Unemployment Remains Bleak; Challenges Are Daunting

The fact that the U.S. economy created zero jobs in August is an ominous sign for a nation that needs to create 125K each month just to keep up with population growth.

Though the unemployment rate held steady at 9.1 percent, more than 14 million Americans remain out of work and actively looking for jobs.

The economy has created less than 100,000 jobs for four straight months. As if that weren't enough, on Friday, the government also said job creation in June and July wasn’t as good as originally thought.

The government claims that the labor force participation rate — the percentage of people employed and those who are unemployed but seeking a job — is currently at 64 percent, up a tiny bit from July. That is very low by historical standards.

When the recession began in December of 2007, 66 percent of Americans were participating in the labor force.

However, if you compare the labor force participation rates with the employment population ratios (EPR) for 1973 and 2000 versus today, the current numbers don't really add up.

In a recent blog post, Vox Day put it this way:

Is it reasonable to believe that people are any less inherently willing to work in these difficult economic times than they were in the year 2000? I don't see any justification for it.

Given that the percentage of women participating in the labor force has methodically risen from 44.7% in 1973 to 59.2 in 2009, and that this increase has outpaced the exit of elderly men from the labor force since 1973, the current overall participation rate should be significantly higher than it was in 1973. But this is not the case, according to the BLS.

Dec 1973 Participation rate 61.2 EPR 58.2 U3 4.9
Jan 2000 Participation rate 67.3 EPR 64.7 U3 4.0
Jul 2011 Participation rate 63.9 EPR 58.1 U3 9.1

Now, if we simply compare the present number of reported employed to the present size of the civilian, non-imprisoned population, but calculate the labor force based on the 2000 participation rate, we get an unemployment rate that is 50 percent higher than the currently reported rate of 9.1%. Note that numbers given are in thousands as per the BLS.

239,671 Civilian non-imprisoned population x.673 participation rate equals

161,299 Labor Force minus
139,236 Employed
= 22,063 Unemployed

22,063 divided by 161,299 equals 0.13678

This means the current U3 unemployment rate according to the BLS metric should be 13.7%, not 9.1%. Note that this is higher than the "unemployment rates" reported in the first two years of the Great Depresion, 1930 (8.9%) and 1931 (13.0%). Please also note that the two historical "unemployment rates" are estimates made well after the fact as the BLS didn't track unemployment statistics until 1948. Finally, one also must take into account that the current rate would be considerably higher were it not for the 2,868,000 more people that are now employed by the federal government than were employed in 1940, much less before the New Deal of 1933. Including these extra 2.8 million government workers in the unemployed list, as one must do in order to make a reasonable comparison between 2011 and 1930-31, indicates a comparable "unemployment rate" of at least 15.5%.

It's important to remember that even if the economy simply kept up with population growth by adding 125,000 jobs each month (for a total of 1.5 million new jobs this year), it still wouldn't help the roughly 24 million Americans who are already unemployed or under-employed, meaning they can only find part-time work.

To provide some perspective of the hole we're in, consider this: the government said that 1.3 million jobs needed to be created every year from 2006-2016 just to keep up with the growing labor force.

Obviously, that isn't happening.

The stark reality is that there are 7 million fewer workers today than just four years ago and the number of unemployed Americans has roughly doubled, to more than 14 million.

What's most disturbing is that the government's most widely reported unemployment figure (U-3) does not include those who have lost their unemployment benefits, or those who have only part-time jobs but want full-time work.

Economist John Williams of ShadowStats.com (who provides detailed economic reports for U.S. businesses) puts the real unemployment rate at a whopping 22.8%. That's akin to the Great Depression.

The current state if affairs is nothing new; job creation has been in a long-term downturn.

Remarkably, job growth in the last decade was actually negative. While the number of new workers entering the workforce swelled during that period, just 1.7 million new jobs were generated.

According to the Bureau of Labor Statistics, just 1.1 million jobs were created last year. Remarkably, that was nearly as many as in the previous decade combined.

The troubles go back many, many years. In fact, job creation has been slowing for decades, and that's a very bad omen.

