One of the significant mysteries beclouding the increasing stagnation of constructive initiatives, emanating from both the House of Representatives and the Senate, is lack of media attention or ongoing public focus regarding the U.S. Treasury debt.
As a reminder, it should be noted the accelerating expansion of America’s fast-growing multitrillion dollar debt had become the nation’s outstanding impasse during President Obama’s first term. It was one of the main issues that brought the Tea Party to the forefront, unleashing a tidal wave that delivered the House majority to the GOP and came close to duplicating the same feat in the Senate. Along with it came a historic majority of Republican governors and statehouse legislators.
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The focal issue at the 2010 mid-term election and thereafter was the $5 trillion addition to the previous $10 trillion national debt amassed during President Obama’s first term. This included an $850 billion bequest delivered by a Democrat Congress shortly after the Obama inauguration. This runaway debt eventually led to a political showdown, following the downgrading of the U.S. debt by prominent rating agencies such as Standard & Poor’s and Moody’s, and a threat of a government shutdown.
It also led to an eventual “across the aisle” agreement by both political parties, resulting in selective tax increases, as well as a projected 10-year budget reduction. This was to be shared equally between the Defense Department and domestic spending, primarily comprised by financial support of Medicare, Medicaid, senior drug programs and increasingly expensive populist welfare subsidies. This tenuous agreement was subsequently redrawn, and both the administration and Congress agreed to wing it, hoping for the best in a slowly reawakening U.S. economy.
While most of the subsequent spending diminution has been borne by defense spending in both men and materiel cutbacks, the four consecutive trillion-dollar-plus annual deficits under the Obama administration have severely diminished the 2013 and the projected 2014 fiscal year expenditures. But the current U.S. government debt of $17.5 trillion which, for the first time ever, is exceeding the U.S. world-leading $16.5 trillion annual gross domestic product of goods and services, seems doomed to stratify this position.
However, with foreign investments, especially from China, flooding into U.S. Treasury debt auctions, this giant debt is not only serviced, but is indicating interest yield reduction, which has taken the pressure off Treasury interest rate payments for now.
But this is likely the lull before the eventual storm, as such an unresolved issue is sure to reappear as a lead confrontation with the approach of rapidly approaching mid-term elections.
Credit managers’ confidence rising
One economic index that really catches my eye is that of the Credit Managers’ Index from the National Association of Credit Managers. After a slow start early in the year, these guardians of the corporate exchequer seem to be slowly gaining confidence.
Chief accountants and credit managers are the fiscal guardians and gatekeepers of millions of businesses, large and small. While tending to be excessively conservative, their ultimate job is to make sure transactions entered into by their businesses or institutional organizations are dealing with credible and creditworthy sources. Their ultimate goal is to safeguard the monetary viability of their indigenous businesses, from the standpoint of buying, selling and inventory management.
In the sales management community, the credit department is often referred to as the “sales prevention” department. The credit department is hardly more popular with businesses’ purchasing executives, whose buying sources must pass muster with it.
With an index reading of more than 50 showing positive attitude expansion, July indicated an upward climb of 56.8 from the previous month’s 56.1. This is in keeping with guarded optimism of improving economic factors. When looking at sales improvement, new credit applications and a quickening collection pace, all seem to be rising in tandem.
Although most signs point to further improvement in economic factors as a whole, some hesitancy is expressed by participating credit managers. These include growing concerns with inflationary factors, regulatory intrusions and political uncertainty, which may impact what NACM as a whole seems to regard as the current U.S. economy. The group believes it is now graduating from the “intensive care” level of a multiyear post-recession to a solid footing of long-term growth.
There seems to be little fear of federal funds-inspired rising interest rates or pessimism causing the large gamut of independent businesses to draw in their horns. Credit managers view the conservative approach by most small businesses to aggressively expand as a positive note. This comes at a time when the overall optimism of previous post-recession breakouts does not exist.
Unlike general economic observers who view the lending restraints of financial institutions, as well as those of commercial and industrial businesses “hoarding” record monetary reserves with undue skepticism, credit managers believe that such restraint may be warranted, in light of too many uncertainties at home and abroad.
Although differences exist within America’s many economic subsectors, credit management in general views the rest of 2014 as one of moderate expansion. This is mitigated by watchful concern over unemployment, wage growth stratification and global influences, such as unlawful immigrations and increasing geopolitical instability abroad.
Transportation energy consumption
According to the U.S. Energy Information Administration, energy demand projection is on a long-term downtrend after reaching a peak of 14.6 million barrels of energy derivatives per day in 2007, the year before the advent of the Great Recession.
In 2012, transportation energy consumption — including demand for light- and heavy-duty vehicles, aircraft, marine vessels and other sources — dropped to 13.8 million barrels per day. The EIA claims the light-duty vehicle category comprise 63% of total energy consumption in its latest survey, but its percentage share is declining and is expected to drop to 51% by 2040.
Other transportation segments include the following future percentages in the USEIA forecast: heavy-duty vehicles, 26%; aircraft, 10%; marine, 6%; rail, 1.5%; and miscellaneous at 3.5%.
In making such a long-term projection, the EIA is relying on the efficiency of gasoline blends that are being dictated by congressional mandate and enforced by the U.S. Environmental Protection Agency.
The EIA also presupposes a much greater energy consumption by heavy-duty vehicles, taking up much of the slack left by light-duty vehicles’ dramatic reduction. Although long-term projections tend to be somewhat problematical, since population growth and automotive engine technology improvement has to be factored into the equation, the total usage for all types of transportation 26 years from now is predicated on a general downturn in total usage, which is barely expected to reach current levels.
To put total U.S. energy consumption in today’s perspective, it’s estimated to be just under 19.5 million barrels per day, in contrast to more than 21 million bpd in 2007’s peak year.
If these projections generally prove to be correct, America’s percentage of global demand will be greatly reduced, as today’s 90 million bpd worldwide currently is expected to reach 130 million bpd globally. Based on both natural population increase, from 7 billion to more than 9.5 billion, as well as the significant industrialization and consumer modernization by developing nations, that amount is expected to be generated in consumer demand.
As previously indicated, the United States is in the process of gaining tremendous production advantage, as America and its NAFTA partners, Canada and Mexico, will displace OPEC as the centrum of energy resource power in the foreseeable future.