There are many reasons to be grateful that John F. Kerry never was elected president of the United States of America. One of them is his unkeen financial acumen, which is so backward and strange and perplexing that I never can tell whether it is the work of some sort of mad genius or cribbed from one of those guys who hangs around public places with an apocalyptic message on a sandwich board. Matt Viser, writing in the Kerry campaign’s house organ, the Boston Globe, reports:

Senator John F. Kerry’s signature energy and climate change legislation would cut the deficit by $19 billion, according to an estimate released yesterday by the Congressional Budget Office.

The legislation faces strong opposition from Republicans and some Democrats from energy-producing states, but the report gives the Massachusetts Democrat and his allies a compelling financial argument amid concerns about the implications of a burgeoning deficit.

… The cost of the legislation, which includes various tax credits, would be more than offset by revenues collected through a cap-and-trade system, according to the report. The bill would put a price on carbon emissions, a measurement that opponents have attacked as a carbon tax.

More than offset! Ah, this is a hoot. Is Matt Viser putting us on? Is John Kerry?

That piffling $19 billion deficit reduction is achieved by imposing a tax hike of three-quarters of a trillion dollars — the CBO puts the number at $751 billion — on the American people, and then spending all but the last $19 billion of the revenue generated. Here’s a radical idea: If you want to reduce the deficit by a (paltry, embarrassingly tiny, too slightly to really seriously mention it) $19 billion, how about you just pass a $19 billion tax hike and skip the part where you spend more than the cost of the Iraq War creating a new politically driven securities market to chase marginal atmospheric benefits related to the emission of carbon dioxide, which is not even the most important greenhouse gas? For perspective, you could just cancel the Depression-era farm-income stabilization program and save a nice round $20 billion.

That $19 billion in savings is great — if you only look at the balance sheet at Treasury and ignore cap-and-trade’s effects on the economy, the actual economy that exists out there in the real world. The Obama administration estimates the cost of cap-and-trade at 1 percent of GDP per year ($146 billion dollars), scholars at the Heritage Foundation put it at $393 billion per year, and others have estimated even higher costs. You know what the Obama administration’s numbers and the Heritage Foundation’s numbers have in common? They’re all a heck of a lot more than $19 billion — orders of magnitude bigger.

And the estimated impact of cap-and-trade on global warming trends over the next century? Approximately zilch. Great deal, geniuses!

There are lots of legitimate reasons to support cap-and-trade. One is that you are too cowardly to just straight up impose a carbon tax. The other is that you don’t think Al Gore is rich enough yet, and that his green-investment portfolio could use some political help. But supporting cap-and-trade because you think it is going to save the nation money? I’ll believe that when I see John Kerry’s pictures from his Christmas in Cambodia.

Nancy Pelosi has sneaked a $10 billion government-union bailout, and another $10 billion in domestic spending, into the supplemental military-spending bill.

The war supplemental was only supposed to be $37 billion as it was — that’s $20 billion in grease to pass $37 billion in war spending. Bad form, Nancy. Way to let the troops in Iraq and Afghanistan know exactly where they stand on the political totem pole back home!

The $10 billion bailout to the states — more accurately, to the states’ government-employee unions — was passed on the argument that, without it, there would be massive layoffs of teachers. That is not and was not ever going to happen. But if it were going to happen — so what? Most of our public schools are massively overfunded and ludicrously inefficient. Why punish taxpayers in the more frugal districts to bail out northeastern suburban schools that spend in excess of $20,000 per student annually?

This is a Big Labor, Big Government bailout — a $10 billion payoff to one of Nancy Pelosi’s most favored special-interest groups. And it won’t be the last: State personnel spending, particularly on pensions and benefits, is unsustainable, with Barack Obama’s home state of Illinois leading the way to bankruptcy. There will be more, and rewarding the spendthrift today encourages even worse behavior that will make tomorrow’s bailouts even more expensive.

Who didn’t think that $37 billion supplemental was expensive enough as it was and needed to be bumped up 50 percent?

