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45 Important Facts About . . .

The European and U.S. Debt Crisis

  1. The euro is the sole currency of 17 European Union members and six non-EU members.r
  2. The Eurozone or euro area is a fiscal union made up of 17 EU countries that have adopted the euro as their national currency.r
  3. The biggest single-day loss ever in the history of the Dow occurred on September 29, 2008, when it dropped 777.68 points, or approximately $1.2 trillion in market value.k
  4. The European Union is a political union of 27 European countries with the goal to create a single market for goods and service without economic barriers. Ten members of the EU do not use the euro.r
  5. Euro Debt The EU is a powerful international organization with its own flag and diplomatic representation
  6. The United States has $2.7 trillion as its monetary base. This amount would be able to pay off only a small fraction of the over $15 trillion of U.S. debt.f
  7. If a person spent $1 every second, that would equal to $1 million dollars in 12 days. At this rate, it would take 32 years to spend $1 billion dollars. It would take 31,000 years to spend $1 trillion dollars.q
  8. In 1971, the national debt was $75 million. In 2010, the debt rate rose that much once an hour.o
  9. In 2008, U.S. households lost an estimated 18% of their net worth, equaling approximately an $11.2 trillion loss. This collapse was the largest since the Federal Reserve began tracking household wealth after WWII.k
  10. Five years prior to 2008, 11 banks failed. In 2008, 25 banks failed and were taken over by the FDIC. In 2009, 140 failed.g
  11. Today the national debt is $15.2 trillion. This amounts to $48,380 for every person living in the U.S., or $127,431 for every household in the U.S.q
  12. As of September 30, 2010, the federal government has $56.5 trillion ($56,529,800,000,000) in debt, liabilities, and unfunded obligations.p
  13. On August 3, 2011, the national debt rose $238 billion, the largest one-day increase in the history of the U.S. The previous one-day record increase was on June 30, 2009, when the debt increased $186 billion.o
  14. The U.S. government borrows approximately $5 billion every business day.b
  15. A trillion $10 bills end to end would wrap around the globe 380 times. This would still not be enough pay off the national debt.q
  16. People in Spain Spain has the highest youth unemployment rate in the EU, at close to 50%
  17. The youth unemployment rate in the EU is extremely high at 20%. In Spain, it is 48%. The European Commission said that not only do young people remain the hardest hit by the crisis and its aftermath, but also that “income shocks may prove permanent.”f
  18. In context to the Eurozone crisis, the “contagion effect” refers to the fear that one country’s financial problems will cause financial crisis in another country.n
  19. The IMF claims that China will overtake the U.S. as the world’s leading economic power in 2016.i
  20. For the first time since WWII (1947), U.S. debt reached 100% of the country’s GDP (gross domestic product, the measure of the entire economy) after the debt ceiling was lifted in August 2011. After WWII, the debt equaled 122% of the GDP. In the 1970s it was 38%.p
  21. When the U.S. debt reached 100% of its GDP in 2011, it joined Japan (229%), Greece (152%), Jamaica (137%), Lebanon (134%), Italy (120%), Ireland (114%), and Iceland (103%) as other countries whose public debt exceeds their GDP.p
  22. China, the largest foreign holder of U.S. debt, chastised the U.S. on August 6, 2011, admonishing the United States to cure its “addiction to debts” and “live within its means.” A Chinese newspaper said that the issue of the U.S. dollar needed international supervision and questioned whether the U.S. dollar should continue to be the global reserve currency.c
  23. At $400 billion, Apple’s market cap is higher than the entire domestic product (GDP) of Greece.j
  24. The U.S. government pays more than $1 billion each day just on interest on its debt. It spends $10 billion a day for all the services it provides.o
  25. Over the next 10 years, the U.S. government expects to pay out $45.7 trillion; however, it expects to bring in only $39 trillion. To make up this difference, the government will likely need to raise taxes on much of the population, cut its spending, and cut back on Medicare and Social Security.s
  26. The U.S. debt ceiling was created in 1917 at a limit of $11.5 billion during WWI to allow greater simplicity and flexibility during the war by allowing the Treasury to borrow any amount it needed as long as the amount was below this limit. Prior to this, Congress had to approve each issuance of debt. To change the debt ceiling, Congress needs to enact specific legislation and the President must approve the legislation.l
  27. US Debt The U.S. debt is more than $15 trillion
  28. During the 2011 fiscal year, the U.S. government brought in $2.4 trillion. However, it spent $3.7 trillion.o
  29. The U.S. was in debt even in its first yearly report on January 1, 1791, in the amount of $75,463,476.52.  Every president since Truman has added to the national debt. The debt ceiling has been raised 72 times since 1962, including 18 times under Reagan, eight times under Clinton, seven times under Bush and, as of August 2011, three times under Obama.l
