and top is infected with emotionalism. And that emotionalism is created from the perspective of all parties involved.  They see through the lens of how they view and think of themselves and project it on the collective.

Again, my optimism sees the lessons of this country  and the value of the experiences we are journeying through.  Self-understanding is the key to a better life where the material is only one aspect of life.  As Socrates said, "A life unexamined is not worth living."  Use this time in creating history to take a quantum leap in your self-understanding.

I welcome hearing your views.