According to the Economic Cycle Research Institute, during periods of American economic expansion in the 1950s, ’60s and ’70s, the number of private-sector jobs increased at about 3.5 percent a year. But during expansions in the 1980s and ’90s, jobs grew just 2.4 percent annually. And during the last decade, job growth fell to 0.9 percent annually.

And it's taking longer and longer to recover from each successive recession. The last time the jobless rate reached double digits, in the early 1980s, it took six years to bring it down to normal levels.

The historical precedents and current trends make it very difficult to feel optimistic about the future.

This nation's unemployment problem has truly negative consequences for our consumption-based economy, which is 70% reliant on consumer spending. Obviously, there is less consumption when fewer people are working, as there is less disposable income directed back into the economy. It also means lower tax receipts at both the state and federal levels.

If unemployment remains stubbornly high, wages will also remain stagnant. That will create a negative feedback loop of both lower both consumer spending and economic output.

American consumers remain totally strapped due to their heavy debt burdens. Consequently, we will not spend our way out of this malaise.

Our unemployment problem is huge and complex. Millions of lost jobs are never coming back. Consequently, millions of American workers need new skills and new training.

Consequently, the problem is much bigger than creating the 1.5 million jobs needed to keep up with annual population growth.

Even if the nation had started adding 2.15 million private-sector jobs per year beginning in January of 2010, it would have needed to maintain that pace for more than seven consecutive years (7.63 years), or until August 2017, just to eliminate the current jobs deficit.

It's now abundantly clear that this isn't going to happen.

The U.S. is faced with a grim new reality of lower economic growth, less consumption, higher unemployment, lower wages, lower government revenues and unwieldy debt levels at the government, corporate and consumer levels.

Our present economic state is quite bleak. Sadly, for most Americans the future is virtually certain to be less prosperous than the past.

These are hard times indeed. And they are poised to remain that way for the foreseeable future.

Food Stamp Use Rising With Poverty

The times are tough now, just getting tougher
This old world is rough, it's just getting rougher
— Bruce Springsteen, 'Cover Me'

The Great Recession has left quite a scar on this nation. Rampant unemployment has led to rising poverty and homelessness, plus an increase in the number of Americans needing government assistance just to buy food.

Since 2007, the number of people in the Supplemental Nutritional Assistance Program (SNAP) has increased by 74 percent. SNAP is the new name for food stamps, though most people still refer to the program by its former name.

At present, some 46 million people in the United States use food stamps, roughly 15 percent of the population. To put it another way, that's more than one-in-six Americans.

That tally squares with the government's revelation that 44 million Americans were living in poverty last year.

Food retailers have taken notice.

Bill Simon, head of Wal-Mart's U.S. operations, told a conference call recently that the company had seen an increase in the number of shoppers relying on government assistance for food.

With so many people receiving assistance, the cost of the program doubled to $68 billion in 2010. That's a problem for a government as deeply indebted as ours, and one that has seen its safety net expenses spike at the same time its revenues have plummeted.

In fact, the cost of food stamps amounts to more than a third of what the government received in corporate income taxes last year.

Unemployment has had the duel effect of raising the number of Americans seeking assistance while simultaneously shrinking the tax base. It's been a real double whammy.

However, not everyone receiving food stamps is unemployed. In fact, many have jobs. The problem is that they are low-paying jobs.

About forty percent of food stamp recipients are in households in which at least one member of the family earns wages. That's a big change from two decades ago.

In 1989, a higher percentage of the program's recipients were on benefits than were working. However, as of 2009 a higher percentage of recipients had earned income.

A looming prospect for the government is that the cost of the program could grow even if the economy doesn't worsen. The government estimates that one in three eligible Americans are not presently in the program. That's a troubling reality.

The maximum amount a family of four can receive in food stamps is $668 a month. The benefits can only be used to buy food — though not hot food — and for plants and seeds to grow food.

Low wages and rising poverty are behind the large increase of Americans needing food assistance. While there may indeed be some fraud, the fact that wages have been stagnant for nearly four decades has manifested itself in some rather stark ways.

