Personal Savings Rebound Is Both Blessing & Curse


Consumer spending increased in four of the first five months this year (April was flat, but not declining), which, given the state of employment and wages, was a rather strange development. In fact, consumer spending rose at a 3 percent pace in the first quarter.

But upon further inspection, it was revealed that Americans were tapping into their savings to fuel the spending upticks.

What Americans haven't been able to afford outright, they've bought with credit.

Total household debt is now nine times what it was in 1981 — rising twice as fast as disposable income in the same period. Though it's been dropping for the last two years, household debt is still $13.5 trillion, exceeding disposable income by $2.5 trillion.

Deficit spending indicates a lack of savings. Simply put, Americans have been spending money they don't have for quite some time.

In the 1970s and 1980s savings as a percentage of GDP were in the 5 - 7% range. In the decades since, personal savings have declined to the 1 - 3% range.

In 2005, the savings rate actually turned negative for the first time since the Great Depression, and it stayed that way for about two years. The lack of savings has some far-reaching effects. Millions of Americans are unprepared for a financial emergency, or for retirement.

The percentage of workers who said they had less than $10,000 savings grew to 43 percent in 2010, from 39 percent in 2009, according to the Employee Benefit Research Institute's annual Retirement Confidence Survey. That excludes the value of primary homes and defined-benefit pension plans.

Workers who said they had less than $1,000 jumped to 27 percent, from 20 percent in 2009.

As interest rates have decreased, so, too, has the American savings rate. In search of better investments, some Americans have shifted out of savings accounts because of declining rates of return. Other Americans simply had nothing left to save; wages have been stagnant since the 1970s.

In early 2009, savings in aggregate as a percentage of GDP went negative for the first time since 1952, and has continued its downward trend. This includes consumer savings, corporate savings, and government savings/surpluses.

The lack of savings creates an inability to domestically fund the huge deficits being run up by the federal government. That forces the nation to continue relying on foreigners to finance our debt.

But, rather suddenly, consumers are saving again. Cautious Americans saved more in May than at any time since September. According to the Commerce Department, the personal savings rate in May -- the part of every paycheck that goes unspent -- rose to 4 percent, the highest amount in nearly a year.

While this has its virtues, it will also present some challenges.

Consumers have begun saving at a time when the U.S. economy needs their dollars the most. Any hope for a recovery rests on consumer spending, which comprises 70 percent of our nation's GDP.

Unfortunately, Americans weren't saving during the salad days of the last decade. Instead, they were consuming and creating debt. And now, when they are needed to spend the economy out of its doldrums, there is very little to tap into.

American consumers are rightly worried about the economy and about their own personal finances. So they are paying off debt. And recent reports indicate they are putting off large purchases, like homes and the durable goods that fill them.

An increase in the personal savings rate, while usually a welcome sign, is just exactly what the US economy doesn't need right now. On the other hand, all the debt creation of the last decade is what got us into this mess in the first place.

At the moment, it is both a blessing and a curse. But given the state of the economy and wages, a savings increase is probably just a temporary phenomena. Most Americans will likely end up spending all of their income on essentials anyway.

Whether that will be enough to jump start the economy seems unlikely.

Our Deficit & Debt Problems Are Guaranteed To Worsen

And They are the Fault of Both Political Parties

The financial position of the US doesn't look good right now. That's because for the better part of four decades, our government has consistently spent more than it has taken in. Since 1970, the Federal Government has run deficits for all but four years (1998–2001).

Politicians, regardless of their political stripes, love to show voters in their districts that they can deliver, that they can bring home the bacon. This results in an array of "earmarks" for public works projects, like roads, bridges and public transportation infrastructure, plus more dubious expenditures.

But these earmarks are not the real drivers of federal budget deficits. Congress is on pace to spend $11 billion on disclosed earmarks in fiscal year 2010, according to Taxpayers for Common Sense.

While that is indeed a lot of money, in relative terms it's a pittance. The federal budget for fiscal 2010 totals a whopping $3.55 trillion. That amounts to more than 35,000 billion dollars. What this means is that earmarks account for just .032% of the total budget.

Americans are rightfully concerned — even angry — about the size of our annual budget deficits and their effect on our swelling national debt, which has now surpassed $13 trillion.

Much of this anger is currently directed toward President Obama.

As a lifelong Independent, I approach this criticism in a purely non-partisan manner. That said, I think it is important to make the facts clear.

