A budget deficit is when you are spending more than you are taking in as income. When a government incurs several years of budget deficits, it then builds a national debt, which is the accumulation of the deficits. Government debt is the total amount owed by the central government, also called national debt. To cover shortfall between spending and income, a government will issue government bonds and bills. These are promises by the government that the money it borrows will be returned, with an interest payment as the cost of borrowing. Since all government debt is paid by income generated by the citizens of the country, this debt is really the burden of the taxpayers. In addition to outstanding securities issued by a government, it can be said that unfunded future liabilities are also considered government debt, such as future pension plans and health costs.
Then something happened that I thought was strange.
We started circling in the air. Not once or twice, which is common when air traffic gets congested, but we circled for what seemed to be 20 to 30 minutes. I told my wife, “Something is up. I wish the captain would come back on and tell us what’s going on.”
And finally that announcement came. The captain came on and said, “Ladies and gentleman, as you probably know, we have been circling up here for the last little while.”
The captain then proceeded to tell us President Obama had left the Miami airport on Air Force One within the last hour or so, and when that happens, commercial airlines are not allowed to take off or land for a specific amount of time. We were stuck in the backlog of flights trying to land because Air Force One had recently taken off.
The next day, I heard on the news that President Obama was in Florida the night before for Democratic fundraisers and to play golf on Saturday morning.
This got me thinking and researching.
Air Force One costs approximately $200,000 per hour to operate. (Source: USA Today, May 22, 2012.) But that doesn’t include the cost of lost productivity for the thousands of business people who are often delayed when Air Force One travels (or the thousands of tourists who are inconvenienced).
According to Kiplinger Washington Editors, … Read More
Can you believe the mainstream headlines these days? I’m reading about the Dow Jones Industrial Average going to 19,000… I’m reading that stocks are rising because the amount of stocks for investors to buy has diminished…
It’s all rubbish!
The chart below of the Dow Jones Industrial Average breaking above 16,000 makes it look like people just woke up the morning of November 18 and said, “I need to rush out and buy stocks today!”
In my opinion, we are looking at the biggest bear market trap we’ve ever seen. The year 2008 is a distant memory. The notion of fear of “missing out” is back.
Investors are pouring billions into stocks…
Chart courtesy of www.StockCharts.com
According to the Investment Company Institute, long-term U.S. equity mutual funds had a net inflow of $5.4 billion for the week ended November 6. In the prior week, which ended on October 30, investors bought $4.2 billion worth of long-term U.S. equity mutual funds. (Source: Investment Company Institute, November 13, 2013.)
As investors are pouring back into stocks, the fundamentals that drive the key stock indices are dissipating. Each day, we hear weak economic news, which suggests key stock indices are moving beyond reality. And the disparity between the performance of key stock indices and the most basic fundamentals continues to grow.
Corporate earnings of companies in key stock indices are very weak. The corporate earnings “surprise” rate (this is the rate that shows how much higher or lower corporate earnings were registered) came in at 1.8% in the third quarter—far below the four-year average of 6.5%.
S&P 500 companies posted an increase in … Read More
For its fiscal year (ended September 30, 2013), the U.S. government posted a budget deficit of $680 billion…that’s after four years of annual trillion-dollar budget deficits. And with the onset of a new fiscal year, the trend continues. (There are projections the U.S. government will have a budget deficit each year until at least 2038.)
The Department of the Treasury’s Bureau of the Fiscal Service reported the U.S. government registered a budget deficit of $92.0 billion in the first month of its fiscal year 2014 (October 2013). The government’s revenues were $199 billion, and its spending amounted to $291 billion. (Source: Bureau of the Fiscal Service, Department of the Treasury, November 13, 2013.)
As a result of continuous budget deficits, the national debt has skyrocketed to $17.0 trillion, and with the crises that are currently taking place in the U.S. economy—municipal bankruptcies, soaring pension liabilities, and student debt delinquencies—I expect it to go to $34.0 trillion.
On the other hand, there’s the Canadian government. According to its most recent economic and fiscal projection, it expects to have a budget surplus (when revenues are more than expenses) by its fiscal year 2015-2016. It then plans to use this surplus to start paying off the small national debt it has accumulated. (Source: Department of Finance Canada, November 12, 2013.)
Note the difference: while the U.S. government expects to post budget deficits for a very long time to come, Canada—a major player in the global economy—is very close to a budget surplus.
If the U.S. government continues to follow the same trajectory (spending more and borrowing more), it’s not sustainable in the long … Read More
The mainstream and politicians tell us the “wounds” of the financial crisis are over and the U.S. economy is in recovery mode. This simply isn’t true.
A few of the key indicators I follow to see where an economy stands are personal income, consumer demand, and businesses’ activity. All three of these indicators are telling me the U.S. economy is definitely going in the wrong direction.
First of all, the income gap in the U.S. economy continues to grow. The top earners make more, while the lowest income earners make less. According to the Wage Statistic from Social Security, in 2012, 23 million of the lowest wage earners earned a total of $47.0 billion in the U.S. economy. But those who earned $10.0 million or more annually in the year 2012 earned $64.3 billion! Here comes the kicker: there were only 2,915 wage earners in this category in the U.S. economy last year. (Source: Social Security, November 5, 2013.) Yes, you read that right. Less than 3,000 people cumulatively made more than 23 million people.
The bottom line: while Wall Street and big business has boomed again, the average working American family is struggling under an after-inflation personal income that is lower than it was in 2009—four years ago. In 1999, real median household income (that’s adjusted for inflation) in the U.S. economy was $56,030. By 2012, that number was $51,017. (Source: “Real Median Household Income in the United States,” U.S. Department of Commerce, September 18, 2013.)
Next, American consumers are pulling back on their spending—something that’s not supposed to happen when an economy is recovering.
One indicator of … Read More
We have seen cities like Detroit and others in California tell their municipal bonds investors, “Sorry, we can’t pay you.” The reason behind this? Their budget deficit was out of control, they reached the breaking point, and they filed for bankruptcy.
But the troubles of municipalities and cities aren’t behind us. In fact, they are marching forward with full force. And it’s not just rural cities and counties that are struggling to fix their budget deficit; major ones are doing the exact same thing. And truth be told, they are failing at it.
Take Fresno, California, for example. In the fiscal year 2014—which began on July 1, 2013 and ends on June 30, 2014—Fresno, one of the largest cities in California, will register a budget deficit of $6.0 million. If the city is unable to reduce its budget deficit in the fiscal year 2014, then its budget deficit can grow to as much as $32.2 million in the next five years. (Source: “FY 2014 Adopted Budget,” City of Fresno, California, May 29, 2013.)
And Fresno has worked very hard to keep its budget deficit under control. In the last four years, the city has decreased its workforce by 1,200 employees (25% of the city’s workforce), reduced or completely eliminated the maintenance and replacement of equipment, and now relies on volunteers for parks maintenance, community centers, and for different functions in the police department. The city has also reduced the number of employees working in public safety. One would assume that after this many cuts, the budget deficit would be controlled; but that’s certainly not the case for Fresno, California.
While … Read More
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