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Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

16 Responses to “SG: Worst case debt scenario”

1. bsneath Says:
   October 18th, 2009 at 12:05 pm

   How about “most likely scenario”.

   Excellent graphics.

2. jrm Says:
   October 18th, 2009 at 12:49 pm

   Ahah. I love my employer. This graph really is “smooth”.

   Seems like being long on commodities is a good play if “worst case scenario” happens.

   Unfortunately, I can’t see any alternative scenario…

3. thfiv Says:
   October 18th, 2009 at 1:45 pm

   Mr. Ritholtz,

   Excellent information. Receipts and expenditures is a good tool. It is unbiased. Unlike indexes that substitute failures (GM) for new winners and apply a weighting, it is a much better representation of what is really happening.

   You should develop the Ritholtz index an index that utilizes unbiased data like receipts and expenitures to show what is actually happening in the economy.

4. seneca Says:
   October 18th, 2009 at 2:46 pm

   The graph “Mind the gap!” (federal revenues vs expenditures, 1947-2009) needs to be on a log scale to be visually meaningful over so large an expanse of time and dollar depreciation. Better still, remove the income and expeditures tied to Medicare and Social Security, which unnecessarily distort picture. For one thing, if you remove those two retirement items, the Clinton “surplus” would turn into a mirage.

5. Mark E Hoffer Says:
   October 18th, 2009 at 3:11 pm

   those are nice charts, though, the ‘comments’, for them, seem to be missing..

   usually, a powerpoint slide, or similiar, has ‘explanatory’-prose to go with them..would these?

   other than that, this: “Protecting yourself against economic collapse: Hope for the best, be prepared for the worst”, has to be the best advice one can follow.
   ~~
   and, this, another slice of how the Game gets played: “…facing an overwhelming resource mismatch with the financial businesses. These businesses are deploying armies of lobbyists on Capitol Hill and hosting hundreds of campaign cash parties.

   In an excellent article in the New York Times, regular columnist Joe Nocera, asks the question–”Have the Banks No Shame?” He starts his reply by quoting Simon Johnson, a former economist with the International Monetary Fund: “They can’t pay what they owe!” he began angrily. Then he paused, collected his thoughts and started over: “Tim Geithner saved them on terms extremely favorable to the banks…What gets me is that the banks have continued to oppose consumer protection. How can they be opposed to consumer protection as defined by a man who is the most favorable Treasury secretary they have had in a generation…It is unconscionable.”

   Well said, but not enough. As long as the top banking bosses get their huge bonuses and their mismanaged, corrupted banks get their taxpayer bailouts, because they are too big to fail, they will continue pushing their devastating greed with impunity.
   The issue is not only shame. The issue is guilt and for that, prosecution, conviction and incarceration are the remedies. That is the only prospect that sobers up the corporate crooks.
   Adequate prosecution budgets, tougher corporate criminal laws and a government going for law and order–none of these are in any legislative proposals or in the hearts and minds of our Washington representatives.
   So, sovereign citizens everywhere, if you don’t organize to have the say, you’ll continue to pay, pay and pay. Time to make apathy boring!.” By Ralph Nader
   http://www.informationclearinghouse.info/article23738.htm#

6. bsneath Says:
   October 18th, 2009 at 3:25 pm

   @Mark E Hoffer Says: “…they will continue pushing their devastating greed with impunity”

   I am pleasantly surprised by the increasing number of well respected economists and others who are reaching similar conclusions and speaking out about the wrongs of financial industry.

7. bsneath Says:
   October 18th, 2009 at 3:53 pm

   Greenspan, the libertarian of finance, is on board. He recommends that the big banks need to be split up. Let’s start with Goldman Sachs. They can keep their investment banking advisory functions but should off load their trading operations.

   Oct. 15 (Bloomberg) — U.S. regulators should consider breaking up large financial institutions considered “too big to fail,” former Federal Reserve Chairman Alan Greenspan said.

   Those banks have an implicit subsidy allowing them to borrow at lower cost because lenders believe the government will always step in to guarantee their obligations. That squeezes out competition and creates a danger to the financial system, Greenspan told the Council on Foreign Relations in New York.

   “If they’re too big to fail, they’re too big,” Greenspan said today. “In 1911 we broke up Standard Oil — so what happened? The individual parts became more valuable than the whole. Maybe that’s what we need to do.”

   At one point, no bank was considered too big to fail, Greenspan said. That changed after the Treasury Department under then-Secretary Hank Paulson effectively nationalized Fannie Mae and Freddie Mac, and the Treasury and Fed bailed out Bear Stearns Cos. and American International Group Inc.