Fully two-thirds of the federal budget is made up of mandatory spending. These are the items for which Congress lacks the discretion for spending, such as Social Security, Medicare/Medicaid, payments to veterans, and interest payments on the debt.

Even if there were no more deficit spending — in other words, if the government spent only what it collects in revenues — there would still be an enormous debt. And there also would be billions of dollars in interest payments still owed on that debt.

Ceasing deficit spending will not erase the debt. It won't even begin to address it. To begin paying off the debt would require the government to spend less than it collects in taxes for many years, a near unimaginable proposition. And it would require the politically combustible combination of tax hikes and budget cuts.

The government's fiscal year runs from October 1 to September 30.

During fiscal year (FY) 2008, the national debt increased by over $1 trillion. That was before Obama even took the oath of office.

In July 2008, the budget deficit for the fiscal year ending in September 2009 was projected to reach $482 billion — the highest number ever recorded.

Yet, the Congressional Budget Office later projected that the deficit for FY2009 would total $1.2 trillion, or 8.3 percent of GDP. However, supplemental appropriations for the Iraq and Afghanistan wars, and earmarks, eventually pushed the figure even higher.

During FY 2009, the federal government collected approximately $2.1 trillion in tax revenue. However, the government spent nearly $3.52 trillion — up 18% from FY2008. That resulted in a budget deficit of $1.42 trillion, significantly higher than the $482 billion originally projected. And the former projection would have been a record.

It should be noted that the fiscal 2009 budget was also enacted before Obama became president. The point is, we've been on a collision course with a hard reality for decades, and the impact date was rapidly accelerated during the last one in particular.

During the past decade, Congress passed two separate rounds of major tax cuts. Meanwhile, the military has been fighting two separate and very lengthy wars. From the beginning, this was a recipe for fiscal disaster.

As noted, approximately two-thirds of the Federal Budget is comprised by Social Security, Medicare & Medicaid, payments to veterans, and interest on the debt. Cuts to these budget items will range from brutal to impossible.

Meanwhile, federal revenues have been falling due to high unemployment and lower incomes. For example, during FY2009, the U.S. government collected about $400 billion less in tax revenues than in FY2008. At 15% of GDP, the 2009 tax collections were at the lowest level of the past 50 years.

Budget shortfalls are not some new phenomena. From FY 2003-2007, the national debt increased approximately $550 billion per year on average. In relative terms, from 2003-2007 the government spent roughly $1.20 for each $1.00 it collected in taxes. This increased to $1.40 in FY2008 and $1.90 in FY2009.

George W. Bush was president during all of these fiscal years. This is not to put the blame squarely on his shoulders, but it is worth remembering that deficit spending has long been a way of life in Washington. This problem goes back 40 years. Each party has contributed to the problem. Whether it's lower taxes or higher spending, the result has been continual deficits and a burgeoning debt.

All politicians promise the citizens exactly what they love to hear; you can have all the government services you want, without paying for them.

Two concurrent wars and falling tax revenues are currently driving our annual budget deficits. Perhaps Obama can be blamed for not halting two unending and unwinnable wars. The rising national debt will eventually force the US to offer higher interest rates to buyers of that debt.

Paying higher interest rates will slow economic growth. And aside from the higher costs to service the debt, the government fears slower growth because it would make the debt-to-GDP ratio even worse.

Much of the anger towards President Obama centers around the stimulus program enacted shortly after he entered the White House. How the money was spent is certainly up for debate, but since it was government spending, there was surely graft and waste.

While the stimulus was widely described as a $787 billion spending bill, $300 billion of that was directed toward tax cuts for 95% of Americans. So it was, in actuality, a $487 billion spending bill. One thing almost all economists recognize is that as bad as this recession has been, without all of that government stimulus upholding the economy and stepping in for reluctant consumers, things would have been even worse.

But while all that deficit spending lessened the problems associated with a stagnant or shrinking economy, it created an even worse debt problem. And the associated tax cuts also reduced Treasury revenues and added to the deficit.

The government was able to undertake its massive Keynesian spending practices (aka, stimulus, or deficit spending) during the Great Depression because it didn't enter that period with the massive debt levels it has today. That is now our Achilles Heel.

The U.S. was already running massive deficits even before tax receipts plummeted, which is making matters worse. As a result of consumer retrenchment (due to unemployment and the housing collapse), government spending is the only thing presently under-girding the economy, even as it increases the deficit.

