George W. Bush's Legacy: US Debt Clock Runs Out Of Digits

[Thorin]

Back in the 90s, Canada had a horrible problem with deficits.  Our federal government spent more than it made every year, and our debt grew and grew and grew.  Provincial governments had the same problem.  Then we voted in fiscal conservatives, who cut spending to remove the deficits.  Our worst debt was about $735 billion, which was pretty crippling to our country, but it's under $500 billion now ($483 billion was the last I saw).

In the United States they've been running deficits for several years as well.  An American put a National Debt Clock up in New York back in 1989.  At the time, America's national debt was $2,700 billion, a little under 4 times Canada's national debt.

The American national debt is now so high that the Debt Clock actually ran out of digits to display it!

http://news.bbc.co.uk/2/hi/business/7660409.stm

They're over $10,000 billion.  So while Canadians reduced their national debt 34% in the last 18 years, Americans increased their national debt 270% over the same period!  And a large, large chunk of that increase happened during George W. Bush's 8 year reign.

30 million Canadians owe $483 billion.  That's $16,100 per person.
300 million Americans owe $10,000 billion.  that's $33,333 per person.
Betcha their taxes will soon be worse than ours!

Oh, and I didn't convert Canadian dollars to American dollars, given that the currencies are fairly close.  However, at current exchange rates around 92 cents American for a Canadian dollar, our $483 billion would actually be $444.36 billion, and per person that'd be $14,812.

[Mr. Analog]

The part that cracks me up the most is when you listen to "grassroots" Republican media they keep harping on and on about "fiscal sanity" and "careful spending" (etc, ad nausea) the Republican party blows cash away with no responsibility whatsoever to the public.

For what the US Government has spent on a war they should have been done with four years ago they could have had a health care system in place that would have made Japan cry.

It's baffling, and a bit unsettling at the same time...

[Thorin]

Now for the best part:

JPMorgan Chase (JPM, Fortune 500) posted a profit even though analysts were forecasting a loss. Wells Fargo (WFC, Fortune 500) and State Street (STT, Fortune 500) reported earnings that far exceeded analyst projections. (Hmm...maybe these three banks should just send back the $52 billion they are set to collectively receive from the Treasury Department.)

Emphasis mine...

So the American taxpayers are giving billions of dollars to help companies that are already turning a better-than-expected profit.  I really, really hope that the Canadian government doesn't go the same way.

[Mr. Analog]

Now for the best part:

JPMorgan Chase (JPM, Fortune 500) posted a profit even though analysts were forecasting a loss. Wells Fargo (WFC, Fortune 500) and State Street (STT, Fortune 500) reported earnings that far exceeded analyst projections. (Hmm...maybe these three banks should just send back the $52 billion they are set to collectively receive from the Treasury Department.)

Emphasis mine...

So the American taxpayers are giving billions of dollars to help companies that are already turning a better-than-expected profit.  I really, really hope that the Canadian government doesn't go the same way.

It's ridiculous, large institutions shouldn't ever be "bailed out" with tax payers dollars no matter what the damage to the economy might be. They made the risk they should pay the price, as should the insurers.

The USA had a good economy going after the IT bubble but it was all based on buying and lending property, you can't make money out of nothing and expect it to work out forever. Expect a long, hard recession that will make the early 90s look like a walk in the park.

The funny thing to me, and I could be reading this wrong, but China is hit with the double whammy of the US consumer market hitting a standstill AND having large US based financial institutions owe them large sums of money that won't be paid back any time soon. Their production economy will slow and the yuan will drop as will foreign investment interests. What will China do without a growth economy? Especially if the whole Pacific Rim looks like it's falling into another major recession (like 1998)!

Scary times people, scary times.

[Thorin]

It wasn't so much the buying and lending of property, it was the made-up-value paper-only mortgage-backed securities (MBSes) that were ridiculous.  Seriously, some bankers said, "I've got all these mortgages, I'm going to use them as collateral for getting money from investors".  And then those same bankers said, "Hey, look at all the money we can get by using mortgages as collateral, let's try and get more!"

And thus was born the concept of buying and selling the mortgages as collateral.  And then the collateral itself was valued higher or lower.  And then mortgages started defaulting, and suddenly the collateral was worth nothing.  Throw in that many, many mortgages were approved when they shouldn't have been, which of course causes the default rate to increase several years later, and now you have investments that drop to $0 value (can't be sold because no one will buy them).

As much as I hate being told I can't take on a huge mortgage, I'm glad that in Canada we have rules about it so that people usually can afford their mortgage payments even in tough times.  I'm also glad we're forced to pay more than just the interest - eventually we'll build equity.  Imagine getting a mortgage for the entire value of your property, where your payment is less than the interest so your mortgage balance owing actually goes up instead of down every month?!

[Lazybones]

Canadian rules are some of the strictest in the world. You now need 5% down min and they can't be longer than 35 years. No more 0 down 40 year deals that were starting to appear.

[Tom]

Canadian rules are some of the strictest in the world. You now need 5% down min and they can't be longer than 35 years. No more 0 down 40 year deals that were starting to appear.