Six percent of the 72.9 million Americans paid by the hour received wages at or below the federal minimum wage of $7.25 an hour in 2010. That's up from 4.9 percent in 2009, and 3 percent in 2002, according to government data.

Due to their low incomes, minimum wage single parents are almost always eligible for food stamps. Assuming they work 40 hours every week of the year, a minimum wage worker earns about $15,000 annually. An $800 per month apartment would eat up nearly $10K of that income.

But it's not just minimum wage earners that often need food assistance. Even those who earn $10, $11 or $12 an hour typically face enormous challenges in supporting their families.

Based on a 40-hour work week, someone who earns $12 per hour would gross about $25,000 before taxes. That comes out to less than $500 per week, which obviously doesn't go far for a family of three or four.

The federal poverty level for a family of four this year is $22,350. However, it's probably fair to say that millions of families earning more than that amount are still living in poverty.

With an unemployment rate over 9 percent, many people are taking jobs for which they are grossly over-qualified, including people with advanced degrees. Workers are now competing for low wage jobs that keep them in poverty and on government assistance.

Take Wal_Mart, the nation's largest private employer, for example. It's sales associates and cashiers typically earn around $9 per hour. For a full-time worker, that amounts to $360 per week, or $18,720 annually.

The same types of wages would typically be expected for similar retail workers and fast-food employees. The U.S. is now primarily a service sector economy, highlighted by low-paying, unskilled jobs. Service sector jobs are also the kind that don't produce anything, other than cheap, fast food.

According to the Bureau of Labor Statistics, from 2008 through 2018, "The shift in the U.S. economy away from goods-producing in favor of service-providing is expected to continue. Service-providing industries are anticipated to generate approximately 14.5 million new wage and salary jobs."

That's not a good tend. The middle-class was not built on low-paying service sector jobs, but rather on well-paying manufacturing jobs with good benefits. As of last year, the service sector was responsible for $11.2 trillion of U.S. GDP.

The unvarnished reality is that the richest 1% of this nation own a third of the country's assets and the poorer 50% owns less than 2.5%.

As long as that remains true, the number of Americans receiving food stamps is only likely to grow.

Debt Crises are Engineered by Bankers

Fiscal austerity has arrived in the Western world and the ramifications will be brutal.

Western governments are now coming face-to-face with the crippling effects of massive budget cuts; a shrinking GDP and a diminished ability to pay existing debts.

It's a pernicious cycle.

Most of the world is in a debt trap from which there is no escape. These governments are facing a death spiral. Continual budget deficits will bleed you to death. And the solution — austere budget cuts — will only hasten that death, as the following AP story illustrates:

Greece's finance minister said Monday that the crisis-afflicted economy will shrink more than expected this year, putting further pressure on the country's ambitious deficit-cutting effort.

Evangelos Venizelos said the ministry forecasts annual output to shrink between 4.5 percent to 5.3 percent this year.

Venizelos had previously admitted that the recession might be greater than last year's 4.5 percent, a whole percentage point worse than initially estimated.

"All the measures we are taking ... are aimed to stem the recession," Venizelos said.

"We must achieve our fiscal targets -- and this has become very difficult due to the deeper recession," Venizelos told a news conference.

"There is undoubtedly a vicious cycle. We have been obliged over the past two years, and in the coming three, to implement a gigantic fiscal adjustment ... which has a negative impact on the real economy. But these are the terms under which we receive our loans and rescue packages."

Chronic debt is the device that's being used to hold European governments hostage. Bankers eagerly assist governments in taking on more debt than they can ever possibly repay.

Consequently, the banks then seize an indebted nation's income, sucking it up through debt payments. The banks also force governments to surrender their sovereignty by selling their national assets — which the banks then buy at fire sale prices.

Bankers did this very thing in Greece, taking possession of all state assets. As a result, the bankers are now profiting from a crisis they helped create.

In the midst of a debt crisis, the bankers dictate the terms — and they are never favorable to the governments involved. In fact, the terms are usually crippling.

This is nothing less than a financial coup d'etat.

In reality, this isn't truly a debt crisis. It's a well-orchestrated plan.

