Over at Capital Economics they’re spotlighting Aug. 9, 2007 as the “the unofficial onset of the global credit crunch” making tomorrow the fifth anniversary of, well, the beginning of the end of the uber-loose financial conditions that begat the U.S. housing boom, bust, financial crisis, bailout-a-palooza, deep recession and ”” if you believe Reinhart and Rogoff ”” the economic sluggishness we’re still contending with.

Of course, it’s a little bit squishy declaring any one moment the “start” of something. Some would argue that the birth of the securitization market way back in the 1980s might have been the true start of what eventually became the U.S. housing morass. Still, it’s instructive to remember what was going on in early August 2007, which was when the cracks in the foundation of global finance really started to get noticeable and the themes that have come to define the market for the last half-decade started to emerge.

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The greatest economic catastrophe of the postwar world began five years ago today. Its consequences are still with us.

On this day in 2007 BNP Paribas, the French bank, halted withdrawals from three investment funds linked to the US subprime mortgage market. Risky financial products had spread a contagion of bad debts through the banking system. The interbank lending market froze because banks feared that they would not get their money back. The consequences included the first run on a British bank in more than a century (Northern Rock), the biggest corporate failure in American history (Lehman Brothers), and a huge recession.

With hindsight, this was not merely a crisis but a catastrophe that still overshadows the global economy. The crash was a far-reaching problem of solvency. It was not simply a banking crisis, but a debt crisis. It has not simply sunk financial institutions, but submerged governments too. Five years on, there are three questions. How did it happen? When will it end? What, if anything, can we do about it?

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Quick Stats[:]

As of 2012-06 the civilian labor force was 155,163,000
As of 2012-06 there were 111,145,000 in the private workforce
As of 2012-06 there were 56,174,538 collecting some form of SS or disability benefit
Ratio of SS beneficiaries to private employment just passed the 50% mark (50.54%)

….As of May 2012, the outlays are $756.9 billion annualized. Fewer worker relatively speaking, support more and more recipients with exponentially growing payments. This is supposed to work?

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“I voted for [Walker] in 2010 because I realized we have to do something about the deficit. I voted for him in the recall because I don’t believe recall elections are meant for what they’re doing with it,” said Katy Tomlanovich, who teaches at Northeast Wisconsin Technical College. She said recall elections should be reserved for politicians who commit gross malfeasance, not for those who make unpopular decisions.

Tomlanovich said she plans to vote for Obama in November but cast a ballot for the Republican on Tuesday. “Scott Walker is actually doing something about [spending], and I think he should be allowed to serve the rest of his term.”

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…the diversity of the Washington economy is an illusion, for each of its business sectors is to some degree a creature of the region’s single great industry–the federal government. According to a 2007 report by the Tax Foundation, for every dollar in taxes Washington sends to the federal government, it receives five in return. Fuller says that over the past 30 years, the federal government has spent $860 billion in the D.C. region, two-thirds of that since 9/11.

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A Senate panel expressed its outrage Thursday over Pakistan’s conviction of a doctor who helped the United States track down Osama bin Laden, voting to cut aid to Islamabad by $33 million ”” $1 million for every year of the physician’s 33-year sentence for high treason.

The punitive move came on top of deep reductions the Appropriations Committee already had made to President Barack Obama’s budget request for Pakistan, a reflection of the growing congressional anger over its cooperation in combatting terrorism. The overall foreign aid budget for next year had slashed more than half of the proposed assistance and threatened further reductions if Islamabad failed to open overland supply routes to U.S.-led NATO forces in Afghanistan.

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The nonpartisan Congressional Budget Office (CBO) said Tuesday that unless lawmakers act to prevent scheduled tax increases and spending cuts at the end of the year, a recession will likely result in early 2013.

Early next year income taxes are set to go up when the Bush-era tax rates expire. Automatic spending cuts totaling roughly $109 billion triggered by last August’s debt-ceiling deal are set to hit. Meanwhile, payments to physicians under Medicare will be slashed.

