US Economy Continues Slide

A round-up. First: Social Security is calling in the debts:

For more than two decades, Social Security collected more money in payroll taxes than it paid out in benefits — billions more each year.

Not anymore. This year, for the first time since the 1980s, when Congress last overhauled Social Security, the retirement program is projected to pay out more in benefits than it collects in taxes — nearly $29 billion more.

Sounds like a good time to start tapping the nest egg. Too bad the federal government already spent that money over the years on other programs, preferring to borrow from Social Security rather than foreign creditors. In return, the Treasury Department issued a stack of IOUs — in the form of Treasury bonds — which are kept in a nondescript office building just down the street from Parkersburg's municipal offices.

Now the government will have to borrow even more money, much of it abroad, to start paying back the IOUs, and the timing couldn't be worse. The government is projected to post a record $1.5 trillion budget deficit this year, followed by trillion dollar deficits for years to come.

The implications of this? We shall face the Social Security crisis so long predicted now, in the middle of a massive slide towards depression, in the middle of historic government debt, in the middle of China controlling our economic future with its treasury holdings. On the national debt:

The U.S. and the U.K. have moved “substantially” closer to losing their AAA credit ratings as the cost of servicing their debt rose, according to Moody’s Investors Service.

The governments of the two economies must balance bringing down their debt burdens without damaging growth by removing fiscal stimulus too quickly, Pierre Cailleteau, managing director of sovereign risk at Moody’s in London, said in a telephone interview.

Under the ratings company’s so-called baseline scenario, the U.S. will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K., and will be the biggest spender from 2011 to 2013, Moody’s said today in a report.

“We expect the situation to further deteriorate in terms of the key ratings metrics before they start stabilizing,” Cailleteau said. “This story is not going to stop at the end of the year. There is inertia in the deterioration of credit metrics."

Secretary of State Clinton acknowledges that US debt is a national security issue:

Clinton urged lawmakers to tackle the federal budget deficit, which reached a record $1.4 trillion for the fiscal year that ended last September.

"We have to address this deficit and the debt of the United States as a matter of national security not only as a matter of economics," Clinton said. "I do not like to be in a position where the United States is a debtor nation to the extent that we are."

Having to rely on foreign creditors hit "our ability to protect our security, to manage difficult problems and to show the leadership that we deserve," she said.

"The moment of reckoning cannot be put off forever," she said. "I really honestly wish I could turn the clock back."

Though she did not mention it, China's portfolio of some $755 billion in U.S. Treasury bonds has become a concern for some U.S. policymakers. They worry that Beijing's creditor status could create leverage to influence U.S. policy.

On the next phase of problems:

A crisis of confidence has invaded Greek and U.K. shores, and we can all learn a bit about what our future might look like as we watch developments there. (The U.K. may be the most useful example for us, since we also have a printing press.)

We will soon find out whether Bank of England Gov. Mervyn King will extend quantitative easing and, if he does, how the bond market will respond to a renewed effort to pump money directly into that economy. (The pound is already under a good deal of downward pressure.)

I would say that the U.K.'s funding crisis -- to use my ballgame analogy -- is probably in the third inning or so, even if we are still taking batting practice over here. (Read "Economy sinks as we save bankers" and "The next crisis has already begun" to brush up on that analogy.) Back to Greece for a second: The sort of straitjacket that it's being placed in by its inability to print money is what's forcing the country to consider making tough decisions.

Only in a funding crisis where you have no other options are the Western world's "soft" social democracies willing to -- or rather, are forced to -- make hard decisions. So, the upside of the crisis is potentially coming out the other side in a more sane, sustainable fashion. That's what we all have to hope for.

Add to all this the unsolved problems of the credit default swap market, continued US vulnerability to a run on the money markets, the ongoing failures of banks all over this country and beyond, the jobless rate, and we've got a long way to go before we're out of the woods.