I like Fisker, but this makes me a little sick: Asked if this economic environment really presents the best occasion for starting a car company, Henrik Fisker answered:

It’s the perfect time. Especially for an environmentally minded automaker. Governments are handing out money.

Question for investors: What happens to the Fisker business model if governments stop handing out money?

There’s nothing quite like the sensation of waiting for a socialist government to do the smart thing fiscally, but Greece-watchers are reasonably confident that the Papandreou deficit-reduction plan will pass when put to a vote on Thursday. But even if the legislators all fall in line, there’s another problem facing Plan Papandreou: the Greek courts, which may decide that the program is unconstitutional.

… Despite the giveaways that may find IMF and EU resistance, another issue on the horizon is whether some aspects of this legislation will be deemed unconstitutional by local courts. One of the measures in the proposed bill likely to be quashed by the judiciary is that public servants and private sector employees can be insured by an amalgamated pension and health-care fund.

And if there are many more articles that fall foul of Greek constitutional strictures, the socialist legislative branch of government may be check-mated by a judicial coup. Then the government could find itself back to square one in relation to its toughest austerity measures — even if all its deputies tow the party line.

It is uncomfortably easy to imagine a similar scenario playing out in the United States in ten years. How do you say “Antonin Scalia” in Greek?

Speaking of things Italian, if all goes well in Greece, Justice Scalia’s ancestral homeland will be moving into the international crosshairs next. Italy has done some things right — like keeping its deficit relatively low by not engaging in massive stimulus spending — but it went into the crisis with such a high debt-to-GDP ratio that it is still struggling. The word “default” is being thrown around by responsible people:

“A default is a distinct possibility,” said the managing director of Capital Markets, Roger Bootle, and its chief European economist, Jonathan Loynes, in a report.

Its banks would be hard hit and foreign investors faced losses of €400 million if Italy defaulted.

Italy has fared better than other markets, such as Spain and Portugal, since Greece’s crisis. It limited its stimulus spending and emerged from the recession with a budget deficit of 5.3 per cent of GDP, less than half that of Spain and Greece, but it still boosted government debt to 115.8 per cent of GDP.

So the world is waiting for Greek socialists to enact social-spending restraints and for fiscal Puritanism to catch on in Italy. Okey-dokey.

In other news of the non-obviously self-evident: Ezra Klein thinks that we’ve got this deficit thing licked in the United States, just so long as Congress doesn’t mess it up. No, really. He writes: “Either Congress can pass and implement policies that will bring the long-term deficit under control or it can’t. Those are the only two choices here. But there’s no real mechanism for getting the deficit under control aside from Congress passing laws and then sticking to them.” Well, raise my rent.

It’s hard to disagree with Klein’s analysis here, except for the part where he assumes there’s a reasonable chance of the U.S. Congress not being populated by jackasses.

Michael A. Fletcher of the Washington Post deserves some sort of prize for D.C. conventional-wisdom regurgitation for his piece on the states’ budget crises. Check out this lead:

State governments desperately need money. Congress is in no mood to spend it. And the reckoning will begin Thursday, when the new fiscal year will start for most states.

Nothing less than the nation’s nascent economic recovery hangs in the balance. States say that if they do not find financial rescue they will have to cut services and workers. That would deliver a potentially crippling blow to the economy, which needs higher employment levels to fatten wallets, promote spending, bolster tax revenue and reduce dependence on expensive social services.

The paradox of spending ourselves out of a budget crisis is beyond the powers of the best and the brightest at the Washington Post. Later in the piece, he writes:

… with the emergency federal money drying up, states are being forced to make draconian cuts that economists warn undermine the stimulus effort.

Which economists would those be? The 73 percent of economists who think the stimulus accomplished approximately zilch?

And what about those “expensive social services” programs? You know what the most expensive social-service program is? A government job. The wage premium for government employees is enormous, especially when one considers the pensions and other benefits attached to those inflated salaries. The states are running out of money in no small part because they are running out of well-off people to steal from, and because they are spending faster than they can steal. And I use the word “steal” advisedly: What’s going on with state employees, who are using their political muscle to capture economic benefits far beyond anything they could win in a competitive marketplace, is theft. If a bunch of them lose their jobs, that’s not an economic crisis: It’s a first step toward rationalizing our economy.