CBO projects that these and other elements of the so-called “fiscal cliff” will cause the economy to contract as demand dries up.

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Defense contractors have slowed hiring. Tax advisers are warning firms not to count on favorite breaks. And hospitals are scouring their books for ways to cut costs.

Across the U.S. economy, anxiety is rising about the potential for widespread disruptions after the November election, when a lame-duck Congress will have barely two months to resolve a grinding standoff over taxes and spending.

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Government accounting for Social Security has devolved over time from deceptive to dishonest to desperate.

The latest Social Security Trustees report says that benefit promises are fully financed until 2033 and three-fourths financed after that. In short: no crisis.

Here’s the truth, embedded between the lines: At the current payroll tax rate, Social Security would only bring in enough revenue to pay for 72% of all benefits through 2036.

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The current economic recovery is more of an uphill slog than any other since World War II for a simple reason: lots more debt.

Record-high debt levels are giving this recovery no chance to exhale. As soon as the economy climbs one hill, another ascent begins.

Combined U.S. household debt and government debt added up to more than $30 trillion, or 200% of GDP, at the end of 2011.
That’s $155,000 per working-age (18-64) adult. By that measure, debt was 50% higher in real terms at the start of this recovery than in 2001. Compared to the 1991 and 1982 recoveries, debt was, respectively, 88% and 230% higher.

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President Obama’s signature health reform law will add as much as $527 billion to federal deficits over the next decade, not cut them as advertised, according to a report released Tuesday.

The Affordable Care Act will add as much as $1.2 trillion to federal spending between 2012 and 2021, the report also finds. Charles Blahous, who serves as one of Medicare’s trustees, wrote the report, published by George Mason University’s Mercatus Center.

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(The full title is: “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You”)–KSH

What was the main difference between Great Britain and France? It -wasn’t the size of their national debts: at the time of the French Revolution, Great Britain’s debt per person was much larger than France’s. The difference was politics. In Great Britain, the political system was dominated by elected representatives who supported an activist government and were willing to endorse the taxes necessary to pay for its resulting debts. In France, the government did not have the legitimacy necessary to raise the money to service its smaller debts. And although its tax rates were lower than Britain’s, the problem of taxation without representation was an important cause of the Revolution.

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The centerpiece of the case against Obamacare is the requirement that everyone buy some kind of health insurance or face stiff penalties–the so-called individual mandate. It is a way of moving toward universal coverage without a government-run or single-payer system. It might surprise Americans to learn that another advanced industrial country, one with a totally private health care system, made precisely the same choice nearly 20 years ago: Switzerland. The lessons from Switzerland and other countries can’t resolve the constitutional issues, but they suggest the inevitability of some version of Obamacare….

Twenty years ago, Switzerland had a system very similar to America’s–private insurers, private providers–with very similar problems. People didn’t buy insurance but ended up in emergency rooms, insurers screened out people with pre-existing conditions, and costs were rising fast. The country came to the conclusion that to make health care work, everyone had to buy insurance.

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At some point, the spectacle America is now calling a presidential campaign will turn away from comedy and start focusing on things that really matter””such as the “fiscal cliff” our federal government is rapidly approaching.

The what? A cliff is something from which you don’t want to fall. But as I’ll explain shortly, a number of decisions to kick the budgetary can down the road have conspired to place a remarkably large fiscal contraction on the calendar for January 2013””unless Congress takes action to avoid it.

Well, that gives Congress plenty of time, right? Yes. But if you’re like me, the phrase “unless Congress takes action” sends a chill down your spine””especially since the cliff came about because of Congress’s past inability to agree.

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President Obama’s 2013 budget would add $3.5 trillion to annual deficits through 2022, according to a new estimate from the Congressional Budget Office (CBO).

It also would raise the deficit next year by $365 billion, according to the nonpartisan office.

