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Saturday, 27 September, 2008 1:29 PM

Record Deficits & Bailouts: Who Is Going to Pay for All this?

The federal government is buying the largest mortgage and insurance companies in the world. Now Sec'y Paulson is pushing for a $700 billion "rescue package" for the rest of Wall Street's whiz kids. Presidential candidates Barack Obama and John McCain aren't taking a stand. What's this mean for you? What should you be doing during this crisis? The new book I.O.U.S.A. will put it all into perspective for you.

Photo courtesy of


Hoboken, NJ — It was hard enough to wrap your mind around the numbers last week: Our national deficit was growing at a staggering $1,903 every minute. By January of 2009, the U.S. federal debt was set to be over $10 trillion, the total federal fiscal hole around $56 trillion deep. And by 2010, every citizen will "owe" around $38,000. And yet, this week the federal government is bailing out the very banks on Wall Street that were complicit in the mortgage bubble? How does that work?

"These numbers are overwhelming for most Americans," admits bestselling author Addison Wiggin, coauthor along with Kate Incontrera of I.O.U.S.A: One Nation. Under Stress. In Debt. (Wiley, September 2008, ISBN: 978-0-470-22277-5, $19.95). "The simple fact is, we've been 'successful' as a nation for so long the average citizen doesn't have a clue what's happening on Wall Street or in the economy. Fear of gigantic numbers, seemingly indiscernible statistics, debates over theory and partisan bickering only add to the confusion. When people don't understand something, it is easier to just dismiss it."

I.O.U.S.A. is a companion book to the critically acclaimed documentary of the same name—a national debt documentary that was nominated for the Grand Jury Prize at the 2008 Sundance Film Festival. The "script" of the film is a tragicomedy of sorts. It's a primer if you're seeking a basic understanding of the nation's biggest economic challenge. The story illuminates today's financial crisis in a unique and easy-to-understand way by examining four serious "deficits" the nation faces—the budget deficit, the personal savings deficit, the trade deficit, and most importantly, the leadership deficit.

The book also provides complete transcripts of interviews conducted with financial gurus such as Warren Buffett, Alan Greenspan, Steve Forbes, Robert Rubin, Arthur Laffer, and more."None of these luminaries agree 100 percent on what the solutions are for the problems we face as a nation," admits Wiggin. "But it's obvious to everyone that we've lived beyond our means for too long. Most Americans are going to have to rethink what they expect from their government. And by extension, how they plan for their own future.

"Do politicians need to be held accountable for the promises they make during election campaigns? Seems like a natural. But individuals need to take responsibility for their own lives too. Planning better, saving, and investing wisely in private life will make it easier for policy makers to make difficult decisions regarding the finances of the government."

The book I.O.U.S.A. provides the language and resources necessary to help ordinary Americans engage in the national conversation during the election this year. It helps ordinary folks fortify their own lives with plans for successful retirement, education, and healthcare.

"When we started researching the book and the film," says Wiggin, "we realized most Americans don't know how bad the fiscal situation of the country is. In that sense, I.O.U.S.A. is their wake-up call. We have to demand fiscal responsibility from our leaders and from each other, that much is true. But most Americans would do better if they simply control their own personal spending, save more, and invest wisely for their own futures. The national elections, in our view, provide the perfect opportunity for potential leaders in the next government to engage the public in this conversation."

About the Authors:

Addison Wiggin is the editorial director and publisher of The Daily Reckoning and executive publisher of Agora Financial, a multi-million-dollar financial research firm and publishing group based in Baltimore, Maryland.

The Daily Reckoning has attracted more than 500,000 readers in the United States and Great Britain, has been translated into French, German and Spanish, and has been popularized by such mainstream publications as Money and Wiggin has been featured as an expert in such publications as The New York Times Magazine, Worth, The Washington Times, The Washington Post, Time, The Pittsburgh Post Gazette, The Baltimore Sun, The, The and CNN/Money.