Question for Mr. Fletcher: Where exactly would that state-aid money come from? Taxpayers on Mars? Lawmakers, he writes, “are reluctant to raise taxes, particularly as the economies in so many states are listing, leaving governors little option but to make deep cuts.” But some taxpayer somewhere has to put up the money for that aid. So if we’re going to bail out a spendthrift state like Maryland, we have a choice: Tax Marylanders to fund their state’s uncontrolled spending, or tax non-Marylanders to fund their state’s uncontrolled spending. What exactly is the case for punishing more responsible states to subsidize less responsible states? Either way, federal tax dollars don’t get miracled into existence any more than state tax dollars do.

Or we can borrow, taxing future taxpayers to underwrite present stupidity. But our ability to borrow has its limits, even at the federal level. You do not want to discover those limits the hard way.

Nowhere in the piece does Fletcher even briefly consider the possibility that states are spending too much money, and that their spending less money would be a good thing for the economy and for the country. Every source he talks to is either a member of a liberal advocacy group or somebody who makes his living spending taxpayers’ money (to the extent that one can distinguish between those two categories). It’s pretty shoddy journalism, and it reveals an underlying assumption: Every time a possible spending cut is mentioned, it is presented as a tragedy and as something that will harm the overall economy, even though lots of government spending produces zero economic value, or marginal economic value: Random example, one of many thousands, here.

It would not have been too terribly difficult for a Washington Post reporter to find an economist with a different perspective on this issue, or an actual taxpayer who suspects that fruit-fly research in Paris is not an especially high-yield use of American tax dollars. These are not radical ideas. But, as Upton Sinclair put it, “It is difficult to get a man to understand something when his salary depends upon his not understanding it.”

The report of Rep. Barney Frank’s Sustainable Defense Task Force, issued in June, is a strange document. Titled “Debt, Deficits, and Defense: A Way Forward,” its first word is “conservatives,” which suggests that Mr. Frank’s intended audience is not Barack Obama, Nancy Pelosi, and Harry Reid, the people who actually control our debt, deficits, and defense. It begins with a quotation from Kori Schake of the Hoover Institution, whom the reports’ authors are careful to identify as a McCain-Palin foreign-policy adviser: “Conservatives need to hearken back to our Eisenhower heritage,” Schake writes, “and develop a defense leadership that understands military power is fundamentally premised on the solvency of the American government and the vibrancy of the U.S. economy.” This is followed by a second quotation, from John Podesta of the Center for American Progress, which of course is of no interest.

What we discover in this report is not a budgetary document, but a pacifists’ manifesto: significant policy changes masquerading as deficit-hawking and penny-pinching. Buried in the report’s vasty depths is an eight-paragraph disquisition on the “Logic of Restraint,” the ideological framework undergirding the report’s book-balancing exercise. In other words, the conclusions precede the premises.

In its opening shot, the report identifies 19 broad categories of potential savings, and its authors suggest that nearly $1 trillion can be sweated out of military spending over the coming decade. There are only four categories in which the savings add up to more than $100 billion, and examining those gives one a taste of the ideological particularism and wishful thinking at work here. The first of them is diminishing the U.S. nuclear arsenal for a savings of $113.5 billion. The second is reversing the growth in the Army and Marine Corps budgets that accompanied the Iraq and Afghanistan wars, saving $147 billion. The third is reducing the Navy’s fleet to 230 ships, saving $126.6 billion. And the final chunk comes in the nice round figure of $100 billion, to be realized by having Congress “require commensurate savings in command, support, and infrastructure,” which is to say — magic! Smaller line items do away with the Osprey helicopter program, two Air Force fighter wings, and 50,000 troops stationed in Europe and Asia.