  30. The only democratic country besides the U.S. with a debt ceiling is Denmark. However, it’s ceiling is so high it is it unlikely to ever be reached. The Danish set the ceiling so high to avoid slowing the process of borrowing money and to avoid political conflicts similar to those current in the U.S.d
  31. Many economists consider the global financial crisis (GFC), or the late-2000s financial crisis, to be the worst financial crisis since the Great Depression. The crisis was caused by a complex interplay of subprime lending, growth of the housing bubble, easy credit conditions, poor underwriting practices, predatory lending (e.g., Countrywide Financial would swap a low interest rate for a more expensive one the day of closing), deregulation, and increased debt. The immediate trigger, however, was the bursting of the housing bubble, which had peaked between 2005 and 2006.h
  32. Time Magazine identified 25 people who are at most to blame for the U.S financial crisis, including Alan Greenspan, George W. Bush, Bill Clinton, the CEO of Merrill Lynch, and the American consumer.a
  33. It is estimated that Bill Gates and Warren Buffet lost a collective $43 billion in 2008. However, they were not the only billionaires to have a rough year. The number of billionaires dropped from 1,125 in 2008 to 793 in 2009.k
  34. From August 2007 to October 2008, an estimated 20%, or $2 trillion, disappeared from Americans’ retirement plans.k
  35. The 2011 debt ceiling crisis, which nearly brought the U.S. to the brink of default, has sent disapproval of Congress to the highest levels on record. An estimated 82% of Americans disapprove of the way Congress is handling its job.e
  36. Simply put, the European debt crisis happened because some countries in Europe have too much debt and are at risk of not being able to pay it back. If one or more of the Eurozone countries defaults on its debt or pulls out of the Eurozone, it may cause investors to panic, triggering a massive banking shock in Europe and possibly the U.S.r
  37. Portugal, Ireland, Italy, Greece, and Spain have been assigned the acronym “PIIGS” and are some of the most indebted Eurozone countries. Researchers note that if a disaster happens, it will start with one of these countries.r
  38. Ireland is in massive debt because it experienced a large real estate bubble in which the government had to bail out Ireland’s banks. Its debt is now 121% of its economy.r
  39. Even though countries such as Germany and France have high output and manageable debt, the size of other countries’ debt is putting the whole Eurozone in trouble. Consequently, investors don’t want to buy bonds from any European country because even those who have manageable debt might have to assume responsibility for those weaker countries.n
  40. France Germany Flags Germany and France have been accused of encouraging debt
  41. Some economists note that Germany and France, which have the strongest economy in the Eurozone, encouraged the PIIGs (Portugal, Italy, Ireland, Greece, and Spain) to go into debt. German and French banks lent money to the PIIGS so that the PIIGS could buy German and French goods and services, just like a junkie setting up an addict.n
  42. Some critics blame the Euro currency for the European debt crisis, arguing that a single currency to meet the needs of 17 different economies is inherently flawed. Nations yoked under one currency cannot adjust a particular nation’s money supply to encourage or inhibit growth in response to economic turmoil.r
  43. In 2011, investors in global stock markets lost $6.3 trillion in wealth mainly due to fears of a Eurozone breakup.f
  44. When Reagan took office, U.S. debt was under $1 trillion. After he left eight years later, debt was $2.6 trillion and the U.S. had moved from being the world’s largest international creditor to the world’s largest debtor nation.h
  45. The European debt crisis exploded after Greece admitted that its 2009 budget deficiency would be 12.7% of its GDP, which was far higher than the Eurozone limit of 3%. After Greece revealed its number, investors panicked, the country could not fund itself, it was forced to take a €110 billion bailout from the IMF, and it is due to receive a second bailout package in 2012.s
  46. Troubled European nations, such as Greece, have implemented austerity measures in an attempt to control massive debt. Some austerity measures include cuts to public sector pay and pensions, reduced benefits, and increased taxes. However, austerity economics have been met not only with public opposition but also speculation that spending cuts and higher taxes will reduce demands for goods and services just when an increase is needed.n
  47. The majority of EU member states have agreed on a new treaty that could stave off a Eurozone collapse. The intergovernmental treaty would deepen the integration of national budgets, turn over Europe’s bailout funds to a central European bank, and add €200 billion to the IMF. Only Britain refused to sign the deal.m
  48. In 2004, Greece admitted that it gave misleading financial information to gain admission into the Eurozone.r
  49. The euro is used by over 332 million people daily and is the official currency of the Eurozone as well as six other countries that are not part of the Eurozone or the EU. After the U.S dollar, the euro is the second largest reserve currency as well as the second most traded currency in the world.n
    European Debt as a Percentage of GDP (2011) f
    Country Percentage
    Greece 165%
    Italy 121%
    Ireland 109%
    Portugal 106%
    U.K. 100%
    France 86%
    Germany 82%
    Spain 67%

