Frightful Storm Brewing

Reuters Staff
Jun 3, 2008 02:27 UTC

A reader put me onto a speech by Fed Governor Richard Fisher to the Commonwealth Club of California last week. In it Fisher sounds similar alarms regarding the dangers of runaway entitlement spending that I discussed in my post two days ago….

I see a frightful storm brewing in the form of untethered government debt. I choose the words—“frightful storm”—deliberately to avoid hyperbole. Unless we take steps to deal with it, the long-term fiscal situation of the federal government will be unimaginably more devastating to our economic prosperity than the subprime debacle and the recent debauching of credit markets that we are now working so hard to correct….Were I not a taciturn central banker, I would say the mathematics of the long-term outlook for entitlements, left unchanged, is nothing short of catastrophic.

In my previous post, I discussed what happened to Argentina when it couldn’t get government spending under control. In short, letting the problem go unsolved will lead to economic hardship like Americans haven’t seen in 80 years.

Fisher really gets colorful when he discusses potential solutions. They are totally draconian of course, fitting the scope of the problem….


Buy one home, get another free!

Reuters Staff
Jun 2, 2008 16:51 UTC

I’m not kidding. The LATimes has the story.

Fuel’s toll on the consumer

Reuters Staff
Jun 2, 2008 15:07 UTC

Below, an interesting chart published in last week’s Daily Economic Commentary from Northern Trust. The shaded areas are recessionary periods.

“The ['gasoline and other motor fuel'] component of consumption expenditures as a percent of disposable personal income…has hovered between 3.3% and 3.8% in the past year…with the April reading at 3.6%. Looking across historical data from 1959, this is the highest percentage of personal income devoted to gasoline and other motor fuel since the early 1980s.

Gas, % of consumer spending

On average, about 2.3% of disposable income was spent on gasoline and other motor fuel during 1985-2000. The nearly 52% jump in the share of gasoline in household budget in recent months is taking a toll on non-gasoline consumer expenditures. A more complete analysis would examine the share of gasoline expenditures across different income groups. Such an analysis should indicate that gasoline expenditures makes up a larger percentage of disposable income at the lower-end compared with the higher income groups.”


Welcome to the new OptionARMageddon

Reuters Staff
Jun 2, 2008 02:22 UTC

Hello all. Happy to be working with the folks at ML Implode. A great site that remains ahead of its time.

Thought I’d introduce myself by putting a few of the top posts from the old OA on the top right.

And please enjoy the post below on the entitlements crisis.


Bankrupting America

Reuters Staff
Jun 1, 2008 16:01 UTC

There is a crisis confronting the U.S. Larger than war, more dangerous than Osama, more hazardous than recession, it threatens our status as the world’s preeminent economic superpower. If we fail to address this crisis, we face potentially “catastrophic consequences.”

The problem, which I discussed with former Government Accountability Office Chief David Walker, is the fiscal crisis we face with Medicare and Social Security.

After leading a “fiscal wake-up tour” to educate America about the crisis, Walker left GAO in March to head a new, billion-dollar foundation dedicated to solving it. More on that later; first his numbers.

Most know that Social Security’s finances are troubled. Few know that Medicare’s shortfall is five times larger….