He is also coauthor along with William Bonner of Empire of Debt: The Rise of an Epic Financial Crisis (Wiley, 2006). He is the author of newly revised and updated Demise of the Dollar and Why It's Even Better for Your Investments.

Mr. Wiggin has been a student, writer, and commentator of financial markets and governments for more than a decade. With a master's degree in philosophy from St. John's College and experience working with the Cato Institute in Washington, D.C., Mr. Wiggin has acquired both a macroeconomic and contrarian's outlook on domesticand international markets.

Kate Incontrera is the managing editor of The Daily Reckoning. Ms. Incontrera was also an associate producer and writer on the critically acclaimed documentary film I.O.U.S.A. Before joining Agora Financial in 2004, Ms. Incontrera studied writing at The University of Cambridge and at Towson University in Baltimore, Maryland.


An I.O.U.S.A. Q&A: Financial Experts Weigh in on the Nation's Economic Crisis

Excerpted from I.O.U.S.A: One Nation. Under Stress. In Debt. (Wiley, September 2008, ISBN: 978-0-470-22277-5, $19.95) by Addison Wiggin and Kate Incontrera


William Bonner founded Agora Inc., is the author of free e-letter The Daily Reckoning, and is also the coauthor along with Addison Wiggin of Empire of Debt (Wiley, 2006).

Q: What do you think lies ahead, given the lifestyle that we live today in our country

William Bonner: We had an expression in the book that basically said that there are not many people who can afford to live like Americans today, and too bad Americans can't either. The fact is that Americans live beyond their means. This is a very, very old concept, but today people don't even think about it because they don't know what their means are. You know, when you start down this path where you're introducing so much credit and monetary inflation, which just means that there are more and more dollars floating around, then people don't know what a dollar is worth. For example, when you get a credit card in the mail with a credit line of $2,500.00, does that mean that you can spend $2,500.00? As Warren Buffett has explained many times, you can't live beyond your means forever; eventually it catches up with you. What's happening in America today is that people are taking their credit cards, spending money they don't have, and believing that they'll never have to pay that money. But they will, somehow, sooner or later. That mathematics has to catch up to them, and they'll have to spend less money, because they're right now spending more than they can afford.


Paul A. Volcker was the chairman of the Federal Reserve from 1979 to 1987.

Q: Why is it important for Americans or people who are not involved in the financial industry and/or economics to understand these issues?

Paul A. Volcker: It is always difficult to answer that question because it seems that these issues are small and abstract in comparison to people's day-to-day problems of making a living and going to work. Well, they no longer seem abstract when it comes down to people maintaining fiscal discipline and paying for Social Security and Medicare. But the greatest challenge for democracy is to be able to effectively cope with problems that are pretty clearly out in the future, but require some action, discipline, and restraint today. That's the test we're going through. And, as people get a better understanding and education of some basic economic issues, the democracy will be better able to cope with those future challenges.


Dr. Alan Greenspan served as the chairman of the United States Federal Reserve Board from 1987 to 2006.

Q: Why is a lack of savings problematic? How would you explain that to someone who thinks, "I'm living pretty well and I have my 401(k) and everything seems fine"? What does a lack of savings create in the long-term?

Alan Greenspan: When you think in terms of the economy as a whole, you have to realize that if the output of an economy—or in household terms, the amount of income [available]—is all consumed, [then] we're not accumulating the types of assets which we find productive over the years. Every advanced economy invests a significant amount of what it produces. It ploughs it back in the way of capital assets—meaning factories, equipment, all forms of capital—which essentially make the standard of living rise, because as technology and capital increase, an hour's worth of effort on the part of a person has (over the generations) been increasing, producing more and more in the way of goods and services. So that the issue is, for the national economy overall, unless you plough back or invest a significant part of your production, you will not have growing standards of living.
The comparable measure with respect to households is that if you don't save adequately, you are wholly dependent upon the income you are getting—which, incidentally, indirectly will rise because other people are saving and investing. But as far as you're concerned, unless you put money away for nest egg purposes, for retirement, for a variety of other purposes, you will find that you are living an extraordinarily precarious existence. Savings is the buffer, which is the gap between disaster and prosperity.