The policy preferences expressed in this report, and the slightly cavalier approach to the subject, come as no surprise: The authors of the report include no leading minds from the armed forces or the Pentagon, but multiple representatives from the Project on Defense Alternatives, an envoy from Peace Action, and like-minded colleagues from the Center for American Progress, the Center for Arms Control and Non-Proliferation, the New America Foundation, etc. (There are two Cato Institute scholars on the panel as well, along with Prof. Prasannan Parthasarathi of Boston College, an expert on the British empire and the author of a highly regarded history of cotton textiles.)

The Pentagon’s budget is as bloated as any typical federal agency’s, and its operations as poorly administered. There is ample room for cuts in its budget. But there is not at present occasion for these cuts, which presuppose a major change in the military posture of the United States. As crucial as spending reform is — even the chairman of the Joint Chiefs calls the federal debt our top long-term national-security threat — we should not conduct a major rethinking of our national-defense policy under the cover of budget-balancing. That is a debate that deserves to be had on its own terms.

And it is a debate that deserves to be conducted honestly. Unhappily, the authors of this report engage in the usual Washington budgetary shenanigans, calculating that military spending is responsible for two-thirds of the growth in annual discretionary spending since 2001. The key is that word “discretionary,” which functions as a way to wall off Social Security, Medicare, and Medicaid from budgetary scrutiny. Article I, Section 8 of the Constitution suggests that all spending is discretionary; certainly, all spending should be treated that way. It is inevitable that if one sets aside the largest items on the federal budget — the so-called entitlements — then the relative size of military spending will be exaggerated. In truth, defense spending represents about 20 percent of the budget; in the 2010 budget, the Department of Health and Human Services will spend $200 billion more than the Department of Defense, its budget 28 percent larger. As a share of GDP, we spend about twice as much on entitlements as we do on national defense. To exclude those facts from discussion of national defense as a fiscal issue is to present a distorted picture of federal spending.

For instance, the authors of the report propose to eliminate 24,000 personnel from the U.S. Army. Why that number? Which 24,000? Why Army personnel, and not OSHA or IRS or Interior Department staff? Paying 24,000 Army personnel for a year costs about one day’s worth of Social Security spending, probably a bit less. Talking about military spending out of the broader budget context is nonsensical, particularly given that national defense is one of the few theaters in which the federal government unquestionably is executing a legitimate sovereign responsibility, the measure of which is largely non-economic. Modest Medicare reform easily could save more money than reducing our nuclear arsenal and our missile-defense programs; but if Medicare is not up for discussion, and if one has a disinclination against nuclear munitions and missile defense to begin with, then why bother asking the question? On the other hand, what is the economic value of a single successful deployment of an antimissile interceptor? There are some gentlemen in Tehran promising to force the question.

This shoddy report is an opportunity missed, and particularly frustrating for those of us on the right who advocate a less expansive, and less expensive, national-security apparatus — those of us who share (disquieting as it is to acknowledge the commonality) Mr. Frank’s belief that the presence of thousands of U.S. troops in such non-hotspots as Germany is an extravagance and an invitation to excess. Likewise, those who are serious about setting America’s public finances aright will have to include reductions in military spending in their calculations — and the Pentagon’s budget is ripe with savings opportunities. But we must develop a sensible national-defense doctrine before working out the details of its economical implementation, rather than taking the covert, backward approach of using budget-balancing to overturn our existing arrangements. There is hard work to be done here, and Mr. Frank’s panel has failed to do it. There are many arguments for returning Mr. Frank and his party to the minority, and their inability to treat this serious issue seriously adds to them.

– Kevin D. Williamson is deputy managing editor of National Review.

Moody’s apparently is ready to follow S&P’s lead and downgrade Spain.

A little theme music for the occasion?

Number of responsible people in the U.S. House of Representatives today: five. The Committee to Reinflate the Bubble is in the house!

With the deadline looming, the House passed 409-5 a bill to give homebuyers an extra three months to take advantage of a federal tax credit. 

