The National Debt: Growing but More Slowly

September 8, 2014
Elliot Eisenberg, Ph.D.,  GraphsandLaughs, LLC

Elliot Eisenberg, Ph.D.,
GraphsandLaughs, LLC

The federal debt routinely captures headlines and continually grows but is there a crisis? Should congress fix the debt immediately, or have we made enough progress? Turns out, in the short-run we are fine, but there is heavy lifting that must yet be done if we are to get to a sustainable path.

While the debt is huge, it’s the ratio of debt to GDP that matters. Ignoring debt held by government agencies (such as the $5 trillion in IOUs held by the Social Securitv Administration), and focusing on debt held by households, firms and foreigners and upon which the treasury pays interest, the total amount of money the government has borrowed equals, $12.6 trillion, close to 75% of GDP.

To give some perspective, before the Great Recession the debt was 35% of GDP and it was projected to gradually rise to 50% of GDP by 2018 as more Baby Boomers became eligible for Social Security and Medicare and as healthcare cost rose. Then came the Great Recession which resulted in more borrowing as tax receipts fell and more had to be spent on countercyclical social programs including unemployment benefits and food stamps. As a result, debt rapidly rose to 50% of GDP and was projected to rise to 70% within a decade. Then to fight the Great Recession, President Obama persuaded Congress to pass the American Recovery and Reinvestment Act (aka “The Stimulus”) an $800 billion package of tax cuts and spending increases. That along with the weak recovery pushed the debt to 70% of GDP by 2011 and it was projected to rise toward 100% of GDP by 2021 as the economy returned to health and interest rates rose towards normal levels.

At that point things looked grim. Then came some big changes that dramatically improved things. Congress raised taxes on upper income families, cut discretionary spending, and the rate of increase in government spending on healthcare, particularly on Medicare, unexpectedly slowed by 2.25%/year. That improved the projected trajectory of the debt. Now, it is forecast to climb from 75% of GDP today to 80% of GDP by 2024 and it’s projected to climb higher after that. While the debt is high by historical standards, at least it’s getting worse more slowly, at least in the short-run.

The good news, outside of Social Security and Medicare, projected revenues and spending are balanced. The key to balancing the budget is closing the gap between promised future Medicare and Social Security benefits that are actuarially higher than future taxes earmarked for those programs. This can be done by cutting benefits, raising taxes or ideally some of both. Moreover, the earlier these changes are made, the less painful they will be. A second way to fix the budget; pass pro-growth legislation. This would include reducing tariff and non-tariff barriers via trade reform, reducing marginal corporate and personal income tax rates via tax reform, and enabling illegal immigrants to fully participate in the economy via immigration reform. Collectively these policies would raise annual GDP growth by $80 billion, or 0.5%, which when compounded over time is a huge amount.

Our budget problems now lie largely in the future. That, however, must not distract us from grappling with them soon as time passes all too fast. Moreover, assuring markets that we are solving future budget problems should help promote the current economic recovery.

Elliot Eisenberg, Ph.D. is President of GraphsandLaughs, LLC and can be reached at His daily 70 word economics and policy blog can be seen at


Economic Forecast for 2nd Half of 2014: Increasing Momentum, Reduced Headwinds

June 13, 2014
Elliot Eisenberg, Ph.D.,  GraphsandLaughs, LLC

Elliot Eisenberg, Ph.D.,
GraphsandLaughs, LLC

Despite GDP growth stalling in Q1 due to the Polar Vortex, slower inventory accumulation and mildly lower exports, the economic recovery remains intact. The anemic performance of the US economy from January through March was aberrant, and the incoming employment, manufacturing and consumer spending data all point to an economic pickup. GDP growth the rest of the year should average 3%, with growth in Q2 closer to 3.25% as the economy rebounds from the harsh winter. In addition, reduced fiscal drag from DC, increased hiring and spending by state and local governments, and increased corporate spending on plant and equipment suggest we are finally entering a period of faster growth.