However, if the government reduces spending, that will have a negative effect on GDP. In past recoveries the growth of the private sector has overcome that negative effect. But the private sector isn't truly recovering, and it cannot recover unless consumers recover. It's all a big, vicious cycle.

The deficit certainly needs to be cut. But cutting the deficit too fast could also throw the country into an even deeper recession. Deficit reduction will also reduce GDP. That means the government collects less taxes, which makes the deficits worse, which means it has to make more cuts than planned, which means lower tax receipts, and so on and so on.

The important thing is for Americans to fully understand the problem, and to not blame the president or any one particular party. They are all to blame. Our "leadership" hasn't led. Our politicians have been shortsighted, reckless, dishonest, and irresponsible. Both parties have failed us.

As I said, we've entered a big, vicious cycle. And life is going to become even more painful for most Americans.

In short, it's going to get ugly. Count on it.

Strategic Defaults Pose Huge Risks to Banking Industry

At the halfway point of 2010, 86 US banks have gone under. That is well ahead of last year's pace, when 140 banks were closed.

There have been only 11 years since the creation of the FDIC in 1933 that 100 banks have failed in a single year. We are now on track to surpass that number for the second consecutive year, and we may do it before the summer ends.

To provide some perspective, just three US banks failed in 2007, and 25 US banks were closed in 2008, which was more than in the previous five years combined.

However, this year the FDIC is bracing for a wave of bank failures due to foreclosures and commercial real estate failures. That will cost the agency billions of dollars at a time when it is already facing financial trouble. The agency is expecting an additional $20 billion in losses over the next three years.

At the end of 2009, the federal deposit insurance fund carried a negative balance of $20.9 billion. To manage the crisis, the agency raised $5.6 billion in a special assessment and $46 billion in prepaid quarterly assessments last fall. For accounting purposes, the agency will add that gradually over 13 quarters.

What this means is that the FDIC has $30.7 billion ostensibly insuring $4.83 trillion in deposits.

In the fourth quarter of 2009, the FDIC said there were 702 lenders on its "problem" banks list, the most since 1993. Yet, by the end of the first quarter, the list had climbed to 775, the highest since 1992.

The banks on this list are most likely to fail, yet their names are never made public out of a fear of creating a run on these banks.

Bank failures over the past two years pushed the number of FDIC institutions to below 8,000 for the first time in the agency's 76-year history. Two decades ago, the FDIC insured more than 16,000 institutions nationwide.

Lenders are facing additional stress since many mortgage borrowers are deliberately choosing to default when their mortgage exceeds the value of their property. These "strategic defaults" have become a heavy burden for the banking industry.

A Federal Reserve study showed that when equity falls below 50%, half of defaults are strategic.

According to CoreLogic, more than 11 million homeowners across the country are underwater. It's estimated that number could double in the next year, which means nearly half of all American mortgage holders will owe more on their homes than those homes are currently worth.

That would spell disaster for the banking system. And the FDIC would be quite challenged to cover all the losses.

Housing Declines Reach New Records

New Housing Data Will Spur Calls for Extension of Tax Credit, but the Program Was Plagued With Fraud

The pending home sales index, a leading indicator for sales of existing homes, plunged 30% in May. According to the National Association of Realtors (NAR), the decline is a new record low.

The index, which measures signed sales contracts on previously owned homes, was down 15.9% compared with the same month a year ago. And it had risen 23% between January and April.

The sharp drop in pending home sales mirrors the 33% drop in sales of new homes in May, which are also recorded at the time of the sales contract. That was the slowest pace in the 47 years records have been kept.

This is terrible news not only for the housing industry, but for the national economy in general.

The expiration of the first-time home-buyer's tax credit was largely faulted for the declines.

The program, which expired in April, gave qualified homebuyers up to $8,000 in the form of a refundable tax credit. They got the cash even if they owed no taxes.

However, homebuyers did get a little more time to close on their homes and receive the tax credit. This week, Congress voted to extend the June 30 closing deadline until the end of September. But that only affects those who met the April deadline to sign sales contracts.

The tax credit has helped more than 2.5 million people buy homes, and the program has distributed $18 billion in tax credits.

With that kind of money available, there were bound to be unscrupulous individuals taking advantage of the program and taxpayers. In fact, the IRS says it has blocked almost 400,000 questionable claims, stopping about a billion dollars from going out improperly.