Homebuyers who qualified for the credit would have until September 30 — instead of June 30 — to close on their purchases. The tax credit, which required buyers to sign a contract on a home by April 30, provides homebuyers with a tax write-off of as much as $8,000.

The legislation is fully offset. 

Well, hooray for the offsets. They are wonderful and all, but the real problem here is that Washington is acting in a coordinated fashion—409-5!—to repeat the inflationary housing-price policies that kicked off the financial crisis and got us into our present economic straits. Brilliant thinking, geniuses. How about running with some scissors while you’re at it?

As MC Hayek put it, “The place you should study isn’t the bust / It’s the boom that should make you feel leery, that’s the thrust / Of my theory.” The housing boom was the problem, not the fact that it couldn’t last forever. Artificially high housing prices, like any other artificially high price, will come back down, and they will tear a nice wide path of destruction through the economy as they do so. Artificially high housing prices also produce a phony “wealth effect,” encouraging private households to borrow and consume beyond their means, i.e., to act like the government. Washington’s inflation of housing prices is, basically, the root of all evil. So, knock it off, Congress.

An interesting video, and an interesting question: At what point does government spending start to hinder economic performance?

When I first saw this, I thought  it said “Rahm Curve” — which would be something else entirely.

Republicans have rotten luck when it comes to timing. Think about the miracle of the “Clinton economy” — Slick Willy took credit for a recovery that was under way well before he was elected and then evaded blame for a recession that began in the final months of his presidency, while two different Republicans, both named Bush, caught absolute hell.

In another case of bad timing, it’s a little bit unfortunate that when the Republicans finally summoned the testicular fortitude to start making a ruckus about spending, they ended up with an extension of unemployment benefits as the nearest issue at hand. For spending hawks, unemployment benefits probably aren’t the highest-value hill to die on. In fact, unemployment benefits are one of the better social safety-net programs we have in the United States. They’re not terribly expensive, in real terms; they reward work; and they have the happy effect of encouraging a dynamic labor market and supporting risk-takers who seek better lives in new jobs. Think about how much harder it would be for a scrappy, underfunded startup to attract good talent from well-established competitors if those workers didn’t know they had unemployment benefits as an emergency backup. Granted, our unemployment-benefit system is not especially well-run and could stand to be improved in a dozen ways — but, compared to Medicaid, student loans, farm subsidies, or a thousand other federal welfare programs, unemployment benefits are a pretty solid deal. (Though not as solid as they’d be if they were a privately run tax-free hybrid insurance/annuity that you begin paying into from your first job and can roll over into your retirement if you don’t tap into it before then. Feel free to pick that idea up and run with it, John Boehner. There’s more where that came from.)

Predictably, the Democrats are howling that the Republicans hate unemployed people and don’t really care about the deficit, that’s it’s all just a political charade. Of course it’s a political charade — but just a political charade? The Democrats’ go-to spokesman, Anonymous Aide, is challenging the GOP to show the same puritanical budgetary resolve when it comes to re-upping the Bush tax cuts, telling The Hill: “I will be curious to see if their newfound fiscal religion that everything must be paid for is something they stick to as long as debt and deficits are a problem. Or is [this] just an election-eve conversion [that] will be dropped as soon as convenient?” (Shame on The Hill, incidentally: Nothing in this cheap, substance-free quotation rises to the level of justifying anonymity. Seriously: Democratic aide talks smack about Republicans and he’s an anonymous source? Rent some self-respect.)

Embedded in Anonymous Aide’s line of attack is a familiar assumption, an article of faith, really, for Democrats: Tax Cuts = Spending. If what we really care about is the bottom line, the argument goes, then isn’t cutting revenue functionally the same thing as increasing spending? It is tempting to dismiss this as a high-school debaters’ trick, a flimsy and facile bit of see-through rhetoric. But never underestimate the Left’s ability to misunderstand (or simply ignore) conservative thinking. Of course conservatives care about something other than the bottom line: Conservatives want both fiscal responsibility and a state that is limited in size and scope, so as to preserve the private sphere of life and citizens’ individual liberties.