That said, economically all is not well. Wage growth remains anemic and while the unemployment rate is 6.3%, down from 10%, the fall is largely due to a decline in the labor force participation rate. The ranks of the long-term unemployed remain elevated, along with the number of those working part-time because they can’t find full time work. Add to that average overtime hours that are remarkably high and termination rates that are very low and what you have are employers very reluctant to hire. This situation cannot persist, and of late job creation numbers have been on the upswing. Therefore, net job creation will rise from 200,000/month, where it has been for the past year, to 220,000 or 225,000 by year end and unemployment will probably fall to 6.1%. I expect wage growth to start picking up steam in 2015.

The biggest drag on the economy is housing. After a promising first half of 2013, the housing market is, at best, flat. While rising interest rates and home prices, a lack of inventory and lots, shortages of materials and labor, and a lack of credit and first-time buyers play a part, weak household formation is the main culprit. After averaging over 1.2 million in the years prior to the Great Recession, household formations have been averaging 500,000 since the end of the recession. The good news – household formation will rise now that all eight million jobs lost during the recession have been finally made up. We are no longer making up lost ground. Because of this, new single-family construction activity in 2014 will reach 700,000, with multifamily adding 350,000, while existing home sales should be down slightly from last year.

As for inflation, it’s benign. No matter how measured, there is no inflation to speak of in the US. Commodity prices will remain well-behaved given weak demand due to economic slowing in China and weak growth in Europe and the developing nations. Absent some sort of geopolitical crisis, energy prices will remain where they are thanks to record US oil production. As a result, expect tapering to end in November and for the Federal Reserve to begin raising short-term interest rates by mid-2015. However, long-term rates have bottomed and 10-yr Treasuries will end the year at about 3% as the economy steadily strengthens.

In short, the economy is improving and Q1 was a speed bump. Long term rates will rise, short-term rates will remain unchanged, and housing will limp into 2015, with prices rising slightly. Most critically, household formation will strengthen and corporate, state and local government spending will rise. Lastly, the likelihood of a recession during the next six months is virtually zero.

Have a wonderful summer and see you in August!

Elliot Eisenberg, Ph.D. is President of GraphsandLaughs, LLC and can be reached at His daily 70 word economics and policy blog can be seen at

House-Hold Spending

April 4, 2014
Elliot Eisenberg, Ph.D.,  GraphsandLaughs, LLC

Elliot Eisenberg, Ph.D.,
GraphsandLaughs, LLC

Before the Great Recession, household wealth peaked at $68.8 trillion or $254,600 per person. If that seems like more money than you have, it’s because wealth isn’t evenly distributed. The rich have much more of it than the poor. As a result, back in 2007 the median family had wealth of just $126,000 while the average family had $584,000. Then the recession hit, house prices plunged, stock markets cratered and household wealth hit a low of $56.6 trillion in 2009. Since then stock markets around the world have staged a remarkable recovery and house prices have been steadily recovering. As a result, household wealth now stands at $80.7 trillion, almost $12 trillion more than before the recession. So things have more than recovered, right? Not quite.

Since 2007 there has been inflation and the US population has grown by 20 million people. As a result, inflation-adjusted per capita wealth is now $254,000, just a shade less than it was before the Great Recession. So we are at least back where we were before the recession hit, right? Not so fast. The problem is that the asset price recovery has been profoundly unequal and that has caused the distribution of wealth to change dramatically. And that has huge implications for the economy.

Homeowner equity hit $10 trillion last quarter, and while way up from a low of $6.3 trillion in 2011, it’s nowhere near the pre-recession high of $13.4 trillion. By contrast, equities have soared and are now worth almost $23 billion, way more than their pre-recession high of $18.3 trillion. The economic kicker is that equities are primarily owned by upper-income households, while home equity is the major source of wealth for everybody else. This means that while the rich are roughly $5 trillion wealthier than they were before the recession, all other households are about $3.5 trillion poorer. And while the upper classes spend more when their wealth increases, it’s nothing like the increase in spending that occurs when the rest of the population feels better off.