The CBO estimate is in sharp contrast to White House claims last month that the Obama budget would reduce deficits by $3.2 trillion over the next decade.Ӭ

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The CBO forecasts it will now cost $1.76 trillion over a decade, whereas before they forecast it would cost 940 billion.

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The agency’s 2011 long-term budget outlook showed that federal debt would begin to hurt the economy once it reaches about 77% of GDP. CBO’s January budget and economic outlook estimated that it will hit that level in 2013 under its high-debt scenario that is based largely on current policy.

“CBO expects that the large government deficits during the recession and afterward will raise the cost of capital in the future . . . constraining investment,” the nonpartisan scorekeeper wrote in its January budget and economic outlook.

Initially, the impact would be minimal, but it would grow over time as debt levels increase.

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For the fourth year in a row, President Obama is proposing lower tax deductions for the wealthy on donations to churches and other nonprofit organizations. And for the fourth year in a row, nonprofit groups say the change would lead to a dramatic drop in charitable giving.

The reduction, included in Obama’s 2013 budget proposal, rankled the Union of Orthodox Jewish Congregations of America.

“We were hoping this would not come up again this year. We asked that they not renew it, but unfortunately the request was not taken,” said Nathan Diament, the group’s Washington director. “It’s a real concern.”

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Seeking to avoid a politically toxic vote, Congress has failed to pass a federal budget for three years. This year’s new twist? Congress might not even try.

On Monday, President Obama presented his proposed budget for fiscal year 2013. It’s going nowhere on Capitol Hill, legislators and political analysts agree. What’s more, Senate Democratic leaders show no intention of presenting their own budget proposals ”“ or taking up any lobbed over from House Republicans.

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In place of those cuts, the president offered a mixture of real steps to reduce the deficit ”” including nearly $2 trillion in additional taxes over the coming decade, mainly at the expense of high-income Americans ”” and bogus ones, such as almost $850 billion in “savings” from the previously planned end of foreign combat operations, a chunk of which would be spent on infrastructure and jobs programs. The one bright spot: Obama didn’t ignore the rapid and unsustainable growth in healthcare entitlements, as he did in last year’s budget. Instead, he called for saving about $360 billion over 10 years on those programs, in part by paying drug companies less for medicines prescribed to low-income Medicare patients.

There’s little chance this Congress will agree to many, or even any, of those suggestions. Tax increases seem particularly unlikely. But even if lawmakers were to adopt all of Obama’s deficit-cutting measures, they wouldn’t go far enough to set the budget on a path toward balance.

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China’s defense budget will double by 2015, making it more than the rest of the Asia Pacific region’s combined, according to a report from IHS Jane’s, a global think tank specializing in security issues.

Beijing’s military spending will reach $238.2 billion in 2015, compared with $232.5 billion for rest of the region, according to the report. That would also be almost four times the expected defense budget of Japan, the next biggest in the region, in 2015, the report said.

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In Finnish Lessons: What Can the World Learn from Educational Change in Finland?, Pasi Sahlberg explains how his nation’s schools became successful. A government official, researcher, and former mathematics and science teacher, Sahlberg attributes the improvement of Finnish schools to bold decisions made in the 1960s and 1970s. Finland’s story is important, he writes, because “it gives hope to those who are losing their faith in public education.”

Detractors say that Finland performs well academically because it is ethnically homogeneous, but Sahlberg responds that “the same holds true for Japan, Shanghai or Korea,” which are admired by corporate reformers for their emphasis on testing. To detractors who say that Finland, with its population of 5.5 million people, is too small to serve as a model, Sahlberg responds that “about 30 states of the United States have a population close to or less than Finland.”

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Taking a pass on reining in government growth, President Obama unveiled a record $3.8 trillion election-year budget plan Monday, calling for stimulus-style spending on roads and schools and tax hikes on the wealthy to help pay the costs. The ideas landed with a thud on Capitol Hill.