Liberals kinda-sorta want the same thing, but you’ll rarely get them to admit it. One of the head-clutchingest things ever written about American politics is this gem, from Jonathan Chait of The New Republic: “If you have no particular a priori preference about the size of government and care only about tangible outcomes, then liberalism’s aversion to dogma makes it superior as a practical governing philosophy.” Now, wipe that incredulous smirk off your face — liberalism’s aversion to dogma, indeed — and consider what it would mean to have “no a priori preference about the size of government.” Surely even the open-minded, dogma-shunning liberals over at The New Republic have an a priori preference that the size of government not equal 100 percent of GDP, or 500 percent of GDP. I’m pretty sure the non-ideologues in the sovereign-debt markets have a robust a priori preference that U.S. government spending not exceed GDP. Arguments over the size and reach of government are partly moral and ideological, but they are not exclusively moral and ideological. Reality intervenes. And reality is the friend of conservatism.

If congressional Republicans are going to argue for a balanced budget (or a less-unbalanced budget) and tax cuts, they are going to have to make — once again, whipping it up from scratch — the case for a limited central government. Americans are fairly receptive to that argument at the moment, but not as eager as some of my fellow conservatives would like to believe: Cut Social Security checks by 20 percent and that limited-government tea-party mob will be the one that comes around to tar and feather your sorry congressional hide. But the case can be made.

And while making the case, Republicans in Congress are going to have to make something else: a big list of things they are actually willing to cut. Otherwise, they will be refusing to recognize the reality in which they should be grounded, and they’ll be confirming Anonymous Aide’s cynical worldview. Instead, Republicans would do well to beat the Democrats at their own game: Offer Nancy Pelosi the extension of unemployment benefits — so long as she produces dollar-for-dollar cuts elsewhere in the budget. And then fight to extend the Bush tax cuts — with dollar-for-dollar spending cuts to match. Steny Hoyer’s out there saying that Democrats are going to be left with no choice but to raise taxes on the middle class, Obama’s campaign promise be damned. No choice? Republicans should give him some options.

– Kevin D. Williamson is deputy managing editor of National Review.

What does the chairman of the Joint Chiefs think the biggest national-security threat facing us is? Surprise.

Would you pay $11 million for $10 million worth of junky Greek bonds? Yes, you would: The cost of insuring a $10 million purchase of Greek government bonds (official junk!) for five years is now more than $1 million.

Apparently, the markets are paying attention to today’s debt conference, organized by Bloomberg. Petros Christodoulou, head of the Greek public-debt agency, boasts that his country now enjoys a certain “luxury” when it comes to restructuring  its debt, reports Business Week: “The package we received gives us the luxury not to think about it at this stage,” Christodoulou said at ‘The Sovereign Debt Briefing’ in London hosted by Bloomberg Link, referring to potential future debt sales. “No one at the moment is looking at a restructuring in Greece, no one in Greece, no one outside Greece.”

And the Europeans stand firmly behind him: “You’ll be surprised how determined the European politicians are,” he said. Determined to do nothing.

The Federal Reserve made no move to tighten up the loosey-goosey money supply today, keeping the rate at 0.0-0.25 percent. Fed-watchers don’t expect any tightening until the second half of 2011. That’s a lot of cheap money for a long, long time.

But the Fed may have its eye on some other rough news today: Housing is nearly back in meltdown mode. New home sales dropped nearly 33 percent in the new report, down to an annualized rate of 300,000 – the lowest number on record since Commerce starting tracking the figure in the early 1960s. Housing is headed for a double dip; is the rest of the economy?

Uncle Sam has done everything in his power to keep the housing market mobile, from endless support for Fannie and Freddie to that silly $8,000 first-time buyers’ tax credit, which only served to front-load some marginal sales, producing a spike in sales that only makes the fall-off look that much more steep. Housing still has a good long ways to fall before prices get back to their historic trendline. Sir John Templeton, predicting the housing crash back in 2000, offered this advice: “After home prices go down to one-tenth of the highest price homeowners paid, then buy.”