Warren Buffett is regarded as one of the world's greatest stock market investors and has been CEO of Berkshire Hathaway since 1970.

Q: At some point in the last few years, for the first time ever, you bought foreign currencies. Can you explain to me your own personal faith in the U.S. dollar? Has that faith changed or altered in the last few years? If so, why?

Warren Buffett: Both personally and at Berkshire Hathaway, we have far more assets in dollars than in all other currencies combined. So it is not like anything drastic is going to happen in the United States. On the other hand, if you give more and more of your IOUs to the rest of the world and you denominate them in your own currency, history shows that countries that do that have an interest over time in inflating and in having their currencies worth less. If I could finance all of my own consumption today by handing out something called Warren Bucks, or Warren IOUs, and I had the power to determine the value of those IOUs over time, believe me, I would make sure that when I repaid them 10 or 20 years from now that they were worth less, per unit, than they are today. So any country that piles up external debt will have a great temptation to inflate over time, and that means that our currency, relative to other major currencies, is likely to depreciate over time.


Steve Forbes is the editor-in-chief of Forbes magazine and president and CEO of Forbes Inc.


Q: We grew up in a culture where we heard phrases like "A penny saved is a penny earned" or "Put it away for a rainy day." Where did this culture change in the United States? When did the shame of owing money, indebtedness, or bankruptcy evaporate and the idea of accepting massive personal or governmental debt become accepted? Also, do you believe this culture change is positive or negative?

Steve Forbes: Well, the key is that people must learn how to handle finances in a responsible way. Too often, the kind of consumer culture we have focuses only on the here and now, not on the future. What we should learn to build on in terms of recasting our culture is home ownership. There you're taking on debt, but you have an asset behind it, you're paying it off, it's your property.

In terms of indebtedness, people have to look at the balance sheet and make sure they have assets there. This is where having your own personal accounts for Social Security would be such a benefit because from a young age, your money's going into that account. You want to know, "How am I going to grow that account? How am I going to protect that account? How do I make sure the politicians don't wreck it for me?" Suddenly, people are going to develop a Ben Franklin-like mentality because they are talking about their own money. And, don't you think that's going to start to spill over into other areas? People are going to want to talk about assets and actions that will help or jeopardize their earnings. At an early age, people will develop a mentality that they can accumulate and grow their assets. They will become excited to see that they worked and have something to show for it, other than just a paycheck or a trip to the movies. After a person earns their money at McDonald's, they will have something that lasts longer. Now, the words "A penny saved is a penny earned is a penny saved" will have meaning. Kids especially will be able to build this mentality at an early age.


Robert Rubin, the 70th secretary of the U.S. Treasury (1995-1999), was one of the key players in the Clinton administration's balanced budget. He is currently a director and chairman of the Executive Committee at Citigroup.

Q: Speaking of deficits, do you think deficits matter?

Robert Rubin: Well, I don't think there's any question that deficits matter, and I think there is probably virtually no mainstream economist who doesn't believe that deficits matter. Deficits over time—and we're talking about deficits over a period of time, not just for a little while—lead to higher interest rates, they can create the risks of market disruption, and they undermine the ability of government to engage in public investment, which is so critical economically and socially. They reduce our leverage abroad when we try to negotiate on international economic policy issues that are important to our country.

What we found in the early 1990s, when President Clinton put in place a powerful deficit reduction program, is that deficits also undermine business and consumer confidence more generally. So I don't think there's any question that deficits matter. And I think it's a broadly accepted view that sustained deficits over time can have significant adverse impact on jobs, on standards of living, and on our economy more generally.

Source: DeHart & Company




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Unauthorized duplication or use of Text, Site Template, Graphics and or Site Design is Prohibited by Federal and International laws. See our Notice/Disclaimer.