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     Apr 17, 2009
Making it personal
By Max Fraad Wolff

A defining element of the ongoing economic crisis has been an endless series of large numbers. Everything seems to be measured in the billions, hundreds of billions and trillions. So it is with large, global losses and bail-outs.

Contextualizing and making real such large numbers is rare. What follows is an attempt to ground many of the leading US numbers bandied about of late. I have used all publicly available numbers and divided them by the US population. The idea is to give averages per person.

We are far from equal in our wealth, assets, income and risk exposure to various programs and plans, but dividing these huge numbers by our population offers a way to reduce the size of the


figures and hints at the average per person costs. Keep in mind that equal burdens are not the order of the day. There is not equal benefit to our program choices either. We need greater equality to achieve balance and emerge from this tumult.

Why slog through all the numbers? Because they allow us to see where we are and how much we are investing in one particular future. The size of the numbers also gives us clues as to just how reliant we will be this year on the desires of global investors. Understanding the extent of the gap and the efforts to fill it offers a chance to ask the big questions. Is this money well spent? Will it work? Are we investing in the kind of future we want? When we borrow this much are we making policy or do we enter a series of policy compromises with our various investors-foreign and domestic?

The basics
The US gross domestic product (GDP) is a good place to start. GDP attempts to measure the dollar value of all legal final goods produced in the US. The 2009 Congressional Budget Office (CBO) GDP projection is US$14.057 trillion, or $45,937.90 GDP per head. End 2008 Federal Reserve Z1 Table disposable personal income was $10.652 trillion or $34,810.46 per head. We live in a $14 trillion economy with average GDP per person of $45,937.

These very basic figures - huge though they are - allow us to place other huge numbers in a context that makes them more manageable. All per-person figures are based on the US census count of 306 million Americans as of April 1, 2009.

Budget/budget deficit
The 2008 CBO projection for government revenue is 2.524 trillion or $8,248.37 per head. Our taxes, fees and the government services we buy make up government revenue. Added to this revenue is the money that our government borrows. Outlays (government spending) are estimated at $2.983 trillion, or $9,748.37 per head. This gives us about $459 billion in official shortfall for 2008, or $1,500 per citizen.

The 2009 deficit projection is $1.67 trillion, or $5,447.71 per head. This is based on 2009 CBO Federal revenue estimates of $2.159 trillion, or $7,055 per person. Outlay or spending estimates for 2009 are $4 trillion, or $13,804 per person.

We are talking about huge numbers well into the thousands of billions. At the present time our national debt is $11.2 trillion, with $6.9 trillion outstanding and publicly owned. The rest of the debt, $4.3 trillion, is held by various government offices. Some of the national debt our government owes is owned by various branches of government. Some of our debt is owned by American firms, households and associations. Much of our debt is held by foreign central banks.

$6.9 trillion in public debt breaks down to $22,549 per citizen. Foreign entities held $3.07 trillion in Treasury debt at the end of January 2009, 45% of the public holding. Foreign ownership will have to rise sharply this year.

Huge shortfalls mean massive borrowing. Our government will have to borrow much of the money available in global markets this year. Across the course of 2009, the US Treasury will borrow $2.25 trillion, or $7,352 per person. That amounts to over 20% of average disposable personal income. Our plans are contingent on massive and global demand for our debt despite the low interest rates we offer. If there is a stumble on that front, it will not be pretty.

The Emergency Economic Stabilization Act authorized the US Treasury to buy or insure $700 billion in troubled assets beginning in October 2008. That amounts to $2,286.32 for each of America's 306 million citizens. Of the initial $700 billion, about $132 billion remains, that amounts to $431.37 per American. About 81% of the funds have been spent or promised, with 19% remaining to be allocated. The Troubled Assets Relief Program (TARP) is $241 billion more than the projected 2008 budget deficit.