However a new report from the IRS's chief watchdog discovered tens of millions of dollars in fraud.

Though the tax credit applied only to a primary residence, an estimated 1,300 inmates fraudulently collected the tax credit from behind bars. In fact, there were more than 200 people serving life sentences who cashed in.

The Treasury inspector general for tax administration says his team found more than $17 million in credits for homes purchased before the start of the program — including some bought 10 years ago. And some 10,000 taxpayers collected credits on homes that had already been claimed by someone else. In one case, 67 people all used the same address.

So while there will be calls to extend the program further to reinvigorate the housing market, it was very expensive to all taxpayers and was fraught with abuse.

Peak Oil Is Upon Us. Gulf Drilling Is Proof

Evidence of Peak Oil is all around us.

Have you heard of Peak OIl? Do you know what it is?

Peak Oil is the point in time when the maximum rate of global petroleum extraction is reached, after which the rate of production enters terminal decline.

According to numerous experts in the field, that time has arrived. Global oil supplies have peaked even as global demand continues to grow.

No less an authority than the Energy Information Administration (the statistical and analytical agency within the U.S. Department of Energy) says that Peak Oil is all but upon us.

At present, global usage is outstripping new discoveries. For every four barrels of oil we consume, we discover only one.

The desperate need to find new oil sources is driving BP and other oil companies to go to great extremes — such as extracting oil from deep beneath the sea.

In 1979, Shell Oil set a record by drilling in over a thousand feet of water in the Gulf of Mexico. By 2003, ChevronTexaco was drilling 10,000 feet down in ultradeep water. Think about that; that's nearly two-miles below the surface.

The reason oil companies are going to such extremes is that land-based oil is getting harder and harder to find. Nearly every major find of the past decade has been a deep water find. This, it seems, is where much of the remaining extractable oil is to be found.

Even as onshore oil production is declining around the world, the demand for petroleum is increasing around the globe. So, oil companies are drilling in deeper, and riskier, waters. By the end of this decade, up to 40 percent of our oil could be produced offshore.

According to Interior Department estimates, there could be as much as a three-year supply of recoverable oil in the Gulf, and more than two years’ worth of natural gas, at current rates of consumption. But those estimates are based on seismic data that is, in some cases, more than 30 years old.

The eastern Gulf of Mexico (where BP was drilling when disaster struck) is believed to contain as much as 3.5 billion barrels of oil. However, the U.S. alone uses 7.66 billion barrels per year. That amounts to just 5 1/2 months of oil at current usage.

Perhaps this give you an idea of the kind of pickle we're in. It's crunch time, as in "oil crunch." The Deep Water Horizon wasn't just in nearly a mile of water; it was also drilling three miles into the ocean floor. These are truly desperate moves.

Tad Patzek, a top petroleum engineer and professor at the University of Texas, calls drilling in deep waters an "extremely difficult, harsh environment" and says that the technology that works there "can only be compared in its complexity to technology that we use in space."

Does anybody doubt that if oil were discovered on the moon the oil companies would find a way to get there and bring it back?

Desperate times call for desperate measures. And the people who follow supply and demand issues are worried.

Dr Richard Ward, the Chief Executive Officer of insurance giant Lloyd's of London, is warning that the world is facing a “period of deep uncertainty” over the decline of fossil fuels – and may soon be coping with $200-a-barrel oil.

Dr. Ward recently issued a stark report in which he warns business managers to be ready for “dramatic changes” as oil, gas and coal supplies will soon be “less reliable and more expensive.”

The world “has entered a period of deep uncertainty in how we will source energy for power, heat and mobility, and how much we will pay for it,” Ward states.

The reason we should heed his warning is that insurance companies are in the business of assessing risk. They make large financial calculations based on likely outcomes.

The entire U.S. economy — in fact, the entire global economy — is completely reliant on oil. Without it, everything comes to a halt. And without new sources to feed a growing population and developing economies, there will no economic growth — only stagnation and then contraction.

The U.S. consumes 21 million of the 86 million barrels of oil used around the world each day. U.S. consumption is higher than any other nation and equals the combined consumption of the next five largest national consumers (China, Japan, Russia, India and Germany).

The ability to meet this tremendous demand has allowed the U.S. economy to expand vigorously, outpacing the rest of the world for a century.

But the availability of oil can change quickly.

In 1970, the U.S. was still the world’s oil largest producer, yet its crude production peaked at a level never since exceeded. What may be surprising to most people is that the U.S. is currently the world's third-biggest oil producer, following Saudi Arabia and Russia.