At least it has helped our banks not crumble. While a couple of them did take a large hit when the whole mess started, it seems it was all one time charges, and didn't actually put any of them in the red afaik. I seem to recall CIBC taking a 1-2 billion dollar charge against earnings due to it all, and their normal earnings reports are in the multi billion dollar rage, so only a temporary hit. Nothing like the multi trillion dollar hits the US and Foreign banks are still taking.

[Mr. Analog]

It wasn't so much the buying and lending of property, it was the made-up-value paper-only

Yep, that's what I meant. Although property speculation was also part of the problem. People were buying up multiple properties they couldn't afford to try to flip them, lots of bankruptcies over the last two years were a big red flag I think.

[Thorin]

Canadian rules are some of the strictest in the world. You now need 5% down min and they can't be longer than 35 years. No more 0 down 40 year deals that were starting to appear.

And to think just a few years ago, the rules were stricter.

It used to be 10% down, 25 year max.  Then that got relaxed to 5% down, 25 year max.  Then 2.5% down with 2.5% "sweat equity" (painting, fixing, etc).  Then came the 35 year max, then the 40 year max and the 5%-down-that-can-be-paid-with-the-5%-rebate-from-the-bank (aka 0% down, although it's not really because you pay a higher interest rate for having a mortgage that provides a rebate).  As far as I know, there's never been a true 0% down mortgage option allowed.

At the same time, Canadians used to have to get mortgage insurance if they had less than 25% down but nowadays many banks require it on mortgages with up to 30% down.

On top of that, there's the strict rules of capacity in Canada.  Not more than 32% of your verifiable gross monthly income can go to mortgage payments, property tax, heating costs, and half your condo fees.  Not more than 40% of your verifiable gross monthly income can go to mortgage payments, property tax, heating costs, condo fees, credit card payments, car payments, student loan payments, and any other loan payments (except RRSP loans).

If the US lenders had followed the capacity rules, millions of Americans wouldn't have been able to buy a house, thus limiting the housing bubble, thus reducing the value of MBSes, thus reducing the impact of the bursting of the housing bubble on financial institutions that issued and/or bought MBSes and their cousins the CDOs.  But then again, people would've been unhappy because they couldn't buy houses...

[Darren Dirt]

It wasn't so much the buying and lending of property, it was the made-up-value paper-only mortgage-backed securities (MBSes) that were ridiculous.  Seriously, some bankers said, "I've got all these mortgages, I'm going to use them as collateral for getting money from investors".  And then those same bankers said, "Hey, look at all the money we can get by using mortgages as collateral, let's try and get more!"

What's worse is that -- according to some former "mortgage brokers" -- the only real goal for those making the mortgages happen (i.e. The Sales Guys) is "could the people pay the time-limited reduced rate those first 6 months, before the NORMAL payments come into play?" and after they've got the poor saps to "sign" then -- after that deadline passes -- it's not their problem.

Very much reminds me of the 1992 movie "Glengarry Glen Ross", where one of the storylines has James Lingk (well-played by a convincingly nervous Jonathan Pryce) being pushed by Al Pacino (as "Ricky Roma") to buy some worthless property, and Roma is trying to convince Lingk the next morning not to change his mind (within the time limit the law allows for "buyer's remorse"...) essentially Lingk is any of those sub-prime common folks, and Roma is the "middle men" who were not really the REASON for this mess, but they were like the grunts in the battlefield sent by the idiot generals to a war they shouldn't have even been fighting. In my horrible analogy, the idiot generals etc. of the military are the real reason for this mess

Throw in that many, many mortgages were approved when they shouldn't have been, which of course causes the default rate to increase several years later, and now you have investments that drop to $0 value (can't be sold because no one will buy them).

^ just noticed what you said here ... exactly what I've read on a few online forums/comments from apparently former mortgage brokers. They were approved, often, by unethical brokers who KNEW the approvee would default in 7 or 8 months  Gotta make the quotas, so the bankers/generals give the bonuses/medals, damn the immorality of it, damn the long-term non-pragmatism of it...

[Thorin]

Well, if mortgage-backed securities hadn't been allowed, then the risk of those mortgages would've stayed with the banks and the banks wouldn't have made those deals.  The banks were willing to take on the short-term risks because the banks could package the mortgages (and the corresponding long-term risks) and sell them to investors who hoped to reap rewards from them.

It's funny, though.  This whole problem is because of a host of things interacting.  For instance, if the price of houses had kept going up, MBSes would still have value because people could sell their house and pay off their mortgage, rather than default.  If sub-prime borrowing had been disallowed, less defaults would have occurred.  If MBSes weren't allowed, banks would have held the risk and thus reduced the number of high-risk mortgages they provided.  Any one of those three would've staved off this giant market correction.

[Thorin]

Here's some interesting discussion about how statistics have slowly changed over the years to mean something different than originally intended, and how that led to understatement of important numbers such as the inflation rate, unemployment rate, etc:

http://peopleandideas.wordpress.com/2008/07/14/kevin-phillips-numbers-racket-why-the-economy-is-worse-than-we-know/.

Interesting how they just stopped counting many things that would make inflation and the unemployment rate go up...