The majority of the programs aimed at banks come from the Federal Reserve and, more lately, the Federal Deposit Insurance Corporation (FDIC). The TARP is a very small slice of the aid made available to financial institutions.

The problem is debt, mountains of debt
The Federal Reserve keeps many numbers that allow us, with some delay, to track the value of our assets and the value of our debts. ZI Tables give data on the levels of assets, debts, and ownership. The total value of all household real estate at the end of 2008 was $18.334 trillion, or $59,915.03 per person. The total liability represented by all home mortgages was $10.453 trillion or $34,162.42 per head.

This helps explain the sad and startling fact that the average American owns only 43% of their home. This is down from 59% ownership in 2002.

The Fed does more than report the numbers. It moves markets, shifts polices and has been growing its influence and activity very rapidly over the past 18 months. The Fed has been instrumental and taken a leadership position in attempting to stabilize banks and financial markets. One way we see this is in the massive growth in the Fed's balance sheet.

The Fed reports on its balance sheet every Thursday in its H.4.1 release. The total value of the Federal Reserve balance sheet last Thursday was $2.09 trillion or $6,830.06 per capita. Over the past 12 months, between the second week of April 2008 and the second week of April 2009, the Fed's balance sheet expanded by $1.195 trillion, or $3,906.37 per capita. The Fed balance sheet has more than doubled over the last year. More growth is assured by the tangle of new programs announced over the past few months.

Last, but not least, the Federal Reserve releases information on consumer credit. The G19 Total Outstanding Consumer Credit release reports on total consumer debt. Total consumer debt - excluding mortgage debt - for February 2009 was $2.564 trillion, or $8,379.08 per head. This includes student loans, credit card loans, auto loans and personal loans.

Reading through all these numbers, patterns emerge. We have household, creditor/lender and government debt problems. We are responding to them by borrowing large sums of money. This is in many cases necessary.

However, we have yet to ask how we got here? We have yet to debate if all the spending is necessary and optimal. Is more debt the best answer to past debt? What, if anything, are we doing to reduce our dependence on debt? What are we doing to reduce our addiction to foreign credit? Sometimes the numbers help make clear the swirl of accusations and opinions that dominate mainstream media coverage of these issues.

We have been using Federal balance sheets to absorb bad debt. Most of the bad debt we have been moving to government balance sheet comes from firms and households. This means that we are committing future household earnings and forgone spending to fix some of our present problems.

Some we don't fix. There is more pain to come from future problems with the mountains of debt outlined above. The system we have set up offers help in a hurky-jerky pattern to leading institutions that are in trouble and to some classes of distressed debtors. We are leaving many high and dry.

Too little is being offered to the many hurt by the impact of the macroeconomic downturn. This is creating a growing base of anger in the society. Often it appears that an unhappy populace, in pain, lashes out and scans the headlines for the culprit of the day. The reasons for this anger are clear and compelling in many cases.

It is frightening and counter-productive to rush from scandal to scandal. There will be no easy or rapid solution. Thus, we must find the root causes of the debt problem and address them. We have done absolutely nothing on that front to date. So far, we are balance-surfing and straining to get more credit at lower cost to various borrowers. Some of this is necessary and wise. Much is done to avoid the bigger deeper causes of the shifting, buckling debt mountain. This is an investment in keeping the problems but shifting and softening symptoms.

You can see the problem with that strategy above. There is too much debt and not enough broad benefit and coherence to the policies we are embracing. Given the size of our commitments and the long-term costs of the efforts, we have to do better.

We don't have limitless time or money. Look through the above numbers. Remember that averages hide our inequalities. Inequality and imbalance are the true root causes of the US and global meltdown. To fix our economy this must be addressed.

Max Fraad Wolff is a doctoral candidate in economics at the University of Massachusetts, Amherst, and editor of the website GlobalMacroScope.

(Copyright 2009 Max Fraad Wolff.)

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(24 hours to 11:59ET, Apr 15, 2009)



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