The total listed in this clip is $78,800,000,000,000 [$78.8 trillion].  This is higher than the GDP for the entire world was in 2008.  This is quite scary to me.

I dont see how this wont lead to us printing massive amounts of money to cover this debt, seeing how there isnt enough money in the world to pay it off.  Of course, if we add another $12,800,000,000,000 [$12.8 trillion], than things are going to look even worse.

Americanly Yours,

Phred Barnet

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First, President Obama took an unprecedented step of basically firing a private sector CEO, by requesting that GM CEO Rick Wagoner step down:  “On Friday I was in Washington for a meeting with administration officials.  In the course of that meeting, they requested that I ‘step aside’ as CEO of GM, and so I have.”

GM’s shareholders should have probably fired Wagoner at least 5 years ago.  They didnt.  Who ran the company should have been of no importance to the government.  However, rather than allow GM to go bankrupt, the US government (in its infinite wisdom) gave GM and Chrysler $17,400,000,000 [$17.4 billion] in loans and took an ownership stake in the two companies, effectively nationalizing 2 of the 3 American automakers.

My “favorite” part of this was that the government gave GM their $13,400,000,000 [$13.4 billion] knowing that GM planned on cutting 47,000 American jobs.  That means that we paid GM $285,000 for each job that they cut.  Just wonderful.

But, back to the issue at hand.  My opinion is that President Obama took a dangerous and shameful step by demanding the resignation of a private sector CEO.  One of my main problems with the bailouts besides the economic aspect is that they are impossible to handle objectively.  For example, Bank of America has received $45,000,000,000 [$45 billion] from the government–over 3 times the amount received by GM, yet Bank of America’s CEO Ken Lewis has kept his job.  The same is true at Citigroup and many other government owned banks including JPMorgan Chase and Wells Fargo.

And of course there is Chrysler.  Chrysler was bailed out the same day as GM, and yet their CEO, Bob Nardelli has retained his job and has not been “asked to resign” by President Obama.

The law and our government needs to be objective and treat everyone the same way.  If the government feels that it is necessary to bailout and take over the operations of private companies, then it needs to treat all companies which receive government aid in the same manner.  It is the only fair way.

But the news doesnt end there.  President Obama also made some interesting statements today.  While he did grant Chrysler an additional month’s worth of aid and gave GM an additional two months worth of aid (by the way another example of the government active subjectively, rather than objectively), he signaled that the two companies might be forced to file for bankruptcy.  A government review board went over the restructuring plans submitted by the two companies and decided that they were not viable plans, thus allowing President Obama to take a much needed hard line on the companies.

I tenatively applaud this step.  We just have to see how this works out.

I hope that President Obama is serious when he says that GM and Chrysler will be allowed to fail if they do not take the necessary steps.  Those steps include negotiating further concessions from the labor unions and bondholders.  My guess is that the companies will be able to gain the necessary concessions and then will receive more aid from the government, allowing President Obama to gain credit for taking the hardline approach, but clearing the way for the government to send more taxpayer [or freshly printed] money to these companies.

Americanly Yours,

Phred Barnet

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President Obama says that he wants to cut the $1,300,000,000,000 [$1.3 trillion] deficit that he inherited from President Bush down to a deficit of $533,000,000,000 [$533 billion] by 2013.  While this seems like a tough goal that will cut spending, this will actually result in increased spending.  The reason for this is simple:  the present massive deficit is an aberration from the normal, including hundreds of billions of dollars in spending that was supposed to be one time spending.  For example, included in the $1,300,000,000,000 [$1.3 trillion] deficit is the $700,000,000,000 [$700 billion] spent on the bank bailout, the additional billions spent on the bailouts of Bear Stearns and AIG, and last years stimulus plan that sent most Americans a $600 check.

In fact 2008′s deficit was $438,000,000,000 [$438 billion] a massive number, but a number that is dwarfed by the $1,300,000,000,000 [$1.3 trillion] deficit that is to be expected in 2009.  The vast majority of this money was supposed to be for one time things.  In fact, without adding the increased spending from the “one time items,” the deficit for 2009 looks a lot like the deficit for 2008.

President Obama’s 2013 budget deficit figure still represents an increase of over 21% from 2008′s number.  This “cut” looks more like an increase to me.