A huge chunk of middle class spending is the result of tapping into home equity via cash-out refinancing. Regrettably, despite rising home prices many households are still under water, credit remains harder to get than ever before, and many households now have mortgages with extremely low interest rates and are simply unwilling to tap into their home equity. As a result, mortgage equity withdrawal has nearly stopped. After peaking at $320 billion in 2006, it was just $32 billion last year, a decline of almost $300 billion, and that is the highest it’s been since 2010!

In addition to the rich, another group that has done well is older Americans. Families headed by someone under 40 have on average recovered only one-third of their lost wealth, but families headed by someone middle-aged or older have recouped all their losses as more of their wealth is in stock and less in housing. And regrettably the middle-aged and the elderly, like the wealthy, are less likely to spend their capital gains than younger middle class families.

As a result of the profoundly uneven wealth recovery, spending on luxury goods has done very well but firms that rely on middle class spending are not enjoying nearly as much of a renaissance. For that to change wages will have to start rising.

Elliot Eisenberg, Ph.D. is President of GraphsandLaughs, LLC and can be reached at His daily 70 word economics and policy blog can be seen at

Reservations About The Dollar

March 4, 2014
Elliot Eisenberg, Ph.D.,  GraphsandLaughs, LLC

Elliot Eisenberg, Ph.D.,
GraphsandLaughs, LLC

Since the start of the Great Recession of 2008 and the Fed’s decision to inject trillions of dollars into the banking system, there has been constant talk of the US dollar losing its position as the world’s reserve currency, the position it has held since the end of WWII.  After all, our debt is huge and growing, DC is thoroughly dysfunctional, our share of the world economy is shrinking and China is increasingly pushing for a post dollarcentric financial system.  Despite all the concerns above, the dollar’s position as the reserve currency of the world is safe for a long while.

First, which currency can realistically unseat it?  The British pound is simply too small to do the job as the British economy is about 1/7th the size of the US economy.  As for the euro, while it is large enough, there are too many structural problems including weak growth, over taxation, an inflexible central bank and the outside possibility of the collapse of the monetary union to entice many central banks to significantly increase their euro holdings.

As for the Yen, Swiss Franc or Chinese renminbi, you have got to be kidding!  With a debt to GDP ratio greater than that of Greece, Japan makes the US look downright fiscally responsible. Moreover, Japan and Switzerland are both pushing down the value of their respective currencies making them that much less appealing to hold.  Lastly, the renminbi does not freely float and there are significant foreign exchange controls in place.  As a result, it will take at least a decade before China has the necessary legal framework and deep and open financial markets that are a necessary prerequisite before the renminbi can become a credible reserve currency competitor.

Second, because of increased capital flows between nations due to increases in trade and investment, central banks have been repeatedly told by their respective governments to hold larger quantities of safe and easy-to-sell assets which can be easily liquidated in time of crisis.  As a result, total foreign reserves have nearly quadrupled in the past decade and this has dramatically increased the demand for dollars.  For example, when foreign capital suddenly flees a developing nation, it puts downward pressure on the local currency.  By selling some of its dollar holdings to purchase its own currency, a country can stabilize its currency and avoid large currency swings.  Moreover, simply holding a large supply of highly liquid foreign assets, like dollars, discourages speculation and demonstrates that a nation has the necessary reserves to pay foreign creditors for things like oil and wheat.

Lastly, with large holdings of dollars the last thing foreign nations want to do is harm the dollar as that would reduce the value of their holdings and that, in and of itself, reinforces the dominance of the dollar and thus improves its stability.  That is at least partly why for the past 15 years 60% of world foreign exchange reserves have consistently been in dollars.  Were that percentage to slowly fall to 50% over the next few decades, it would matter relatively little.

To sum up, despite lots of talk, there exists no strong competitor to the US dollar and one is unlikely to appear anytime soon.

