By Edward Leone Jr. DMD MBA RFC
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In the news this week along with the usual political theater or political comedy we are receiving, the economic meetings of G 20 in Cannes France are in progress. The focus of coverage seems to be on the issue of Greek sovereign debt, but Spain and Italy are also marching at the head of the parade. At least discussions are being engaged among European leaders and the European Central Bank. Does the banking system in Germany and France require a TARP like program? Who will finance it, China? Could it be that major European banking institutions are limited in what help they can offer since they are in a weak status themselves? How does the result of these meetings influence the global economy?
Well, what about the sovereign debt of our own United States? Barry Ferguson RFC wrote an excellent article framing the issue in the September issue of the “Register” ( the official journal of the International Association of Registered Financial Consultants). So how large is the US government debt? $14.34 trillion. In 2011, the interest paid on the debt is $385.8 billion. Who owns this debt? The public owns $9.74trillion. $4.6 trillion is intergovernmental holdings and $4.6 trillion is Treasury debt known as Government Account Series (GAS). It is important to know that almost all of this GAS debt is not marketable (in the form of government bonds which are IOUs to the government itself). 57% of this GAS represents the Social Security Trust Fund. 17% represents government employee retirement liabilities with the remainder funding other government obligations. If the government debt is capped, obligations from these funds may not be paid. It is important to realize that the assets in these accounts are government IOUs which can only be service with tax revenues, future borrowing or printing of additional currency. A local radio talk show commentator jokingly made an observation this past week. “If the President and the Congress were put in charge of the Sahara Desert, we would run out of sand in a few years.”
While we are on the subject of federal benefits, 55 million Social Security recipients will see a 3.6% increase in the 2012 checks they receive. The ceiling for Social Security payroll tax income will go from $106,800 to $110,100. A bill passed in the House of Representatives (H.R. 674) by a vote of 405 to 16 that would mandate Social Security income be included in the calculation to determine eligibility for the new federal health insurance tax credit. The Patient Protection and Affordable Care Act of 2010 includes a provision to help people with incomes from 133% to 400% of the poverty level to by health insurance with these credits. The portion of the population which will qualify is reduced by H.R. 674. A further concern for Medicare recipients is the government plan to reduce reimbursements to physicians by 30%. This would reduce the availability of care to many of our elderly since some physicians will opt out of the Medicare program.
According to Bloomberg, the top community household income in the country for 2010 was th US Capital with an average of $84,523 per household compared to the national average of $50,046. Federal employees log in average compensation of $126,000. The nations political groups are prospering while so many others are struggling in this economy. There are 170,467 federal employees in DC with the unemployment rate at 6.1%. Talk about a privileged class!!
What should those of us with money to save for retirement or other needs do to find adequate investment strategies? Knight Kiplinger tells us in his November issue of “Kiplinger’s Personal Finance” that stocks are an imperfect asset, superior only to every other investment over long periods of time. Those of us with short-term cash needs will have to build a cash reserve to meet those needs. Knight Kiplinger targets long-term returns on equities at 8% annually into the future. Only time will tell how accurate that projection is going to be.
For the Record:
DOW 11,983.24
NASDAQ 2,686.15
S&P 500 1,253.23
Suggested Reading: “The Business Analyst’s Hand Book” by Howard Podeswa
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