    European Unemployment Rate (2011) f
    Country Rate
    Spain 23%
    Greece 17.7%
    Ireland 14.5%
    Portugal 12.4%
    France 9.8%
    Italy 8.5%
    U.K. 8.3%
    Germany 6.9%

    European Projected GDP (2012) f
    Country Rate
    Ireland 1%
    U.K. .7%
    Germany .6%
    Spain .3%
    France .05%
    Portugal -3%
    Greece -3%
    Italy -6%

    EU Countries That Use the Euro Currency (The Eurozone) r
    Austria Belgium Cyprus
    Estonia Finland France
    Germany Greece Ireland
    Italy Luxemburg Malta
    Netherlands Portugal Slovakia
    Slovenia Spain

    Countries in Europe That Use the Euro But Are Not Members of the Eurozone or the EU r
    Kosovo Monaco Andorra
    San Marino Vatican City Montenegro

    The 27 European Union Countries r
    Austria Belgium Bulgaria
    Cyprus Czech Republic Denmark
    Estonia Finland France
    Germany Greece Hungary
    Ireland Italy Latvia
    Lithuania Luxembourg Malta
    Netherlands Poland Portugal
    Romania Slovakia Slovenia
    Spain Sweden United Kingdom

    Countries in the EU That Do Not Use the Euro r
    Bulgaria Denmark Czech Republic
    Estonia Hungary Latvia
    Lithuania Poland Romania
    the UK (Scotland, England, Wales, Northern Ireland) Sweden

    History of the U.S. Debt Ceiling for Last Decade h
    Year Limit
    2000 $5.950 trillion
    2001 $5.950 trillion
    2002 $6.400 trillion
    2003 $7.384 trillion
    2004 $8.184 trillion
    2005 $8.184 trillion
    2006 $8.965 trillion
    2007 $9.815 trillion
    2008 $11.315 trillion
    2009 $12.394 trillion
    2010 $14.294 trillion
    2011 $15.194 trillion

    Top 25 People Responsible for the U.S. Debt Crisis a
    1. Angelo Mozilo
    Cofounder of Countrywide.
    2. Phil Gramm
    Chairman of the Banking Committee (1995-2000); outspoken proponent of financial deregulation.
    3. Alan Greenspan
    Federal Reserve Chairman, disciple of Ayn Rand, admitted he made a mistake assuming financial firms could regulate themselves.
    4. Chris Cox
    Ex-SEC chief, blamed for lax enforcement toward investment banks like Merrill Lynch and Lehman Brothers.
    5. American Consumers
    Household debt in the U.S. increased to more than 130% of income in 2007, up from approximately 60% in 1982.
    6. Hank Paulson
    Treasury Secretary, criticized for his slow response to the financial crisis, letting Lehman Brothers fail, and for a wasteful bailout bill he pushed through Congress.
    7. Joe Cassano
    Founding member of AIG’s financial products unit who allowed massive credit default swaps (CDS).
    8. Ian MacCarthy
    CEO of Beazer Homes, criticized for lying about borrowers’ qualifications to get loans. Beazer Homes is being investigated by the IRS, the FBI, and the department of Housing and Urban Development.
    9. Frank Raines
    He was at the helm when Fannie Mae became embroiled in an accounting scandal and began making investments in subprime mortgage securities that would later go sour.
    10. Kathleen Corbet
    Ran the largest credit rating agency, Standard and Poor, that gave AAA ratings to risky pools of loans.
    11. Dick Fuld
    Criticized for leading Lehman Brothers into the business of subprime mortgages and creating toxic debt.
    12. Marion and Herb Sandler
    In the 1980s, the Sandler’s World Savings Bank was the first to sell subprime mortgages called the option ARM. They sold Sandler’s bank to Wachovia in 2006. Wachovia later collapsed when the Sandler’s loan portfolio suffered huge losses.
    13. Bill Clinton
    Criticized by some scholars for creating a permissive lending environment.
    14. George W. Bush
    Criticized for embracing a philosophy of deregulation. In addition, the collapse happened under his watch.
    15. Stan O’Neal
    Merrill Lynch CEO. Created collateralized debt obligations (CDOs) which were made primarily from subprime mortgage bonds.
    16. Wen Jiabao
    Helped supply the U.S. with an unprecedented amount of debt. China is now the largest creditor to the U.S. government, to the tune of an estimated $1.7 trillion in dollar-denominated debt.
    17. David Lereah
    Chief economist at the National Association of Realtors who consistently claimed that the housing industry was infallible.
    18. Jimmy Cayne
    As CEO of Bear Stearns, Cayne took risks on questionable home loans and held nearly $40 billion in mortgage bonds that were essentially useless. Additionally, he was regularly out of town, leaving his company without effective leadership.
    19. John Devany
    A hedge fund manager who made it profitable for lenders to make subprime loans and sell them.
    20. Bernie Madoff
    His Ponzi scheme created $50 billion in losses.
    21. Lew Ranieri
    Former vice chairman of Salomon Brothers, considered the “godfather” of mortgage finance.
    22. Burton Jablin
    Helped inflate the real estate bubble by teaching TV viewers how to extract value from their homes.
    23. Fred Goodwin
    Considered the face of overreaching bankers everywhere.
    24. Sandy Weill
    Created Citigroup, which the government has already spent $45 billion trying to fix.
    25. David Oddson
    As Iceland’s Prime Minister, he helped his country become a prime example of macroeconomic meltdown by making his country an experiment in free-market economics.