Elliot Eisenberg, Ph.D. is President of GraphsandLaughs, LLC and can be reached at  His daily 70 word economics and policy blog can be seen at

A Tale of Two Households

April 4, 2013

Elliott Eisenberg

by Elliott Eisenberg, Graphs & Laughs

During the last year and especially the last five or six months, the economic data have been of two minds.   On one hand, household net worth is way up, the stock market has been setting new highs and the number of millionaires is at 9 million, just below where it was before the recession.  At the same time, we read that the amount spent at restaurants, bars, and department stores recently fell as households compensate for higher gas prices and payroll tax increases by reining in discretionary spending.  Which is it?  Is the economy getting better or are households hunkering down?  Turns out, it’s both.  Behind this seeming paradox is the growing gulf between America’s wealthier households and its poorer ones.  And the past recession has put this gap into bold relief.

While suffering during the Great Recession, wealthier households, because they are more likely to own equities and a home, have enjoyed the recent rise in house prices and the stock market, as well as the special year-end dividends that were timed to avoid tax increases that went into effect the first of this year.  In addition, because they can borrow money at today’s historically low rates, they are spending more on vacations, cars and other high-end discretionary purchases as their financial situation improves.  Moreover, over the last few years their incomes have been rising, something the majority of the population has not been experiencing.

By contrast, households in the bottom half of the income distribution are having a tough time of it. The combination of stagnant wages in the years before the Great Recession, large job losses during the recession, current high levels of unemployment, the dramatic increase in those unemployed 12 months or more, high gasoline prices and delayed income-tax refunds are forcing these households to forgo many purchases.  As such, retailers that cater to lower and middle-income Americans are feeling the pinch.  Worse, the payroll tax hike will probably take three or four months before its impact is fully felt.

Fortunately, those in the top half of the income distribution are doing well and they pack a lot of retail punch.  The top 20% of households account for 38% of all spending while the top 50% of all households account for 70% of all spending.  By contrast, the bottom quintile is responsible for a tad less than 9% of all spending.  And so far, higher income households have been carrying the load, with spending most recently rising at a month-over-month rate of 0.7%, the best level since a 0.8% gain in September 2012.

Despite high-income households facing higher taxes due to the expiration of the Bush tax cuts and everyone facing the vagaries of the sequester, the economy is not on the ropes.  A diet of dirt-low interest rates, a booming energy sector, and solid improvement in the all-important cyclicals including autos, big ticket items, business fixed investment, and most importantly homebuilding, should translate into increases in middle- and lower-class employment and (hopefully) wages, and thus more household spending among those doing relatively little of it now.

Elliot Eisenberg, Ph.D. is President of GraphsandLaughs, LLC and can be reached at  His daily 70 word economics and policy blog can be seen at

5,863 Reasons to Support HBA…..and Counting

July 8, 2011

Kyle Campbell, 2011 HBA President

OK, to be honest, I lost count at 2,717 and started estimating after that.  I’m referring to the pages of Code, Design Specifications and Regulations in some of the more commonly used manuals in this development community.  Most of us use them daily or have heard of them: EL Paso County Land development Code, City/County Drainage Criteria Manual, Regional Building Code, Colorado Springs Utilities Service Standards, and the list goes on and on.  I’m not here to debate the need for these regulations, or if there are too few (never the case), or too many (always the case), but instead the effort the HBA goes to ensure that these regulations don’t negatively impact the building and development industry.

Currently, the Colorado Springs Housing and Building Association has several active committees that help to oversee these documents: Land Use, Utilities, Utilities Working Group, Code, and Public Policy.   Based on our organization’s positive and healthy relationship with the jurisdictions that control these documents, we are fortunate to be invited to participate in discussions about revisions and additions.  As everyone knows, the best intentions sometimes have unintended consequences.  A proposal to require a new widget may make sense for the person making the recommendation, but if that widget is not readily available, or costs four times the amount of the currently approve widget (that functions well), a debate needs to occur.   Even a misplaced comma can create a different intent than what was envisioned by the preparer.   The HBA’s critique is valuable in providing a balanced view of regulatory impacts and benefits, and without membership participation, this effort would not be nearly as successful as it has been.  As municipalities embark on streamlining efforts and looking at ways to unencumber the building and development process, industry participation is paramount. 