FDIC Says 'Problem Banks' Declining; Total Still Dreadful

Since the creation of the FDIC in 1933, there have been only 12 years in which 100 banks failed in a single year. The last two were among them.

Though bank failures easily eclipsed 100 in each of the last two years, the trouble is not yet behind us. With 68 so far in 2011, we are on pace for a third consecutive year of 100 closures.

A total of 140 banks were shuttered in 2009, and 157 institutions failed in 2010.

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

Looking at FDIC data can reveal the magnitude of the current problem, and just how much more fallout may be yet to come.

At the end of the first quarter last year, the number of lenders on the FDIC's "problem banks list" had climbed to 775, the highest level since 1992.

However, today we were told that 865 banks were on the "problem list" in the second quarter, which was actually an improvement from the first quarter, when 888 made this sorry list.

The decline was the first since the third quarter of 2006. Clearly, U.S. banking has been in a long pattern of instability and failure.

The report is being heralded as good news due to the decline in "problem" banks.

But consider the facts; there were 775 banks on the list in the first quarter of last year, the highest since 1992. That number has since increased by 90, and this is somehow being spun as a good thing?

The banks on the list are considered the most likely to fail. However, their names are never made public for fear of creating a run on those banks.

Bank failures over the previous 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.

The problem is that many of these banks are already under-capitalized, which is the reason they are failing.

FDIC officials say the banking industry continues to struggle with flat growth in loans, which is how they make their money. Relatively few businesses or individuals are seeking loans in this environment, and fewer still even qualify.

The government changed accounting rules for banks during the financial crisis so that they no longer have to mark foreclosed properties to market values. Banks have been allowed to "extend and pretend," as they wait for the housing market to recover.

However, it is now evident that any recovery will take many years.

If the banks were compelled to mark these "assets" — which could be more accurately described as liabilities — to current market values, even more institutions would be revealed as bankrupt.

While the FDIC may view the decline in "problem banks" as good news and a step forward, the predicament has only been upgraded from "miserable" to "horrible."

The reality is that roughly 11.5 percent of all federally insured banks are now considered at risk for failing, and that is an absolutely overwhelming number.

Global Debt Crisis Reaching Moment of Truth

As many readers are aware, for years I've been saying that the world is awash in unsustainable, and clearly un-repayable, debt.

Europe is battling through a very public, and very troubling, debt crisis. Japan has the largest debt of any developed nation and an economy that's been stagnant for two decades. Moreover, the U.S. has just suffered the first-ever debt-downgrade in its history.

Some economists and analysts already count Japan among the walking dead, as it seem to have entered the terminal phase of its debt crisis.

That said, the biggest risk at the moment is Europe. This recent article from the Wall St. Journal spells it out quite clearly:

AUGUST 6, 2011

The European Central Bank indicated it was open to purchasing the government bonds of Italy and Spain as a way to ease mounting market pressure on two of the euro-zone's largest economies.

For months, European leaders have been working in fits and starts to convince financial markets that they had the tools to help Spain if that country tumbled into a sovereign-debt crisis. But now, it is the larger Italy that appears at the center of the maelstrom, and there is no plan in place to help it.

The joint sovereign bailout fund created to rescue ailing member states is too small to lend Italy money to cover its bills. Endowing the fund with enough firepower would impose a huge burden on Germany, France and other stronger countries, and could well imperil their own credit ratings.

If Italy falls to the same fate as other failed peripheral economies, Spain will probably go too, setting off a chain reaction across the global financial markets, said Uri Dadush, a former senior World Bank economist and now director of the economics program at the Carnegie Endowment for International Peace.

If contagion spreads to Italy, "it would generate a financial earthquake," said Domenico Lombardi, a former representative for Italy to the IMF and now an economist at the Brookings Institution. The ramifications are so potentially large, "it would be close to impossible to manage that crisis," he said.

The world is now confronted by a mega-debt crisis and the cracks have turned into fissures. A series of fiscal earthquake faults are now at risk of triggering, or being triggered by, the others.

What first revealed itself as a Greek debt crisis has evolved into a global debt crisis. Greece was just the spark that lit the fuse.