However, our seemingly unquenchable appetite for oil also makes us the world's largest oil importer by far. The U.S. imports almost two barrels of crude for every one it extracts.

In the U.S., we love the automobile and it is still our primary means of transportation. About two-thirds of our oil consumption is for transportation.

In every way, conservation will have to begin in earnest.

Oil, and the access to it, has allowed the U.S. to assume its preeminence in the world. The arrival of Peak Oil could eventually level that playing field, perhaps quite considerably.

Peak Oil is upon us.

G-20 Pledge To Cut Deficits/Debt Will Have Multiple Consequences

Investors fear that the Group of 20's pledge to cut deficits could hurt global growth.

The stock market is tumbling.

Investors are concerned that a pledge by G-20 nations to halve their deficits by 2013 and stabilize their debt by 2016 sends the message that the days of endless stimulus are over.

G-20 countries set "goals" to cut their deficits in half by 2013 and to "stabilize or reduce" debt-to-GDP ratios by 2016. Given the state of the global economy, that seems unlikely. But should they follow through on this pledge, it will undoubtedly slow the global economy.

That's what you call a catch-22, or being caught between a rock and a hard place.

Governments are faced with a couple of ugly choices, Absent government stimulus and deficit spending, they face stagnating economies due to lowered demand, which will lead to layoffs and slower job creation.

To avoid that, they can continue to spend heavily, running up greater deficits and debts. However, that will hurt their fiscal position and likely lead to demands of higher interest rates on the bond markets.

To complicate things even further, a nation cannot pay off its massive debts without achieving strong economic growth.

Greece is the perfect model of what can happen when government spending, deficits and debt get out of control. Who wants to buy the bonds of a nation that may not be able to pay you back?

The Obama administration said Sunday that it will work to reduce the U.S. fiscal deficit to 3% of GDP by 2015.

The problem is that the private sector isn't nearly robust enough to sustain the economy on its own. In fact, multiple indicators show that the economy is faltering. Without growth, there are no jobs. And without jobs, there can be no meaningful, sustainable, recovery.

American consumers see the signs and they are rightfully worried.

The consumer confidence index plummeted to 52.9 in June - the lowest level since March -- from a downwardly revised 62.7 in May. That's a huge drop. A reading above 90 indicates the economy is on solid footing; above 100 signals strong growth. By this measure, we are a long way from recovery.

There appear to be limits to how much the federal government can help. The stimulus money from last year is drying up and first quarter GDP came in at a disappointing 2.7%. Early indicators show that the second quarter could be even worse.

We're in a vicious cycle; no growth, no jobs, no recovery.

Growth would need to equal 5% for all of 2010 just to lower the average jobless rate for the year by 1 percentage point. Clearly, that is not going to happen.

How will Americans respond when the government eventually begins cutting the budget and eliminating spending for popular programs?

Europeans are letting their opinions be heard loud and clear; Greece and Spain have been beset with protests and labor strikes.

Major cuts have already begun in states across the US.

Last week, the Senate shot down a bill that would have extended unemployment benefits yet again. Congress had previously extended benefits four times since 2008.

Aside from affecting nearly a million unemployed Americans, the decision will also deny states billions of dollars in financial assistance, leading to even more draconian budget cuts.

That will in turn create even more pressure on GDP, undoubtedly shrinking it. The economy will contract if consumers and governments aren't active. Someone has to spend.

The denial of unemployment benefits will also create a drag on economic growth. Millions of Americans will no longer be pumping that money back into the economy.

As I've said repeatedly, there are no good answers; only very difficult choices. We have entered a debt trap that presents an enormous conundrum; do we continue to mortgage our nation's future by becoming even more grossly indebted? Or, do we show fiscal restraint and suffer the consequences of another possible depression?

These are the hard and nasty choices we face as a nation.

First Quarter GDP Revised Down Again; Q2 Not Looking Good Either

Most economists expected first quarter GDP to come in at 3.5%. However, when the preliminary results were released in April, the number was just 3.2%. That number was then revised downward to 3% in May. And just today, that number has been revised down yet again, to 2.7%.

This is a serious blow. Our government embarked on an absolutely massive $787 billion stimulus plan last year that was designed to step in for the struggling private sector. Consumers simply weren't consuming, or spending.

