TODAY we are going to start with a quiz.
Let’s say your family owed $8,899 on this exact date in 2007. But after a year of buying food and clothes, paying for the kids’ education and health costs, as well as the occasional splurge at McDonald’s feasting on Angus burgers, your family now owes $9,540.
What was your family’s deficit over the past year? Or, put another way, how much deeper into debt did you go?
The correct answer is:
A. $389
B. $641
C. $0, we just put it on the credit card.
D. We’ll declare bankruptcy like everyone else.
E. Go away, I don’t want to play your stupid game!
In this day and age, answers C and D will work. Debt is something to be shrugged at and shirked, especially if you’re a major financial institution.
And if you picked E, please put down this newspaper immediately and get out of my sight.
For those of you who are taking this seriously (and who had a calculator at the ready), you probably picked B, which was $641. And in fact, if you subtract the family’s debt level last year of $8,899 from the current level of $9,540, you’d come up with additional indebtedness of $641.
So that, of course, would be the right answer – unless you’re an elected official in Washington. Then you’d swear the correct answer is A, $389, even though simple math tells you differently.
With me so far? The next part isn’t so easy, so mainline some caffeine if you want to stay with me on the rest of this.
Earlier this week, the White House budget office said the federal government’s deficit for the fiscal year that ends in September will be $389 billion, give or take the cost of extra bullets we might need to fire in Iraq.
You are probably thinking that’s an amazingly large number, and it is. But the figure – like in the case of the burger-eating family above – isn’t even close to reality.
Our nation’s debt was $8.899 trillion on July 25, 2007. Just put the word “trillion” after the above family’s budget to make things simpler.
On July 25, 2008, our indebtedness had risen to $9.540 trillion.
Do the math.
The US went $641 billion deeper into debt over the past year – even as the government was claiming a deficit of “just” $389 billion.
Why are the numbers so different? Mainly, it seems, because Washington has the right to “borrow” excess Social Security funds, and last year the nation’s retirement system coughed up $181 billion to paper over part of the budget deficit.
That would be fine if the Social Security money actually belonged to the government. But it doesn’t.
It’s ours! In case you are wondering how Social Security got so much extra money, it’s only because more people are paying into the system these days than are taking money out in the form of benefits. That’ll change dramatically in the not-so-distant future and we’ll be wishing we hadn’t replaced that $184 billion (year in and out) with government IOUs of questionable value.
Here’s what I’m getting at.
Washington is projecting a whopping $482 billion deficit in the 2010 fiscal year, if – of course – the Iraq war comes in on budget and another round of economic stimulus checks aren’t written. The first round of rebates will end up adding $168 billion to the deficit and may, or may not, help stimulate the econ omy.
And when So cial Security needs its money back to pay Baby Boomers in their golden years, today’s stunningly large deficits could become mind boggling.
I just thought you might like to know.
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There was another big early morning rescue of the stock market Tuesday morning after a huge drop in the first trading day of the week.
Bill King, my friend from Ramsey King Securities in Burr Ridge, Ill., says the charts show that strong buying in the Standard & Poor’s future contracts began at 6 a.m. New York time. Over the next hour – when most traders, you’d assume, were still asleep, S&P futures contracts staged a 10-point rally.
That, of course, was very fortunate since Merrill Lynch had announced the previous night that it would have to raise more capital – contrary to what it had said just weeks before.
King has been tracking these mysterious pre-dawn rallies. And if I were a more skeptical type I’d be wondering if Treasury Secretary Hank Paulson was an early riser. And whether Paulson is still, as he has admitted, talking to “market participants.” Seriously, in a way it’s good that someone might be purposely giving the stock market a lift if a disaster is expected. But it leaves those who aren’t in the know – that’s you, folks – at a severe disadvantage if the market corrects to where it would have been.
So watch out!