Europe can mange the failures of the Greek, Irish and Portuguese economies, but it has no means for handling a Spanish or Italian default — much less all the bad debts of both nations. The reality is, both are too big to let fail, yet simultaneously too big to save.

The consequences of the still unfolding crisis in Greece alone, which is a relatively small economy, could even affect the U.S.

I've previously written about how interconnected and how fragile the global economy is, and how the debt crisis would continue to evolve. The ripple effects from the trouble in Europe, and even the U.S., will continue being felt far and wide around the globe.

Many of the world's leading economies have entered a debt trap, from which there is no escape.

The warnings have been loud, and they have been repeated regularly. We have now reached the 11th hour, the moment or truth, and are on the eve of a massive global financial storm.

Even the Director of National Intelligence has warned that economic instability is a major threat to the U.S. and wider world.

From the beginning, Greece mattered and it had implications for the rest of the world. The trouble in Athens served as a cautionary tale. Ignoring that crisis would be to the peril of the larger world.

This global debt drama has been years in the making and has been continually gathering steam. It has now reached a critical mass.

Political leaders and central bankers around the world decided that the cure for the crisis was to add more disease. But, as we're painfully learning, you cannot cure a debt crisis with even more debt.

For many years, the U.S. has been sitting on its own enormous debt bomb, and it has been steadily ticking away all along.

The European debt crisis should have been been, and remains, a warning to the U.S.

There is no reason to trust, or have faith in, our political establishment. Though the president did offer his "grand bargain" — $4 trillion in budget cuts, including Social Security and Medicare — in exchange for revamping the corporate and individual tax codes, he was rebuffed by the GOP.

Such a deal may have been enough to keep S&P from downgrading the U.S. credit-rating. But we are now left with an epic mess that could portend outright disaster for our nation and the broader world.

Perhaps it would only have slowed our decline: The U.S. manufacturing base has been decimated. Our trade deficit is absolutely gaping; it is shrinking our GDP and sucking more than $1 billion out of the country every single day. Rampant, and unyielding, unemployment has lead to a shrunken tax base. And a massive — and soon-to-be retiring — Baby Boomer population doesn't have enough younger workers to support it.

Get this; our government's unfunded obligations now total $62 trillion. Yes, that's a "T".

It's reasonable to ask; Will the government be able to pay future Social Security benefits?

For nearly a century, politicians let bankers run our country and loot its riches by inflating away our currency. As the fiscal and monetary troubles mounted, the politicians continually kicked the can down the road for future generations to deal with. We have finally run out of road.

Under normal circumstances, the politicians would just borrow more money to pave some new road.

Those days appear to be over. The U.S. may have at long last run out of lenders.

Following Herd, Fools Have Rushed to Stock Market Slaughter

In a Manipulated Market, The Only Winners Are The Manipulators

Despite the fact that US gross domestic product and consumer spending have been limping along all year, the stock market still rode to an unfathomable rally. The market managed to soar to pre-recession highs even as the economy remained in a tailspin.

This dichotomy makes absolutely no sense whatsoever. Consumers are still de-leveraging and the flow of credit has slowed to a crawl.

The government's U-6 unemployment figure — the true jobless rate — now stands at a whopping 16.2%. Yet, the government admitted just two years ago that it had been systematically underestimating job losses for the previous three years. There is no reason to believe that anything has changed.

Additionally, one of the President's closest economic advisors, Austan Goolsbie, has noted that roughly 1% to 2% of our population's unemployed are simply unaccounted for on a monthly basis due to a variety of factors. And those who run out of unemployment benefits are no longer counted among the ranks of the unemployed.

However, according to the research of respected economist John Williams, more than one-in-five Americans (22.7%) is currently unemployed or underemployed.

The market hasn't even noticed.

After falling to 6,547 in March of 2009 (at the peak of the financial crisis), the Dow rapidly shot back above 10,000 in October of that year. None of the fundamentals had changed; the US was still reeling from the worst economic decline since the Great Depression.

Yet, that didn't make a bit of difference to the market. Wall St. seemed oblivious, overwhelmed by optimism and delusion.