   “It’s going to be very difficult to repair their credibility on that because when push came to shove, they didn’t stand up,” Greenspan said.

   Fed officials have suggested imposing a tax or requiring higher capital ratios on larger banks to ensure the firms’ safety and reduce some of the competitive advantage from the implied subsidy. Greenspan said that won’t work.

   “I don’t think merely raising the fees or capital on large institutions or taxing them is enough,” Greenspan said. “I think they’ll absorb that, they’ll work with that, and it’s totally inefficient and they’ll still be using the savings.”

8. bsneath Says:
   October 18th, 2009 at 4:20 pm

   …and in the Daily News the caption read… “Latest Wall St. bonuses are simply obscene”

   http://www.nydailynews.com/opinions/2009/10/18/2009-10-18_latest_wall_st_bonuses_are_simply_obscene.html

9. jc Says:
   October 18th, 2009 at 7:35 pm

   Give the TBTF banks a short time frame to pay back or they get broken up liquidated to pay back the US. Meanwhile another foreclosure surge will kick off another financial crisis and the breakups will yield to another round of bailouts!

10. SINGER Says:
    October 18th, 2009 at 8:08 pm

    so are we buying asian equities on any pullback?

11. StickWithANose » Chart of the Day: Taxation Buys Civilization Says:
    October 18th, 2009 at 10:21 pm

    [...] Here’s one for the next time you have to endure a “Real American” waxing about old mother Reagan. Note that in the golden years of American capitalism, when the top federal tax bracket was hovering around 90%, the federal government paid its bills. Via Barry Ritholtz. [...]

12. The New Normal Says:
    October 19th, 2009 at 12:43 pm

    [...] You could take issue with the chart above, as the worst case deficit projections come from the Heritage Organization, a conservative group opposed to Obama. But Société Générale came up with a similar analysis, concluding that we will quickly have a Trillion Dollar Gap with no clear way to fill it. See chart, courtesy The Big Picture. [...]

13. deonn555@yahoo.com Says:
    October 19th, 2009 at 5:57 pm

    These charts are exhibits of highly effective scenario planning originaly developed by Royal Dutch Shell (Peter Schwartz). They were and are used to develop “potential” scenarios and how these may play out in the longer view. The key is to input “realistic” parameters on the four axis’ otherewise they are useless. They are nice charts.

14. links for 2009-10-21 | FutureWorks Research Says:
    October 21st, 2009 at 4:02 pm

    [...] SG: Worst case debt scenario | The Big Picture (tags: FW debt USA) [...]

15. Kiers Says:
    November 20th, 2009 at 8:26 pm

    wow. i caught this report (on daily telegraph of all places) late!
    the kicker is that tax gap graph (figure 2nd from top).

    We can thank our Gormint for opening up the red gaps in 2003 (the Same year CHina REALLY STARTED to kick up it’s accumulation of US treasuries in HIGH GEAR…running HUGER surpluses; also the same year of Iraq war v2.0) and another fall off due to recession near end 2008.

    SO looking at Fermon’s 2nd Graph: gap is $1TRN. we can’t raise taxes NOW because our OWN bankers (the blond/blueeyed Wall Streeters) have done us in [and suitably given themselves bonuses for this]. WE can’t cut spending cause we have 2 war’s baking in the oven plus appetite for more. tick tock tick tock…..the world doesn’t WANT hot flow of $$s anymore (even developing nations which we fashionably call superpowers have “capital” controls : as in “$ not accepted here”.) And what is our Gormint doing?

    THE MATH: to close this gap:

    *assume tax receipts are 20% of GDP.
    *assume current GDP is $14trn.
    ==> extra tax receipt of $1trn at current rates requires extra GDP of $5trn.
    ==> $5trn on $14trn implies a growth of GDP by 35% (!) (NOT BLOODY LIKELY)
    * assume this $1trn gap grows at 10yr Treasury rate of 4%
    ==>if our GDP doesn’t grow >4%; our $1trn “gap” only gets bigger
    ==>………..the repo man will knock on our doors (and he speaks mandarin).

16. Kiers Says:
    November 20th, 2009 at 8:31 pm

    PS. (anticipating all the supply siders or whatever tehy call themselves these days; if anyone responds at all this late :(

    NO u can’t say it’s only $$s we can print as many as we like!!! that is NOT the way we run things. that is what someone in elementary school below grade 6 might say. EVENTUALLY it requires foreign money to support the $ ! When the $ starts to tank and Fed don’t want it to…they will have to call on foreign ccy to raise it……reserve ccy status won’t hack it. It will all come back…..like what they call “blow back”.