And Mr. Obama’s own numbers still admit that he will have a deficit of over $1,000,000,000,000 [$1 trillion in both 2010 and 2011].  No numbers were given by his office for 2012′s predictions, but lets give him the benefit of the doubt and assume that 2012′s deficit equals 2013′s deficit of $533,000,000,000 [$533 billion].  This means an increase in the national debt of at least $3,000,000,000,000 [$3 trillion]–equal to $10,000 per American.  I think the numbers will be much higher.

More on that later.

Americanly Yours,

Phred Barnet

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Of course, even Mr. Obama has admitted that there is no guarantee that these plans will work.  Even more interesting, he has said that these plans will have little effect before 2010.  This is particularly interesting because the non-partisan CBO recently estimated that the recession will supposedly be over in mid 2009 even if these “stimulus” plans werent passed, meaning that Mr. Obama’s plans wouldnt even begin working until after the economy has already started to heal itself.

But, lets pretend that Mr. Obama’s boldest predictions are correct and that this plan will create 4 million new jobs (although he says it will create or save 3-4 million jobs).  Let us also assume that each of these jobs is a high paying job of $100,000 a year and that these jobs are permanent jobs that will never go away in the future, regardless of future circumstances.  According to both H&R Block’s tax calculator and the Heritage Foundation’s much simpler tax calculator, a single person earning $100,000 pays $19,472 in Federal taxes.  So, the 4 million jobs that we are pretending this plan will create will return $77.888 billion in taxes per year to the federal government.  Excluding any interest (which will likely be a hefty sum and will go countries like China), it will take the government about 35.5 years to recoup the money!

If, however, this plan still creates 4 million jobs but these jobs pay $50,000 per year instead of $100,000, the government will collect $6,606 in taxes per person totaling $26.424 billion in taxes per year.   Under these circumstances, it will take the government 113.5 years to recoup the money!

However, I made a little Excel spreadsheet assuming that the government would have to pay 3% interest on these new loans.  This is a generous assumption, considering that the average rate on treasury bills has been much higher.  I used both of the above jobs assumptions in my calculations and found that the government will actually never be able to recoup this money if interest is factored in! Check it out for yourself.

Americanly Yours,

Phred Barnet

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“If you’re headed for a cliff, you’ve got to change direction.”

This is true, but the problem is that Mr. Obama has misidentified the direction of the cliff that we are headed for.  A year ago, we were about to enter what would have been a somewhat minor recession.  Mr. Bush and Congress flipped out and spent hundreds of billions of dollars on a stimulus that completely failed.  Then, rather than allowing failing business to fail, Mr. Bush and Congress bailed them out one by one and then bought a bunch more.  I am not going to fully detail this now, but in a free market system prices are important not just because they tell us the value of something, but they also contain a lot of information within any given price.  Mr. Bush and Congress should have allowed the banks and insurance companies to fail and for the debt to be repriced, rather than subsidizing bad banks and investments and keeping debt priced at the same level.  But Mr. Obama is continuing the exact same policies that got us into this mess. If you disagree, then read about how Japan’s economy stagnated for 15 years when their government shored up bad private sector bank loans.

Our economy is racing toward a cliff and Mr. Obama is hitting the accelerator, rather than slowing down or changing directions.

“When you start hearing arguments, on the cable chatter, just understand a couple of things.  Number 1, when they say, ‘Well, why are we spending $800 billion [when] we’ve got this huge deficit?’  First of all, I found this deficit when I showed up, number 1.”

Um… yeah you did.  But how is that an excuse for spending $800 billion.  Remember the cliff that he mentioned above?  Didnt he also mention changing directions?

“I found this national debt, doubled, wrapped in a big bow waiting for me as I stepped into the Oval Office.”

The above quote from President Obama is almost true (the debt increased by about 85% during President Bush’s two terms).  But Mr. Obama has already requested about $1.2 trillion ($350 billion from TARP and over $800 billion from this “stimulus” bill) since he became President a few weeks ago.  That is an increase in the size of the National debt of about 10% in about 3 weeks!  Change, Mr. Obama?  Or just more of the same?

Americanly Yours,

Phred Barnet

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I want to begin by talking about the “stimulus” that Obama is pushing and has passed both the House and the Senate in different versions.

