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Archive for the ‘federal debt’ Category

Closing the US Deficit

The Administration produced its 2012 Economic Report of the President recently.  These reports are written by the economists at the Council of Economic Advisers and tend to employ solid economic arguments and use data correctly – not always and everywhere, but very well by Washington Think Tank standards.  The Chapter in this year’s Report entitled “Restoring Fiscal Responsibility” is a nice read in that it sets out the challenges and give some ideas as to how the Administration plans to address our fiscal imbalances.  The chapter is here.

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The IMF has just released their semi-annual fiscal monitor.  As the US struggles with its Federal budget gap, the monitor provides perspective — it is a world tour of the fiscal situations of nations.  It is actually a depressing read, but of critical importance to understanding where growth will happen going forward.

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Today I am speaking at a conference in Washington hosted by the University of California Retirement Security Institute. I am unveiling a plan called “What the Federal Government Should Do About State Pension Liabilities,” jointly authored with Robert Novy-Marx. As I have blogged previously, states are making financial promises that they cannot possibly keep, and the bills are coming due much sooner than you think. Unless action is taken soon, the federal government will face intense pressure to bail out the affected states, at a price tag of $1 trillion or more.

Plan to save state pension funds by Rauh and Novy-Marx

Full text of Rauh & Novy-Marx plan (PDF)

The outline of the plan is that the federal government should cut a deal with states. (more…)

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How much is a trillion?

 US Federal debt is about $13 trillion, the deficit about $1.4 trillion, state pensions are underfunded by about $3 trillion.  Trillion is definitely the new billion. But with all these headlines, we can lose track of how much a trillion really is. I recently came across one nice description (a slight edit of an excerpt from a  piece by Barry Habib, Chairman, Mortgage Success Source):

 “Picture a stack of $100 bills. It might surprise you to know that it only takes a stack four inches high to be worth $100,000. So $1,000,000 would be a stack of $100 bills 40 inches tall. How about a Billion? Well, you would have to stack $100 bills up to the top of the Empire State Building…twice…in order to reach a Billion. So to picture $1 Trillion represented by a stack of $100 bills – that stack would be 680 miles high. If you could turn that stack on its side and were able to drive alongside it, it would take you longer than 11 hours to reach the end. If you laid those $100 bills down side by side, they would travel around the world 40 times.”

 Perhaps a more economic way of thinking about a trillion is that it is about 10% of what all Americans spend on consumer goods and services in a year, or about $7,500 per individual tax return. Big numbers.

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