Problem is, Uncle Sam already bought, and the Fed has a lot of mortgage-backed stuff on the balance sheet. Investors have always wondered which way the government will go, but now the government is an investor, and a big one. We’d probably be better off if Washington would just let housing hit bottom, but you can be sure that the Obama administration will go red in tooth and claw fighting to keep whatever’s left of the real-estate bubble inflated, borrowing our way out of stagnation. Where have I heard that idea before?

“We know the dollar is going to depreciate, so we hate you guys, but there is nothing much we can do.” – Luo Ping, director general, China Banking Regulatory Commission

“Triffin’s Paradox,” the subject of a recent paper from the Council on Foreign Relations, holds that the dollar’s role as the world’s reserve currency means that the United States has to run large deficits in order to supply the world with the currency it demands. The dilemma is that this both weakens the dollar in the long run and makes the United States vulnerable to a sudden dump-the-dollar mood in the global markets, meaning that we’re at risk for a huge spike in the interest rates on the borrowing that finances that big deficit. Put simply: The dollar is so safe it’s dangerous. I like to think that this paradox explains the customary uncomfortable look on Hu Jintao’s face:

“Where my money at?”

The CFR paper describes the situation thus:

Thomas Laubach showed that for each percentage point rise in the projected deficit-to-GDP ratio, longer term interest rates increase by about twenty-five basis points (or 0.25 percent); alternatively, each percentage point rise in the public debt-to-GDP ratio increases long rates by three to four basis points. Combining deficit (or debt) projections with the Laubach analysis, one might expect the fiscal situation to lead to a full percentage point (or even much greater) increase in long rates.

The second domestic factor exerting upward pressure on long rates is that demand from one source—the Federal Reserve—is likely to be scaled back. In 2009, the Fed purchased $300 billion in long-dated treasuries. To the extent this put downward pressure on rates, the cessation of the Fed’s credit-easing policy might be expected to lead to higher long rates.

A third factor on the radar screen is inflation expectations. An increase in inflation expectations can have a one-for-one impact on long-term nominal interest rates. Longer-term inflation expectations have been on a post-crisis upward march, putting yet more upward pressure on long rates.

But interest rates haven’t gone up. The reason for that is, in all likelihood, the eurozone’s sovereign-debt crisis. Everything is stacked against Treasuries and the dollar, but the European situation is so spooky that investors are seeking haven in the United States. For now.

About half of U.S. government bonds (and about a fifth of U.S. corporate bonds) are held by central banks and investors overseas. The CFR paper argues that in 2009 we saw the beginning of what would have been a full-on run on Treasuries, prevented only by the shenanigans of our friends in Athens: “By the autumn of 2009 the scene was set for a wholesale abandonment of U.S. debt markets. But then the eurozone’s crisis accelerated. Spreads between Greek and German long rates skyrocketed, and net bond flows into the euro area fell sharply.”

CFR’s worry is this: Because it is precisely during moments of global crisis that capital tends to pour into the United States, Washington always has ample resources on hand to conduct a robust foreign policy during those emergencies. If we are on the verge of Triffin’s end game and the global capital spigot starts to dry up, the United States government is going to have a hard time financing all of the things it likes to finance.

Unfortunately, we’ve been financing a lot of consumption as opposed to making real capital investments, and our private savings rate is currently about 3.5 percent (and that’s high for us!) so there’s not a whole lot to fall back on.

Even with interest rates very low, interest payments on the national debt are expected to be $248,200,649,741.75 during fiscal year 2010. If rates spiked up to, say, 6 percent, we’d be paying nearly $1 trillion a year ($840 billion) in interest payments alone. If rates rose much above that, we’d be making annual interest payments equal to the ten-year estimated cost of Obamacare — every stinkin’ year.

“That’ll never happen,” some will say. Okay: How much of your own money are you willing to bet on that proposition? That’s the question they’re asking themselves in Beijing at the moment, and there’s no reason to think that their answer this year is going to be the same as their answer in 2009.