Several efforts are currently underway including an effort to streamline the El Paso County Land Development Code juggernaut, a total update of the City/County Drainage Criteria Manual and yearly updates of various other documents.  No one person can possibly understand and keep abreast of all of the various components of these manuals so the process to review and clearly understand the benefits or impacts of the proposed changes is of supreme importance. 

It’s important to thank every member who has participated in the past and given selflessly of their time to protect the building industry in the less than glamorous task of reading a lot of pages of material.   Review of these manuals is daunting and requires special focus and consideration of many factors.  Implementation schedule, cost, scheduling impact and correlation with other jurisdictional requirements are just a few of the peripheral questions that must be considered during review.  Please stay committed.

Please consider making a continuing resolution to seek out and commit to participating in any of the various HBA committees that exist to benefit membership and the industry.  Your individual experience and expertise is vital in maintaining a healthy and positive building environment in our community.

Kyle  Campbell
HBA President, 2011
Classic Homes

Original Publication in The HOMEFRONT, February 2011

Homebuilding Industry is the Community’s Real Families, Jobs

April 26, 2011
Reposted from The Gazette

Kyle Campbell, 2011 HBA President


Last November the voters of Colorado Springs approved by a large margin a new city charter to change the city form of government from a council-manager form to a council-mayor form.  The new mayor to be elected in the May runoff election will be the chief executive officer of the city with enhanced powers and responsibilities.

The debate between the candidates in the May election should be focused on the many troubling issues facing our city and region, including unemployment, attracting new businesses and jobs and maintaining essential city services. Initial comments by the candidates reflected a desire to run clean and honest campaigns.  The hopes of that being realized through the runoff election have been officially dashed with the latest Richard Skorman campaign ad that aired for the first time on the April 20. The ad states, “If we give developers the keys to City Hall we’ll get more sprawl, traffic congestion and neglected neighborhoods.”

Really? Is this where this election is now descending?  The Skorman ad includes a series of sounds bites and flashes of rooftops, traffic on I-25, the scar on the mountain and claims of sprawl.  Today’s voters have far more serious issues on their minds like paying bills and providing for their families.  With an unemployment rate in the range of 9.5 percent, the residents of our community have more pressing concerns than growth.  The homebuilding industry and the jobs created thereby provide important jobs, and the health of the homebuilding industry is a key indicator of the economic health of a community as has been illustrated by the depressed state of homebuilding.  Plus there are human consequences to the depressed state of the homebuilding industry.  There’s nothing like seeing your friends and neighbors laid off from their jobs such as framers, painters, landscapers, consultants and sales associates, to see how homebuilding and development are significant and important parts of any economy.  Thousands of jobs have not only been lost in the industry, but also in the supporting employment bases like restaurants and retail.

Sprawl might have been a catchy phrase years ago before the economic downturn, but the realities of existing government regulation, oversight and approvals have now been recognized as impediments to the positive realities of growth and development, job stability, job growth and tax base.  Around the country and here, municipalities are looking at ways to streamline the development and building process in an effort to revitalize a key economic engine for recovery: homebuilding.  The local debate on sprawl by Skorman is contradictory to the national movement of encouraging growth and development.

And by the way, I live only two miles from the last image of sprawl shown in the ad, in a neighborhood of the rooftops surrounded by neighbors that I care for, parks and open space within walking distance and the excitement of more new business and attractions opening in the  near future.  I chose to live there and don’t appreciate the negative connotations the ad attaches to the environment in which I chose to raise my family.  That “sprawl” of which Skorman complains consists of homes just like mine, in communities just like mine, where real people raise their families, go to jobs, attend schools and contribute to the vibrancy of the community.

After the disappointment wears off of realizing that one of the candidates appears to be abandoning the desired discussions of what is best for the city and where we need to be heading as a community, you have one chance to send a strong message that this is not a topic relevant to this time and place — vote for Steve Bach.    —

Kyle Campbell is President of the Housing &  Building Association of Colorado Springs.