May 2011


And boy, what a pickle this is. It’s not that fantastic jar of pickles that your grandma home-canned last summer. This is that big fat monster that they package in that creepy bloated bag and try to sell at places like Blockbuster and stinky bathroom quick stops.

What is our current debt?

As of 5/21/11:

Public Debt = $9.716 Trillion

Intergovernmental holdings = $4.629 Trillion

=$14.345 trillion total public debt outstanding

According to the federal schedule of debt, the publicly owned debt amount was $9 Trillion as of September 30, 2010, and the intergovernmental holdings were $4.5 for that same period. For April 30 of this year, those same numbers were $9.6 trillion and $4.6 trillion. Let’s see… so that’s a $600 billion total publicly held debt increase in a mere 7 months? Calm down Janeen! Stop hyperventilating. You haven’t got to the bottom of this yet, so don’t freak out… 

The current debt subject to limit:

What is the Debt Ceiling?

According to this CNN Money article, the lawful amount that the government currently can be indebted is set at $14.29 Trillion. Current obligations will push the amount of debt past that point, thus the argument about whether or not the ceiling should be raised. The debt ceiling has been raised 74 times since 1962. The US Treasury estimates that the current debt ceiling will be reached by May 16th (although the Secretary of the Treasury, Timothy Geigner has said that through some accounting magic he can extend that date by 10 weeks). On May 16th, Geithner sent out a letter detailing the beginning of this measure to create “headroom”, while simultaneously begging for a debt limit increase.

Economic Indicators

  • US Dollar index

The dollar index (USDX), according to Wikipedia, is a measure of the buying power (value) of the dollar against 6 other currencies (the Euro, Yen, Pound sterling, canadian dollar, swedish krona, and swiss franc). The dollar index increases as the US dollar rises in strength compared to the other currencies. The current index high occurred in 1985 at 148.1244, and the record low for the index took place on March 16th, 2008, at 70.698.


You can see from this graph at ino.com that the dollar index has been declining steadily over the past year, with a low of just under 73 in early May. Since that time, the dollar has risen in strength. Why? I have no clue. Has the dollar actually gained in relative purchasing power, or is it a temporary shift due to <insert brainy economic term here>? Perhaps, as with U.S. securities, investors are seeing the dollar as weak, but stronger than its competitor currencies?

Why track this index?

Rumor has it that a drop below a certain point (72? 71? 70?) would signal a lack of confidence in the dollar, and subsequent actions (rise in interest rates, loss of US dollar as reserve currency, widespread inflation). Don’t freak out, it’s just a theory.

  • Long term treasury securities (an indicator of how investors feel about the future ability of the government to pay back on its obligations)

As investor confidence wanes, the Treasury must offer a higher rate of return in order to entice investors into purchasing their product. Reversely, a strong confidence in the product would lull investors into accepting a lower rate of return (yield). So, you’d expect record highs on treasury securities right now, correct? Only if our economy weren’t global 🙂 Right now T-Bill rates are at their historical lowest, as investors choose US securities over their European counterparts. Apparently Europe is having its own crisis right now. Well, who knew? Yes, I’m a bit slow. You mean, the bills issued by our own $14.2 trillion in debt government are more attractive than securities offered by European countries? Wow, they must really be in trouble. The good news is that investors don’t seem to think the U.S. is in any immediate danger of drastic inflation. They’re still willing to park their cash here, and that’s good for us.

Take a look here at the daily treasury yields for this year so far. Although the 30 year yield has just barely inched down, even the 10 and 20 year securities have dropped significantly. Very interesting.

  • Debt to GDP ratio

According to Investopedia, the GDP (Gross Domestic Product) is the measure of value of a country’s goods and services production. The GDP is commonly referred to as a measure of the size of the economy. It’s calculated by either adding up what everyone spent, or adding up what everyone earned.

The Debt to GDP ratio is just that, the comparison of a country’s indebtedness to its production. Said another way, it’s the size of our debt, compared to the size of our economy. The Debt to GDP ratio gives an interesting picture of how much discretionary income we have as a country. As the ratio nears 100%, we will find that the national debt is consuming all of the U.S.’s production. Freaky, huh?

The current ratio is hovering at 90%.

Just what have we been “buying” that has necessitated this debt?

As I covered in the last post, the top 6 spending categories for the 2011 budget are as follows (numbers taken from the Death and Taxes poster):

  1. D of D/National Security              – $895 billion
  2. Medicare & Medicaid                     – $788 billion combined
  3. Social Security Administration   – $730 billion
  4. Income Security                               – $580 billion
  5. National security discretionary   – $520 billion
  6. National Debt Interest                   – $251 billion

To cover this spending, the government will receive $2.567 trillion (just under half of which is receipts from income taxes). 