In February of this year, as the economy was grappling with high unemployment, a decimated housing market, and oodles of other negative indicators, the Dow somehow managed to surpass 12,000. And it stayed there, virtually uninterrupted, until just this week.

A rational mind has to ask, How could this possibly happen?

It's the result of a herd mentality, not fundamentals. Investors were bidding up the stock market in a delirious frenzy, hoping to recoup previous losses. Many hoped to enrich themselves, buying at what was perceived as an opportune time. And when everyone else is buying, and seemingly making money, the herd will always follow.

Simply put, lots of new money was flowing into the stock market and pushing up the average, much of it the result of the Fed's quantitative easing program. This influx of funds clearly wasn't the result of any sort of recovery, which is now more evident than ever. Consequently, lots of people have gotten burned and still more will suffer the same fate.

The relatively strong earnings reports that previously lifted the markets were the result of cost-cutting and layoffs, not strong revenue growth. And that's been putting even more downward pressure on jobs and wages, resulting in weaker economic growth and lingering recessionary effects.

Ultimately, the merry-go-round will end up right back where it started.

Wall St. is a pretty poor barometer of the economy's health, since it is simply a bet on the future performance of a select group of companies listed on three major stock exchanges.

Additionally, the majority of the country doesn't have any direct investments in the stock market.

Unquestionably, the market does not reflect the personal finances of the masses or how they are faring in their day-to-day lives.

Yet, despite the litany of negative indicators, the fools continued to rush in — quite enthusiastically.

But the institutional investors, the real market movers, have already taken their profits and pulled the escape lever. The herd tried to follow, but obviously not all of them were able to squeeze through the emergency exit at the same time.

The fallout isn't over yet; not by a long shot. There will be a bloodbath.

By some estimates, "high frequency trading" is responsible for close to 70% of all volume in US markets. Wall St. computers can track hot stocks and immediately buy up all available shares, subsequently selling them at higher prices. Millions of shares can also be dumped in just milli-seconds.

Retail investors don't stand a chance. They are the mercy of the Wall St. market-makers.

The reality is that markets are manipulated. Sadly, a very heavy price has been, and will continue to be, paid because of this. Billions of dollars will be lost, yet again.

This Debt Deal 'Solution' is a Problem

The debt deal agreed to by Congress allegedly "reduces" budget deficits by at least $2.1 trillion in the next 10 years.

However, the deficit for just this fiscal year alone is projected to be $1.5 trillion, or about 71% of the size of the cuts that will take place over the next decade. And the Congressional Budget Office (CBO) projects $7 trillion in deficits over the same period.

The math simply does not add up. Reducing $7 trillion in projected deficits by $2.1 million will still leave the nation with $4.9 trillion in deficits over the next decade.

Clearly, bigger cuts were needed and the U.S. credit rating will most surely take a hit as a result.

Just weeks ago, Standard & Poors warned there was a 50-50 chance it would downgrade U.S. debt. S&P said that $4 trillion in cuts was the minimum to avoid a ratings downgrade.

This deal didn't even come close.

Though Moody's kept the U.S.'s AAA rating in place for now, it assigned a negative outlook for U.S. debt. That's not a long term vote of confidence.

Remarkably, the debt deal does not raise any new revenues, which would have helped to offset these long term deficits.

Last year, federal spending amounted to nearly 24% of GDP. However, federal revenues fell to 14.8% of GDP, the lowest intake relative to GDP in 60 years. Without question, the U.S. has both a spending problem and a revenue problem.

When Obama realized that the GOP wouldn't budge on his proposal to raise taxes on corporations and the wealthy, he pursued an option he was sure Republicans would embrace.

Like the Bush Administration before it, the Obama Administration called for much needed tax reform, including the closure of numerous loopholes used by corporations and the super rich, meaning millionaires and billionaires.

However, despite their open disdain for the nation's byzantine tax code, the GOP balked at Obama's proposal.