Though the Pentagon and a number of Cabinet agencies would get squeezed, Obama would leave the spiraling growth of health care programs for the elderly and the poor largely unchecked. The plan claims $4 trillion in deficit savings over the coming decade, but most of it would be through tax increases Republicans oppose, lower war costs already in motion and budget cuts enacted last year in a debt pact with GOP lawmakers.

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Social Security’s disability program is a political quagmire ”” and a metaphor for why federal spending and budget deficits are so difficult to control. The numbers are too big; the details, too complicated; and the choices, when faced, too wrenching. President Obama’s new budget, estimated at $3.5 trillion or more, will raise all these problems. Experience suggests that little will be done to rein in long-term spending and deficits.

Social Security’s disability program opens a window on this larger paralysis. Created in 1956, more than two decades after Congress authorized Social Security, the program was initially seen as a natural complement to coverage for retirees. Through sickness or accident, some workers had to retire early. They, too, deserved protection. For many years, the costs were modest. But in recent decades, they have exploded….

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US economic growth will slow dramatically if tax rises and spending cuts come into effect as planned in 2013, according to new figures from the Congressional Budget Office.

The expiry of tax cuts originally passed by president George W. Bush, the end of a 2 per cent payroll tax holiday and automatic spending cuts agreed last August will reduce growth to just 1.1 per cent in 2013 unless changes are made.

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Conceived in the heady post-Cold War 1990s, the futuristic fifth-generation [F-35] jet fighter was to be a technological marvel built in a rush and paid for with “peace dividend” dollars.

But now with the economic crash, the fighter is billions over budget and years behind schedule.

Here’s part of the problem: axing the F-35 would eliminate tens of thousands of jobs in 47 states. Few members of Congress are willing to go along.

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The Pentagon budget will actually shrink next year, for the first time since 1998, under a proposal released by the Obama administration that will cut the size of the Army and Marine Corps, trim the number of fighter aircraft and ships, and seek congressional approval for another round of military base closures.

The cuts are part of a broader effort by the Pentagon to decrease its projected spending by $487 billion over the next 10 years, in accordance with a deficit-reduction deal President Obama reached with Congress in August.

The budget is also an attempt to realign the Pentagon’s accounts with Obama’s new military strategy, which he unveiled this month and which seeks to “rebalance” the armed forces toward Asia while maintaining their presence in the Middle East, principally to deter Iran.

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Drone strikes rely on fallible intelligence from local informants, which leads to errors. The price is innocent people’s lives. It also sets a dangerous international precedent – that the secret extrajudicial execution by one country, to kill people in another country, with minimal oversight and no judicial process, is acceptable. This is the policy being carried out by drones.

At a very basic level, it is difficult to gauge whether the policy actually works. Supporters claim the policy has successfully disrupted terrorist networks. Yet suicide attacks in Pakistan and violence in Afghanistan and Iraq have often intensified following the drone deaths of senior al-Qaeda and Taliban operatives.

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Against these downward [price] pressures stand three powerful counter-forces: a reviving economy that eases people’s anxieties about elective spending; an aging society that raises the need for health care; and the start of Obamacare’s insurance mandates in 2014 that expand coverage by 30 million people or more. Those with insurance routinely use more health care than do the uncovered.

Health care poses a dilemma. On the one hand, we all want ”” for our families and ourselves ”” the best care available without artificial limits imposed by government regulations or private insurers. On the other, we don’t want soaring health spending to crowd out other government programs or depress take-home pay. The latest spending figures delude if they suggest we’ve overcome that dilemma. The Neanderthal Cure is an ugly stop-gap, nothing more…

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Just 1% of Americans accounted for 22% of health care costs in 2009, according to a federal report released Wednesday.

That’s about $90,000 per person, according to the Agency for Healthcare Research and Quality. U.S. residents spent $1.26 trillion that year on health care.

Five percent accounted for 50% of health care costs, about $36,000 each, the report said.

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