It's worth noting that $300 billion of that stimulus came in the form of tax cuts for 95% of Americans, but apparently they didn't put that money back into the economy. Instead, they used it to pay down debt.

No matter, the government took extraordinary steps to end the recession and renew economic growth.

Yet, despite the magnitude of this federal stimulus program, and $2.3 trillion in spending by the Federal Reserve, we still ended up with a measly 2.7% first quarter GDP.

And the problem has been worsening in the second quarter. The Commerce Department reported that consumer spending didn't grow at all in April. And then it reported that retail sales fell 1.2 percent in May, the first time they've fallen since Thanksgiving.

That makes you wonder where we go from here. The government is relying on foreigners (largely foreign governments) to loan us the money to continue our deficit spending. And the Fed is simply printing money out of thin air, which it then uses to buy Treasuries. This is akin to the left hand borrowing money from the right hand. It is an absolutely insane policy.

Our government hopes to cure its deep debt by growing its way out of the problem. But advanced economies are mature, and harder to grow.

The stunning reality is that growth has been rather slow for a number of years, as is often the case with mature economies. Since the second quarter of 2006, there has only been one quarter in which GDP was at least 4%. And the 5.6% growth in the fourth quarter of 2009 was largely the result of government stimulus spending.

According to Gallup, the under-employment rate is 20%. This includes not only the unemployed, but also those who can only find part-time jobs, yet want full-time work. Economist John Williams puts the real unemployment number at 22%.

Quarterly GDP would need to grow at 5-6% just to bring the national unemployment rate down a single percentage point. At that pace, a 4-5% unemployment rate) could be achieved by 2015.

One-quarter of all US mortgages are under water, which means nothing unless the owners suddenly need to sell. But the reality simply makes people feel poorer. It's a psychological effect, albeit a powerful one.

Even worse is this: roughly one-in-seven of the 52 million households with mortgages are in delinquency or foreclosure.

With numbers like these in mind, it's no wonder that consumers are retrenching. Clearly, these people aren't shopping or taking on further debt.

Instead of borrowing, Americans are paying down debt and saving at a 3.4% rate. That does not bode well for an economy 70% reliant on consumer spending.

But what about this alleged recovery the mainstream media has tried to continually sell us? What about the "greenshoots" we've heard so much about? It was all nonsense based solely on optimism. But that doesn't by groceries.

With the stock market up 80% in almost 14 months at its April peak, people "felt" like they had more money. Call it the "wealth effect." Let's hope that some of them took their profits while they could. The stock market is nothing more than a fantasy rooted in delusion and entirely lacking in fundamentals.

It's not just consumers who are retrenching either. In the first quarter, spending by state and local governments declined by the largest amount since 1981. Tax revenues have plummeted and they are all going broke (see the cover of this week's TIME).

Many states will soon need — and ask for — their own bailout from the Federal government. But where will the money come from?

The US, the largest debtor in the world, is simultaneously fighting two separate wars that are adding more than $12 billion to that debt each month. Meanwhile, the national debt has now exceeded $13 trillion.

There are — and will continue to be — calls for additional stimulus spending to keep the economy from going backwards. And there are already calls to extend the first-time home-buyer's credit. The program, which helped more than 2.5 million people buy homes, has already distributed $18 billion in tax credits.

And this week, the Senate shot down a bill that would have further extend unemployment benefits. The decision will affect nearly a million Americans and deny states billions of dollars in financial assistance. That will lead to even more draconian budget cuts. Congress had previously extended benefits four times since 2008.

Bu things will soon get even worse for the unemployed.

Department of Labor estimates show two million workers, or 20 percent of all recipients of jobless aid, will fall out of the Emergency Unemployment Compensation program by the second week of July.

While the denial of benefits certainly won't add to the deficit this year, it will create a drag on economic growth. Millions of Americans will be pumping less money back into the economy.

This, in conjunction with the exhaustion of stimulus funds, will cause GDP to falter in coming quarters. It's going to get ugly, folks.

Wall Street got a bailout. Detroit got a bailout. Now state, cities, and everyday Americans want a bailout too. To be truthful they all need it. But our government has been in debt for decades, and it's only getting worse.

The reality is that public sector needs a bailout, yet there is no private sector entity large enough to bailout the public sector.

So what now?

That's the million-dollar question. More stimulus means more debt. But without further stimulus and more aid to states and millions of individuals, the economy will limp along desperately.

There are no good choices, just harsh realities.