“Where’s My Bailout?” Right after the great Rick Santelli rant, that slogan had its day in the sun. It was a T-shirt, a bumper sticker, a protest sign, and a really bad song. Where’s your bailout, Joe Average? Funny you should ask.

The public debt of the United States is a terrifying hogzilla of a beast, but the household-debt situation is a big fat ugly ogre, too. The household debt of the United States went from about 30-odd percent of GDP in the post-war era, climbed up to about 50 percent by the 1960s, and held steady until the late 1980s — at which point, the graph looks like a rocket liftoff. U.S. household debt was 100 percent of GDP by 2007, a level it had not hit since 1929, a coincidence that makes financial types faint in their Froot Loops. There’s been some superficially good news on that front: Just like the Wall Street bankers, Americans huddled around the ol’ kitchen table are doing a little financial deleveraging, paring down their mortgages and credit-card debts. Yay, Americans! The down side is that they’re mostly doing it through defaulting on their mortgages and credit cards, rather than paying them off. Boo, Americans!

Here’s the deal: Since 2008, Americans have reduced their total household debt by $372 billion. Banks have written off about $210 billion in defaulted mortgages, delinquent credit-card debt, and other uncollectable loans. But, as the Wall Street Journal points out, that $210 billion doesn’t tell the whole story: Just like mortgages, a lot of credit-card loans and other forms of consumer debt are securitized and sold to investors, and those losses wouldn’t show up on the banks’ write-offs. The Journal’s conservative estimate is that the real losses from charge-offs are about twice what the banks themselves have reported, a total of $420 billion or so. And it could be a lot more than that.

So how can we have $420 billion in household debt written off but only see a $372 billion reduction in household debt? Apparently, somebody’s still burning up the MasterCard. The only way to account for the numbers is that Americans are still borrowing at a pretty steady clip, a fact that is obscured in the data by the fact that so many of them are defaulting on their mortgages and credit cards.

Translation: Yikes.

The credit-card scene is getting worse. Earlier this month, Fitch reported that the charge-off rate for credit cards (which is to say, the portion of delinquent loans they abandon as unrecoverable) climbed to 11.1 percent from 10.9 percent in April. It’s been above 10 percent for more than a year now. The credit-card companies are pretty robust, and their business models assume a pretty high rate of default, one that is much more realistic than, say, what the mortgage banks assumed. (It would almost have to be, no?) But still, there’s about $1 trillion in credit-card debt in the United States, much of it packaged into securities, much as mortgages have been. Nobody wants to see another bond-market meltdown. And that’s why you’re getting a bailout in the form of an interest-rate subsidy.

In spite of the build-up of household debt, Americans are spending less of their paychecks on the mortgage and credit-card bills, currently laying out 12.46 percent of income, down from 13.96 percent in 2007. How is that possible? In short, it’s because the Federal Reserve is keeping interest rates at basically zero, which eases the pressure on mortgages, credit-card interest, and other consumer-debt burdens. That’s your bailout, Mr. American Consumer: Little old ladies who put their money into Treasuries and good old-fashioned savings accounts are getting a return of +/- squat, approximately, partly to subsidize the wicked ways of spendthrift mortgage borrowers and credit-card junkies. Borrowers get bailed out, savers get hosed. It won’t last. In spite of the rather expansive fiscal attitude of the Obama administration and its allies in Congress, there hasn’t been much sign of consumer-price inflation, so the Fed is under pressure to keep interest rates at approximately zilch. But those rates aren’t going to stay low forever — nor should they.

The Fed’s cheap-money policy during the real-estate-boom years was a major contributor to the bubble, and repeating that policy now simply lays the groundwork for another bubble. But when interest rates start going up, it’s reasonable to assume that defaults on mortgages and credit cards are going to go up, too. Those defaults are going to go careering through the markets like Artie Lange in a co-starring role with Jack Daniels — which is to say, it’s going to be a lot of fun to watch for those who don’t get run over. Until then, enjoy your cheap money.