-- Posted March 1, 2012

References

a “25 People to Blame for the Financial Crisis.” Time Magazine. February 11, 2009. Accessed: January 21, 2012.

b “A Citizen’s Guide to the Financial Report of the United States Government.” The Citizen’s Guide. 2011. Accessed: January 21, 2012.

c Barboza, David. “China Tells U.S. It Must ‘Cure Its Addiction to Debt.” August 6, 2011. Accessed: January 21, 2012.

d Bingham, Amy. “Only One Democratic Country, Besides America, Has a Debt Ceiling.” ABC News. July 19, 2011. Accessed: January 21, 2012.

e Cooper, Michael and Megan Thee-Brenan.  “Disapproval Rate for Congress at Record 82% After Debt Talks.” The New York Times. August 4, 2011. Accessed: February 8, 2012.

f Eichler, Alexander. “The European Debt Crisis: A Beginner’s Guide.” The Huffington Post. December 21, 2011. Updated December 27, 2011. Accessed: January 21, 2012.

g “Failed Bank List.” FDIC. January 20, 2012. Accessed: January 21, 2012.

h Ferrara, Peter. 2011. America’s Ticking Bankruptcy Bomb. New York, NY: Broadside Books.

i “Gardner, David.” The Age of America Ends in 2016: IMF Predicts the Year China’s Economy Will Surpass the U.S.” DailyMail. April 2011. Accessed: January 21, 2012.

j Goldman, David. “At $400 Billion, Apple Is Worth More Than Greece.” CNN Money. January 19, 2012. Accessed: January 21, 2012.

k Jeremiah, David. 2010. The Coming Economic Armageddon. New York, NY: Faith Words.

l Kansas, Dave. 2009. The Wall Street Journal Guide to the End of Wall Street as We Know It. New York, NY: Collins Business.

m Latham, Mark and Sumi Somaskanda. “EU Nations Except Britain Agree on New Treaty to Save Euro.” USA Today. December 19, 2011. Accessed: January 21, 2012.

n Manolopoulos, Jason. 2011. Greece’s ‘Odious’ Debt. New York, NY: Anthem Press.

o Schlesinger, Jill. “18 Scary U.S. Debt Facts.” CBS Money Watch. November 19, 2010. Accessed: January 21, 2012.

p “U.S. Debt Reaches 100 Percent of Country’s GDP.” August 4, 2011. Accessed: January 21, 2012.

q “U.S. Debt Visualized.” Kleptocracy.us. 2011. Accessed: January 21, 2012.

r Wilkinson, Peter and Irene Chapple. “The Rise and Fall of the Euro.” CNN Money. January 13, 2012. Accessed: January 21, 2012.

s Wolf, Z. Byron.“Debt Debate for Dummies: Six Keys to Understanding the Issue.” ABC News. July 8, 2011. Accessed: January 21, 2012.