The next Treasury secretary will confront problems so daunting that even Alexander Hamilton would have trouble preserving the full faith and credit of the United States.

Sometimes a few facts tell important stories. The American economy now is full of facts that tell stories that you really don’t want, but need, to hear.

Where are we now?

Did you know that annual spending by the federal government now exceeds the 2007 level by about $1 trillion? With a slow economy, revenues are little changed. The result is an unprecedented string of federal budget deficits, $1.4 trillion in 2009, $1.3 trillion in 2010, $1.3 trillion in 2011, and another $1.2 trillion on the way this year. The four-year increase in borrowing amounts to $55,000 per U.S. household.

The amount of debt is one thing. The burden of interest payments is another. The Treasury now has a preponderance of its debt issued in very short-term durations, to take advantage of low short-term interest rates. It must frequently refinance this debt which, when added to the current deficit, means Treasury must raise $4 trillion this year alone. So the debt burden will explode when interest rates go up.

It gets worse. Read the rest here.

“Singapore’s exports fell more than economists estimated in August as shipments of electronics dropped and companies sold fewer goods to Europe. The country’s currency weakened.

Non-oil domestic exports slid 10.6 percent from a year earlier, after a revised 5.7 percent increase in July, the trade promotion agency said in a statement today. The decline, the first since March, exceeded all 15 estimates in a Bloomberg News survey, where the median was for a 4 percent drop.

Europe’s protracted debt crisis, a U.S. jobless rate stuck above 8 percent and a slowdown in China are damping demand for Asian goods and commodities, prompting Hong Kong’s Trade Development Council to cut the island’s export forecast today. The weakening global outlook has prompted Singapore’s government to trim its 2012 economic growth forecast and may put pressure on the central bank to ease its monetary policy stance.”

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Ratings firm Egan-Jones cut its credit rating on the U.S. government to “AA-” from “AA,” citing its opinion that quantitative easing from the Federal Reserve would hurt the U.S. economy and the country’s credit quality.

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Earlier this year, the Federal Reserve reached a crossroads. It had lowered short-term interest rates to zero and promised to keep them there until 2013, and then 2014. It had undertaken multiple rounds of bond purchases to lower long-term interest rates. Yet the recovery was actually losing steam; unemployment had stopped falling. Was there anything left to try?

The answer, it turns out, is yes. The Fed made one of its most consequential announcements yet today. The detailed actions were, in themselves, similar to previous steps: it will buy $40 billion of mortgage backed securities per month, and extend the period of short-term rates near zero until at least mid-2015. But the game changer was what it said: it will keep buying bonds until, and beyond, when the recovery is firmly established. Specifically, the Federal Open Market Committee said in its statement:

If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability… [A] highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.

There are two key innovations here, both aimed at altering expectations. First is the commitment to open-ended bond purchases. Last week, the European Central Bank put its unlimited capacity to print money to bear on the euro crisis by promising to buying peripheral country bonds with no “ex ante quantitative limit”.  The Fed has done the same thing, though in the cause of boosting output rather than saving the euro. Do not underestimate the psychological impact on investors of “unlimited.”

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“Mirror, Mirror on the Wall”

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“Chinese Premier Wen Jiabao said the nation has full confidence it will meet its economic goals for the year and signaled there’s more room for fiscal and monetary policy to support growth.

The country will continue to place more emphasis on ensuring stable growth, Wen said today at the World Economic Forum in the Chinese city of Tianjin. China will maintain a proactive fiscal policy and prudent monetary policy and has implemented a series of steps to promote domestic demand, Wen said.

The comments signal the government is prepared to take further steps to achieve the target of 7.5 percent growth for the year set in March. Wen is grappling with slowing industrial output expansion and a slide in export gains, increasing pressure to ease policy as China tries to ensure a smooth transition of power to a new generation of leaders.”

