America Is Financially Vulnerable
Posted in Newsroom on August 17, 2007 – 5:45 pm
WASH—Friday, August 17, 2007 —Below are some of the key areas of concern that I am focusing on for my presidential campaign.
Federal Debt
The federal debt is nearing $9 trillion. It was $5.6 trillion in 2000.
Overall, at this time, intergovernmental holdings account for more than $3.79 trillion of the total debt. The public, including foreign entities, has purchased the remaining $5.04 trillion or so.
At the end of 2006, foreign holdings of Treasury debt were $2.223 trillion, which was 44 percent of the total debt, held by the public. Foreign central banks owned 64 percent of the federal debt held by foreign residents; private investors owned nearly all the rest. (Figures are from Analytical Perspectives of the 2006 U.S. Budget, p. 257, and the U.S. Treasury web site.)
Japan and China are the largest foreign owners of U.S. Treasury securities, with 20 percent of our non-governmental debt. Japan sold a net $2.9 billion in July, bringing holdings to $612.3 billion in the last month.
China, the second-largest holder, reduced its holdings for a third straight month in July, from $407.4 billion to $405.1 billion. China’s share of all Treasury holdings abroad has risen to 18.3 percent this year, from 8.6 percent five years ago. China has reduced its Treasury holdings for three straight months by a record amount of $14.7 billion, the longest period of selling by China since November 2000. (Bloomberg)
Federal Government Size
The federal government continues to expand. The United States Federal budget for 2008 (submitted in 2007 by President Bush) is $2.9 trillion. President Bush’s first budget for 2002 (submitted in 2001) was $2 trillion. This is almost a 50 percent increase in government size in seven fiscal years.
The U.S. Gross Domestic Product (GDP) was $10.1 trillion in 2001 and is expected to reach $14 trillion by the end of 2007. I would venture to say a lot of the GDP increase was in housing; the war on terror; energy, insurance and health care costs; and spending initiated by the tax break.
Corporate and Personal Greed
Based on my estimates corporate and personal greed has cost Americans an additional $4 trillion in costs and expenses above and beyond 2001 costs by the end of 2006. This major money transfer has benefited companies in energy, health care, insurance, pharmaceuticals, banks and investment banks.
Thirty-seven of the 50 most profitable U.S. companies are in these business categories. These companies also spend the most money on Washington lobbyists, who influence Congress to craft legislation to benefit them.
Health care costs in 2006 were $2 trillion — or an average cost of $6,300 for every man, woman and child in America. I estimate 20 to 25 percent of that amount, or $400 to $500 billion annually, is overpayment due to greed, mismanagement, inefficiencies, excess costs, unneeded tests, pharmaceutical costs and fraud.
Personal Debt
Americans’ personal debt has increased significantly in the past six years to $900 billion of credit card debt and $1.5 trillion revolving debt — cars, boats, etc. and home mortgages — now totaling $10.9 trillion (up from $4.5 trillion in 2001). These are all-time record levels.
Subprime Fiasco
Dr. James P. Gaines a research economist with the Real Estate Center at Texas A&M University stated:
The private sector found a way to make loans to low-credit, previously unfinanceable households so that they could own homes. While this effort was spurred by profit, not altruism, the effect on homeownership throughout the country was nevertheless profound.
The fraud, predatory lending practices, purposeful misrepresentations and other illegal practices employed by unscrupulous lenders must be stopped. This may not be easy because many of the practices are hard to clearly categorize as proper or improper, much less legal versus illegal.
The Federal Reserve injecting $17 billion Thursday into the U.S. banking system to ease a credit crunch triggered by fears over the ailing mortgage market. The central bank has pumped a total $88 billion dollars into the financial markets in the past week to stop the country’s banking system from hemorrhaging.
Subprime loans totaled $1.8 trillion from 2001 to 2006.
This percentage of loss to GDP is less than the percentage the Savings and Loan crisis produced in the mid- to late ’80s. At this point, there isn’t a major crisis concern; but that could change if housing prices drop considerably more, putting more homeowners at risk.
