OMB Plays with the Numbers

The rise in Federal deficits have been fingered as one of the culprits in the financial "crises" gripping the U.S.

China gave Pres. Obama a shot across the bow when, on March 14 it was reported that the Chinese Prime Minister, speaking ahead of a meeting of finance ministers and bankers in London in preparation for next month’s G-20 summit, said that he was “worried” about China’s holdings of US Treasury bonds. Mr. Wen’s exact words were “We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our Assets.“ In other words, Mr. Obama, don’t mess with the value of the dollar and don’t do things to debase the US currency, like printing tons of money and running up huge deficits.

I prepared this from Congress’ Office of Management and Budget data dated January 2009, so it is already out of date. The Congress likes to play “funny numbers”, so their “official” deficit projections are lower, because they subtract the surpluses growing in the Social Security fund (which they will spend) and the “net cash flow” of the Postal Service. Yep, you read that right! The Congress is running the Post Office as a cash cow, even though they officially say it is not an arm of the US Government. So now you know why there is a push to increase the Postal Rate!

I also need to point out that this is the "growth" of the deficit, currently at $5.4 Trillion. The deficit will increase by about 233% by 2019!

Update Mid March, 2009 - Homeowner Defaults Increase

If anyone was wondering, I haven't gone away!

I've been catching up on "business" and dealing with issues out there in the "real" world.

I also wanted to give the economy and our new congress and President some time to allow the "dust to settle". There has been more info available in the popular press than has been possible to digest, and it does take some time to establish new "programs".

Bailout of banks, bankers and investment houses continue, but homeowners, the source of the problem, have seen little assistance or relief. So mortgage defaults continue.
I am not entering the debate about whom deserves or doesn't deserve government bailout money. It is apparent that a lot of people were greedy, a lot of people made mistakes or were simply stupid, and a lot of people perpetrated various frauds. The question I have is, where and how is the best way to spend this money. It will and is being spent, afterall.

I am looking at this from the perspective of spending as little as possible to resolve the problem. We have about 7.3 million homeowners who have defaulted or are at risk of default. If these people were given a stipend by the government which was applied against their mortgages, this money would be passed to the banks who would be forced to lower the balance on their mortgages, it would find its way to those who hold the notes, etc. and should stabilize the system.

But how much money would it take? Or, how far could a trillion dollars, which is the amount routinely used as fodder for the pigs at the toughs, go? I'll round up the number of mortgages to 10 million. Well, one Trillion dollars = $1,000,000,000,000. If I were to divide that by 10 million distressed mortgages (10,000,000) I would have $100,000 per mortgage.

So which has been more effective? Throwing several trillion dollars at the banks and investmenr bankers, or throwing $50,000 at each distressed homeowner? We could bail out 10 million homeowners and the entire banking system directly tied to these failed mortgages, using "only" one-half trillion dollars, which is $500 billion.

So now you know why am so cynical about our politicians. They could get the job done and they should know what I know. But they don't operate accordingly. So looking beyond all the rhetoric of the politicians and their media pundits, who is really being served? I'll let you draw your own conclusions.

Note: one trillion is a really big number. How big? Let's do a little arithmetic and answer the question "how many seconds is a trillion?" There are 365 days each year, 24 hours each day, 60 minutes each hour and 60 seconds each minute. So a year is 365 x 24 x 60 x 60 seconds = 31,536,000 seconds. If I divide 1 trillion by the number of seconds in a year, I'll know how many years contain 1 trillion seconds. The answer is 31,709 years.