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by Fernando M. Martin and Christopher J. Waller
in Federal Reserve Bank of St. Louis Review, September/October 2012 Vol. 94, No. 5, pp. 321-340

The authors of this article provide a general introduction to the concept of sovereign debt—including the seductive nature of borrowing and the strategies associated with default—before analyzing the current debt crises in Europe. They focus on Greece’s current woes but also discuss Portugal, Ireland, Italy, and Spain. The authors also discuss the environment in the United States, which has a high debt burden of its own, and present fiscal choices for policymakers and taxpayers.

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Sweden’s success is not a result of its extensive welfare state, as many argue, but of its positive cultural norms and its recent free market reforms.

A new report, The surprising ingredients of Swedish success – free markets and social cohesion, shows that an over-bearing welfare state, along with high taxes, damaged the economy in Sweden as well as undermining its social capital.

It suggests that it is only through focusing on increasing economic freedom and introducing more choice in public services that it has rebuilt its economy. Specifically, by reducing taxes and benefits it has increased work incentives and by introducing more choice, for example through voucher schemes, they increased productivity in areas like education, pensions, healthcare and elderly care.

• As late as 1950, Swedish tax revenues were still only around 21 per cent of GDP. The policy shift towards a big state and higher taxes occurred mainly during the next thirty years, as taxes increased by almost one per cent of GDP annually.
• The rapid growth of the state in the late 1960s and 1970s led to a large decline in Sweden’s relative economic performance. In 1975, Sweden was the 4th richest industrialised country in terms of GDP per head. By 1993, it had fallen to 14th.
• Big government had a devastating impact on entrepreneurship. After 1970, the establishment of new firms dropped significantly. Among the 100 firms with the highest revenues in Sweden in 2004, only two were entrepreneurial Swedish firms founded after 1970, compared with 21 founded before 1913.
• As Swedes became accustomed to a system of high taxes and generous government benefits, their positive social norms gradually declined. In the World Value Survey of 1981-84, almost 82 per cent of Swedes agreed with the statement ‘claiming government benefits to which you are not entitled is never justifiable.’ At that time, Sweden was still a nation with very strong morals related to public benefits but as the population adjusted its norms to the higher tax and welfare regime, the number who held this view dropped steadily in further surveys. In the survey of 1999-2004, only 55 per cent of Swedish respondents believed that it was never right to claim benefits to which they were not entitled (Heinemann, 2007).
• The favourable social outcomes in Swedish society were evident before the creation of an extensive welfare state. The expansion of welfare benefits, however, created huge social problems. Generous benefits, in conjunction with high taxes and a rigid labour market led to high levels of dependency amongst large segments of the population and have limited the ability of Swedish society to integrate migrants into the labour market.

Notes to editors

To arrange an interview about the publication please contact Ruth Porter, Communications Director, [email protected] or 077 5171 7781.

The full report, The surprising ingredients of Swedish success – free markets and social cohesion, by Nima Sanandaji, can be downloaded from www.iea.org.uk.

Nima Sanandaji is a Swedish author with a Kurdish Iranian background. He has a Master’s Degree from the Chalmers University of Technology in Gothenburg, an Advanced Master’s Degree from The Royal Institute of Technology in Stockholm, and has previously conducted research studies at both Chalmers and the University of Cambridge.

Nima has previously published seven books, covering subjects such as entrepreneurship, tax policy, women’s career opportunities, integration and innovation within the IT sector. He is also the author of several reports, dealing with various public policy subjects in Sweden, as well as articles in international publications such as The Wall Street Journal, Human Events and The Guardian.

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.

After running all the numbers under conditions that were very, very favorable to Mitt Romney’s tax plan, the nonpartisan Tax Policy Center concluded that there was simply no mathematical way for Romney to fulfill all his promises simultaneously.

But more recently, Harvard economist Martin Feldstein has said they’re wrong. Feldstein leans to the right — he chaired President Ronald Reagan’s Council of Economic Advisers — but he’s a very respected, very honest economist. No one should dismiss his work.