Assuming, for a moment, that taxes aren’t raised to help finance the debt, you can see that it is going to take more than a few cuts here and there to balance the budget, much less begin to reduce our debt. Our deficit for this year alone is 1.26 trillion dollars. Just looking at the numbers above, a balanced budget could be achieved merely by canceling the entire Department of Defense, and half of the discretionary National Security budget. Whoa. Or, a balanced budget could be achieved by cutting the Department of Defense budget in half, and completely eliminating medicare and medicaid. Or, if you’d prefer, we could balance the budget by completely eliminating social security and income security spending.  Well, look at these great options! This ought to be no problem for lawmakers! <<insert sarcasm>>

Who Holds the debt?

according to Farm and Dairy News (ha ha) and the US Treasury, the majority of the national debt is split between the government itself (through various funds, including social security), and domestic private investors. The amount of our debt held by foreign interests accounts for 4 of the 14 trillion dollars.

What’s happening in the government on this issue right now? 

I can see how lawmakers are having a difficult time agreeing on a debt reduction plan. Even here at Maxwell House we’ve had a memorable heated debate on the topic. I advocated a reduction in defense spending and the gradual elimination of social security. Hubby balked at the idea of defense decreases. Must be the protector in him 😉

Current proposals include:

  • The Ryan Plan (titled “The Path to Prosperity”), was developed by house budget committee chairman Paul Ryan (Wisconsin) and fellow house committee members. See a synopsis at the Wall Street Journal, or at the budget committee site. This plan is, in a nutshell, based on various spending cuts which are expected to allow the budget to slowly become balanced (in 2015!), and then pay off many debts… by 2050!!

I’m no political expert, but I do know that politics change at the drop of a hat (or ballot), and budgets transform mysteriously from year to year regardless of previous promises and legislation. The only thing constant in politics is change 🙂 I’d be surprised if this plan were even able to meet its goal of balancing the budget by 2015, much less its long term goal of debt reduction. All it takes is one “crises” for the elected to throw out the old rules and spend us back into oblivion. However, it appears to be a well thought out plan, and perhaps the best available. Let’s examine some more proposals.

  • The President’s Proposal aims to eliminate the deficit within the next 10 years (note: we’ll still be going farther into debt until that time), with a combination that includes 2/3 of the reduction due to spending cuts (mostly through a discretionary spending freeze?) and 1/3 of the reduction due to an increase in taxes. I tried to read this overview with an open mind, I really did. I can’t help but feel that the man who drafted this thinks so very differently from myself and my family. Though the plan touted spending cuts, most of the wording from this overview indicates that somehow more money is going to be spent in many sectors, including education and welfare reform, and a commitment to increasing “clean energy”. Ummmm???
  • Current budget talks are in session between the administration (represented in part by Biden and Geithner) and Rebublicans (represented by Cantor, Kyl, Inouye, et al). Kyl has said that there is an agreement about $150 billion in cuts, but both sides are far from a final agreement. Oh dear. According to the death and taxes poster, this year’s budget deficit rests at $1.267 trillion. So, if we trim even twice the currently agreed upon amount ($300 billion), we’ll knock the yearly deficit down to just shy of $1 trillion. Alright! That’s real progress! <<insert sarcasm>>
Stay tuned for part 3 of the Debt Crisis series; “The Future”. After part two I’m not sure whether to be happy (look, we’re doing better than lots of Europe!) or sad (a budget agreement is a long way off, and likely won’t address the crisis in a powerful way). 
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That sounds so piteous, but I’ve had the song stuck in my head all evening. Really, I’m good. I’ve got oodles of chances to practice patience this week as Kevin is away adventuring. Yes indeed, my hubby is currently somewhere over Greenland en route to Frankfurt. We’ve always wanted to travel to Europe together but this stage of life is not very conducive to far away travels for both of us at the same time. So, Kevin had the opportunity to travel with a friend and former roommate (who has travelled the area extensively) and off they’ve gone. Remember when I told you about Condor flying straight from Anchorage to Frankfurt? It’s spectacular. A mere nine hours and you too can be in Europe. I just love the thought of it, even if I never go myself. Listening to my best friend’s travel stories are almost as good as being there in person. I can’t wait!

***Note to any possible crazy stalkers: as with all temporarily husbandless wives, so with me. I sleep light, and I sleep paranoid. You’ve been warned.