So, instead of solving the revenue crisis by making Wall Street pay their fair share, ending the Bush-era tax cuts for the wealthy, and closing corporate loopholes that let Bank of America pay no income taxes for the past three years, Congress passed a bill that will increase the debt by at least $7 trillion over the next decade.

For what it's worth, a tax increase and additional revenues are little more than a year away. On December 31, 2012, the Bush-era income-tax breaks for the wealthiest Americans — those households earning over $250,000 a year — will expire.

The new revenues will help, but they are not a panacea.

Due to Congress' high stakes game of debt-default chicken, the cost of borrowing is virtually certain to rise. And since the debt will continue to rise by trillions of dollars despite the agreement, that will also put upward pressure on Washington's borrowing costs.

Due to historically low rates, the government is paying less to service its debt than during the 1980s, 1990s and most of the last decade.

According to the latest figures, interest on the debt will cost roughly $250 billion for fiscal 2011. That’s about 1.6% of American output, which is lower than at any point since the 1970s – except for 2003 through 2005, when it was closer to 1.4%.

Under Ronald Reagan, the first George Bush, and Bill Clinton, payments on federal debt often got above 3% of GDP. Under Bush the second, payments were about where they are now.

In other words, these remarkably low rates have allowed the government to engage in deficit spending at very affordable costs. That cannot go on forever, and it will change soon enough.

The cost of servicing our debt will eventually reach unmanageable proportions and keep the government from addressing domestic issues, such as infrastructure, research and development, and higher education — things that could keep America competitive in the 21st Century.

Higher interest rates would add to the deficit and cause a slowdown in economic activity. That would reduce revenues, which would also add to the deficit. Such an outcome would create a vicious cycle that would be difficult to escape.

This debt agreement can only be viewed as a lost opportunity. It will make $900 billion in immediate cuts and create a special panel of lawmakers to find an additional $1.5 trillion of deficit cuts through reforms of entitlement spending and the tax code.

However, the bipartisan Simpson/Bowles Commission already issued its recommendations just seven months ago, and they were largely ignored. Another commission is nothing more than a red herring allowing Congress to avoid making tough choices, as it has for decades.

Unfortunately, the U.S. finds itself in a predicament with no good options. The current spending and borrowing levels are unsustainable. However, budget cuts will create a drag on the economy and reduce the nation's GDP.

Private-sector GDP is roughly where it was in 1998. The economy has only grown because a substantial portion of GDP the last few years was the result of government debt.

Even before these cuts have been initiated, the economy has already been limping along for three consecutive quarters, in the midst of a so-called "recovery."

Barclays has cut its forecast for U.S. economic growth this year from 2.5% to 1.7%. That's a razor-thin expansion and would essentially constitute economic stagnation. GDP needs to be 2.5% just to keep up with the number of new workers entering the work force.

However, that kind of growth is not happening and the trends are negative. Fourth-quarter GDP was revised down to 2.3 percent from 3.1 percent. First-quarter GDP was revised down to just 0.4 percent from the previously reported 1.9 percent. And the initial second quarter GDP projection is just 1.3 percent.

This economy is on very wobbly legs. Consequently, you can expect the unemployment rate to rise. That will continue to increase government expenditures while reducing revenues. It's the same bad combination the nation has been dealing with for three years now.

This pathetic debt deal amounts to half measures at a time when the U.S. needed something more substantial and significant. Aggressive measures were needed, but Congress punted as usual.

Perhaps we're already too far down the hole, but the politicians didn't even meaningfully try. The sad reality is that there are no good solutions. In fact, there may be no solutions at all.

If it hasn't already reached the point of no return, America is on a short road to insolvency. Revenues have been far too low for far too long, and expenditures have been far too high for far too long. Two wars and a prescription drug bill were put on the government credit card. It's now time to pay up.

Though the looming spending cuts aren't nearly deep or broad enough, America will soon learn just how punitive they will feel.

We now know that the Great Recession was even worse than originally presumed.

The drop in GDP during the recession from the fourth quarter of 2007 to the second quarter of 2009 was 5.1%, worse than initially projected. That marks the deepest recession since World War II.

The unfortunate truth is that we are still in a very perilous position and the worst may not yet be behind us.