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“Chinese oil imports in August plummeted 12.5% from a year ago.  This is according to new preliminary data from the General Administration of Customs reported by Dow Jones.

The 18.4 million metric tons reported is the lowest level since October 2010, DJN said.

This is the result of slowing economic activity.

“Since downstream demand is fairly sluggish, refiners don’t have the incentive to process much,” the wire quotes Zhu Chunkai, an oil analyst at Shandong-based energy consultancy Chem99.”

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“Wages are stagnating as the job market cools, restraining the consumer spending that is needed to sustain the U.S. economic recovery.

Average hourly earnings were little changed in August from the prior month and up 1.7 percent from a year earlier, matching the smallest gain since records began in 2007, the Labor Department reported last week. Payroll growth slowed to 96,000 last month, while theunemployment rate fell as more people left the labor force.”

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“China’s imports unexpectedly fell and industrial output rose the least in three years, signaling more stimulus may be needed after the government last week said it approved subway and road projects across the nation.

Inbound shipments slid 2.6 percent in August from a year earlier as exports rose 2.7 percent, the customs bureau said in Beijing today. Production increased 8.9 percent, the National Bureau of Statistics said yesterday. Inflation accelerated for the first time in five months.”

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I just think that it is very important that we understand that there is not going to be a solution to our problems on the national level and that our economy is headed for collapse no matter who gets elected.

The total amount of debt in the United States has risen from less than 2 trillion dollars to nearly 55 trillion dollars over the past 40 years, and there is nothing that Barack Obama or Mitt Romney can do to prevent the “correction” that is coming.

So are Americans better off than they were four years ago?

Of course not.

But things will soon get a whole lot worse no matter how the election turns out.

The following are 40 statistics that will absolutely shock you….

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Still above 8%—and closer to 19% in a truer accounting. Here’s a plan for improvement.

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Bloomberg joins the fact-checking fray:

In the heat of the presidential campaign, both sides have made statements that don’t square with reality. Here’s a look at some claims compared with the facts.

Read the rest here.

Bill Clinton is giving the keynote speech at the Democratic National Convention tonight.

The idea is to make people feel nostalgic for the last time when the economy was really booming, and hope that some of that rubs off on Obama.

However, in the New York Post, Charlie Gasparinouses the occasion to remind everyone that the seeds of our current economic malaise were planted during the Clinton years.

Full report

“European retail sales dropped in July as the region’s deepening economic slump eroded consumer demand from Germany to Spain.

Sales slipped 0.2 percent from June, when they rose 0.1 percent, the European Union’s statistics office in Luxembourg said today. Economists had forecast a decline of 0.2 percent, according to the median of 21 estimates in a Bloomberg News survey. From a year earlier,sales dropped 1.7 percent.

In Germany, Europe’s largest economy, retail sales fell 0.9 percent from June, when they gained 0.5 percent, today’s report showed. France reported a gain of 0.9 percent, while sales fell 1.9 percent in Spain.”

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“The annual rate of inflation across developed economies fell for the fifth straight month in July and to its lowest level since November 2010, a development that opens the way for leading central banks to shore up faltering growth through additional stimulus measures.

Figures released by the Organization for Economic Cooperation and Development on Tuesday showed consumer prices in its 34 member countries rose by 1.9% in the 12 months to July, a smaller increase than the 2.0% rise in the 12 months to June.

The rate of inflation also fell in a number of large developing economies, most sharply in South Africa, but also in China and India.

The decline in inflation rates across so many leading economies gives central banks more room to cut their key interest rates or provide other forms of stimulus to counter a global economic slowdown.”

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So you thought Jackson Hole was just another gathering for the masters of the universe to have fun. While in part that may be true, there is a lot time for thesis and anti thesis to create synthesis. Here is one idea that has emerged and is being touted as the holy grail to save the economy.

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