***Note to any blog followers who snoozed their way through the Debt Crisis – Part 1. Part 2 will be out soon. I’m sure you’re waiting with baited breath 🙂

Disclaimer: I am not an economic expert by any stretch of the imagination. I hold a minor in economics which basically means I can remember a few graphs from my college classes. However, I do love to learn about this topic, and thought I’d try to get my head around the current debt crisis. I’m tired of being fed information on the topic and plan to research the facets of this crisis, with that research being posted here for both of our benefits (I hope).

What is national debt? 

From Merriam-Webster, debt is at it’s most basic:

something owed

Our national debt is the amount of stuff (usually denominated in our own currency, the US$) our government cumulatively owes to other entities. Stated in another way, it’s the amount of money that we have borrowed from somebody else (and are obligated to repay).

There is also another way to view the national debt, as an investor/investment relationship. The investment is our guarantee of future payment, (through the offering of Treasury securities) and the investor is whomever purchases the security. We get their cash and they get our promise of a future payment based on our spectacularly reliable economy 😉

One of these views sounds much more “glass is half full”, and the other sounds much more stodgy. One paints debt in a favorable light, and the other alludes to it’s negativity. Any guesses as to which view our leadership has been following over the last 30 years?

How does a national credit transaction occur? 

In its most simplest form, our government says “Hey, we could use some money to do xxxxxx. We really need the money NOW, and we’re willing to pay it back in the future, plus interest if someone will just give us some cash” The government then issues securities to the public to raise that financing. John Doe (or China) then buys those securities and looks forward to the interest payments (or guaranteed value increase, depending on the security) that go along with them.

According to the National Treasury website, national securities are issued by the U.S. Department of the Treasury, and the Federal Financing Bank services those obligations.

What types of securities are there?

  • Bills – T-Bills (short for Treasury Bills) mature within one year of their issue (usually 3, 6, or 12 months), and are thus considered a short-term security. A T-Bill is purchased for less than its face value by an investor, and at maturity the government pays the full face value of the bill to the owed. For example, a $1000 face (par) value bond is purchased at a price of $9750, yielding the investor the face value (or a profit of $250) upon maturity in one year.
  • Bonds & Notes- These are investment purchases that pay a fixed rate of return every six months until maturity. Notes mature between 1-10 years after issue, and bonds mature greater than 10 years after issue.
  • TIPS – These are inflation protected securities where the principal value is adjusted for inflation every 6 months.
  • U.S. Savings Bonds – Similar to regular treasury bonds, only they are solely payable to the issued person.

Why do we have debt? 

Opinions vary as to why our government is in such a pickle. To answer this question, we’ll need to look at governmental spending. The absolute most interesting way to view government expeditures is through the Death & Taxes poster . I first heard about this great resource at GetRichSlowly.org. By viewing this poster, it’s easy to grasp in a moment which government departments and programs are the largest spenders. Note: the graphic below is just for kicks, to get a good look at the poster, click here.

According to the D&T poster, the 2011 Federal Discretionary budget is $3.834 Trillion.  The largest recipient of this money is the Department of Defense/National Security Spending, at $895 Billion, a number that has increased by 6% from 2010, and 134% since 2001. Whoa. The next highest spender is the Social Security Administration, at $730 Billion (an increase of 4% from 2010, and 39% from 2001). Third in line is Income Security (Federal retirements?) at $580 billion (a 15% decrease from 2010 and an 89% increase from 2001). Fourthly is non-military/national security discretionary spending, at $520 Billion (a 6% decrease from last year, and a 29% increase from 2001). Fifth and sixth are medicare and medicaid which result in a combined spending of $788 billion (up 8% from 2010, and 87 percent from 2001). The sixth place spot is held by a heftier contender, an indicator of the giant pickle: National Debt Interest ($251 Billion, up 34% from last year!).

In a more eye pleasing format:

  1. D of D/National Security              – $895 billion
  2. Medicare & Medicaid                     – $788 billion combined
  3. Social Security Administration   – $730 billion
  4. Income Security                               – $580 billion
  5. National security discretionary   – $520 billion
  6. National Debt Interest                   – $251 billion

It’s easy to see that little cuts here and there can add up, but the real elephant in the room is the combined defense and so-called entitlement spending. In our current two party system, one loves cutting taxes and increasing defense spending, and the other holds a death grip on social security and medicare. THIS IS CRAZY!