Less than a week after President Obama declared an end to partisan bickering, he failed to get even a single Republican vote on his “stimulus” bill.  Even 11 Democrats voted against the hyper-expensive $819 BILLION bill.  To put that in perspective, $819 billion is more than the total amount of US currency in circulation!  The $819 billion also exceeds the cost of the Iraq War by over $200 billion dollars.

Apparently, Democrats and Republicans are negotiating a compromise that will cost around $900 billion dollars (thats a cost of $3000 for every single American man, woman, and child).

On top of this, Obama has requested $350 billion from the second half of the TARP program.

And Obama’s administration is considering requesting an additional $1-2 Trillion for a similar bank and mortgage bailout program.  Meanwhile, New York Senator Charles Schumer who is vice chairman of the Joint Economic Committee says that the government may need $3-4 Trillion for this program.

Lets add up the “worst case scenarios.”  $900 billion for this new “stimulus,” $350 billion in additional TARP funding, and $4 trillion for this new program being proposed and we have a total of $5.25 trillion!  This would increase the size of the national debt by 50% and cost $17,500 per person.

And of course none of this has any guarantee of working.

Americanly Yours,

Phred Barnet

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We should, however, worry about our economy now.  The national debt is rapidly marching towards ten trillion dollars ($10,000,000,000,000).  Our unfunded liabilities in Social Security and Medicare now total an additional sixty-seven trillion dollars ($67,000,000,000,000).  By 2012 the Medicare fund will be going into a deficit and we will be forced to spend tax dollars to keep up with Medicare payments.  By 2017, the same thing happens with Social Security.  American families now owe over $15 trillion in household debt.  We have nothing left.  We are witnessing the slow, painful fall of the American Empire.  It hurts me to watch because I love this Nation so much.

For years we threw money at problems without ever trying to really solve them (poverty, drugs, education, health care).  Now we have no money and things are getting worse in all of these areas.

Iconic American companies are being swallowed up by foreign firms at an unprecedented rate.  Budweiser is being bought out by a Dutch firm, Miller is now owned by South Africans, and Coors is owned by Canadians.  Ford, Chrysler, and General Motors are now on the brink of extinction and are closing down American plants to move to other nations.

Sovereign wealth funds (companies owned by foreign governments) have been buying up large stakes in American companies—these sovereign wealth funds now own about 10% of Citigroup, 20% of the NASDAQ stock exchange, 9% of UBS, 10% of Morgan Stanley.  They own 7.5% of the Carlyle Group (which owns major defense contractors, telecommunications and technology companies, CSX railroads’’ domestic container lines, and consumer companies like Baskin-Robbins and Dunkin’ Donuts).  China owns 10% of the Blackstone Group (which owns Hilton Hotels, American textbook publisher Houghton-Mifflin, Universal Studios Parks, and is in the process of purchasing a large stake in The Weather Channel).  These wealth funds also own well over 10% of Merril Lynch (RIP), 2% of Barclays (which controls large portions of the stock of many large companies—go here and put in any symbol and you will see that Barclay’s owns a large stake), 7.5% in Diamler, AG, and several hundred million dollars worth of Visa.

The German government owns 35.5% of DHL, 20.3% of Volkswagen, and 32% of T-Mobile.  Through its stake in Renault, the French government owns 6.9% of Nissan.  Any time that you buy a product or a service from one of those companies, you are essentially paying a tax to a foreign government.  For example, if you stay at a Hilton hotel, 10% of the profit made from your visit goes to the Chinese government.  If you buy a new Mercedes, 7.5% of the profits made subsidize the Dubai government.  Do you think that American text books will continue to criticize the policies of Mao, now that China owns 10% of the company that makes our history books?

This is socialism, but at least in traditional socialism, Americans would see some benefit from their dollars going to state-owned enterprises.  In this case however, American dollars are going directly into the hands of foreign governments.  Would foreign nations tolerate the American government coming in and buying up stakes in their countries?  think not.

Do you remember mercantilism from history class?  That is what is happening in this country.  We export food, chemicals, plastic, cigarettes, cotton, and many other raw materials, only to import these goods back into the country later as finished goods: the cotton comes back as clothing, the plastic comes back in the form of goods made in China, and so on.   We produce nothing here.   We consume foreign goods like the world is ending tomorrow.  We now have the import/export profile of a 3rd world nation.

Rome is burning while Congress is playing the fiddle.  Be scared.  You should be.  Your children will know a different America.

Americanly Yours,

Phred Barnet