Looking at governmental receipts (yep, you guessed it, just a fancy word for income), this year’s $2.567 Trillion is 19% greater than last year’s, and 8% greater than 2001. The largest chunk of receipts is due to income taxes, at $1.121 Billion (up 20% from 2010, though down 8% from 2001). Coming in second is social insurance/Retirement receipts at $934 Billion (up 7% from last year, and 10% from 2001). Corporate and various other taxes comprise the remainder. And then, of course there’s the $1.267 Trillion budget deficit.

What has been the historical national debt?

According to Wikipedia, our country has nearly always carried a slight debt. The Treasury department once again provides us with the historical numbers for debt. Using these Treasury listed historical debt numbers here and here, and the Bureau of labor statistics inflation calculator, I’ve created this graph detailing the inflation-adjusted historical debt:


From 1950 to 1980 the national debt (in 2010 dollars) remained consistently close to the $2 trillion mark. Beginning in the early 1980’s, this number began to scale up dramatically, passing $4 trillion in 1986, $6 trillion in 1992, and $8 trillion in 2003. Uh-Oh. What accounts for this increase? Was it due to increased spending, decreased receipts, or a combination of both? In the interest of keeping this article relatively short, I’ll set that issue aside for later study 🙂

Have we faced a debt crisis like this one in the past?

Yes… kind of. During the late 1940’s, the national debt as a percentage of GDP (Gross Domestic Product, a measure of a country’s production) reached a peak of 94%. Hmmmm, didn’t a major event happen around that time? That’s right, WWII was just ending, and the U.S. had borrowed like crazy to fund its battles. Additionally, GDP growth had leveled and even dropped during the war years, as US resources (including men) were routed to military operations. Post-war the GDP experienced healthy growth as factories once again produced goods at capacity. At the same time, government spending dropped drastically post-war from the $100 billion that was being spent at the height of the period, down to a sustainable $40 billion. They spent, but then they cut back. Common sense, no?

Coming Soon: Part II – The Present Pickle, including the debt ceiling and economic indicators

  • Did you notice the new header photo and tagline? Formerly “Maxwell House: All About One Alaskan Family”, now “The Maxwell House: Overcome by Christ”. The reference is to 2 Peter 2:19 where Peter is warning the church about the dangers of false teachers. Peter writes about these deceptions, “These are springs without water and mists driven by a storm, for whom the black darkness has been reserved. For speaking out arrogant words of vanity they entice by fleshly desires, by sensuality, who barely escape from the ones who live in error, promising them freedom while they themselves are slaves of corruption; for by what a man is overcome, by this he is enslaved.” We have been overcome by Christ, and are eager to continue in this process.
  • Have you ever considered where you’d sleep if you were homeless? My top two choices so far are (1) the post office (I’m sure it’s been tried before, but you can’t beat it’s constant temperature and unlocked doors). (2) Underneath the caboose at Nunley Park. I imagine those thick railroad ties and steel above would really help block out the wind.
  • Looking for something fun and cheap to do this summer? Enroll the kiddos at Kids Bowl Free and they can bowl free games all summer long (minus the shoe rental). Add four adults to the summer bowling schedule for only $25. Uber cool. Check Ebay for inexpensive bowling shoes. Bowling is the best sport because almost everyone looks silly doing it, and you won’t find too many over zealous parents in the stands 😉
  • Finally, for an interesting look at an up-and-coming digital currency, here’s a youtube video about Bitcoin. This doesn’t beat a standardized, physical currency, but it’s interesting nonetheless.

This is Jacob, a.k.a. “Little Goat”.

Jacob is special. He is tiring. He is the best hugger and eskimo kisser that I’ve ever had the pleasure of butting noses with. He is fierce. He isn’t afraid of the dark or boogeymen, and he proves it by turning on the hallway lights when his older brother isn’t up to the task. His hugs are vice-grip like. Seriously. His fingers are always cold, and his nose is always running. Once committed to an idea, he pursues it with all his might. He constantly misuses the word “accidentally”: “I accidentally hit the baby”, “I accidentally ate that chocolate bunny”, “I accidentally peed all over the floor in the bathroom”. Oh, and did I mention that he also has buns of steel?

Jacob, more than any of the other kids, has caused me to really assess who I am as a mother. Through this Little Goat I am forced to come face to face with my own lack of patience and quickness to anger. Through Jacob I am learning more about my own sin nature, and I thank God that “though we were yet sinners, Christ died for us” (Romans 5:8). I am chief among sinners, and no human (save Christ) has taught me this more than Jacob. Christ died for me even though I would rashly discipline this sweet child in anger? Christ died for even me, the woman who has thought terrible thoughts toward this precious boy? Yes, even me.

My God you are good! You are merciful, though I do not deserve your mercy! You give grace, though I deserve death! Praise be to God!