Q: If the total US deficit is near $10 trillion, how much is the annual interest and what is the total Federal revenue from taxes? Way so unpopular, but might it be time for a ONE-TIME-ONLY deficit tax to pay down/off our debt? We're already suffering from the poor/lack of underwriting of lenders... it's also poor fiscal fitness (i.e. fiscness) to consistently spend more than you make, governments included. Thanks.

Submitted by from Chicago

A: It's not the deficit that's almost $10 trillion, its the national debt and you are correct in suggesting that interest on the debt is a rising problem. Tuesday's CBO report suggested the interest on the debt will grow by 6.4 percent from 2010 to 2018. It expects interest on the debt to amount to be equivalent to about 1.8 percent of the nation's gross domestic product. But this assumption is made on the assumption that the 2001 and 2003 tax cuts expire and there is more revenue coming into the coffers. Borrowing in of itself isnt bad, but if the risk is that as our financial standing weakens, and there are other places to put your money like europe and asia, and while our baby boomers begin retiring in unprecedented numbers, investors who buy our bonds etc will demand a higher return because we pose a greater risk (this already happened with Fannies and Freddies)... so further into the future, one can imagine the cost of running a defict erode our financial standing and it becomes more expensive to borrow above what we spend, becoming a dangerous circle or eroding conditions.

Answered 09/10/08 11:41:18 by Kevin Hall and Tony Pugh

Q: I heard some views from economists that said one of the major factors in the price increase of oil and gas is due to the decline in the value of the dollar. Less buying power for the dollar yielded higher prices at the pump. I know it's not this simplistic but how much does the strength of the dollar play in the global price of oil?

Submitted by Jamie from Tampa, FL

A: The dollar plays a role, how much has been a subject of debate. A new report out today from a hedge fund operator suggests the biggest cause is the wash of index fund investments, with $60 billion going into the futures market from Jan to June, and $39 billion flowing out since June. The dollar is surely among the reasons why investors flocked to oil and other commodities as an asset class. Fed Chairman Ben Bernanke and others have acknowledged the dollar issue may have been a factor but hardly the deciding one in the swing up and the swing down. The report from White Knight Research and Trading on Wednesday suggested the dollar rose 7 percent in 2008, while oil climbed about 50 percent. Movements in the dollar may be one of several triggers for the flows of investment funds but not the sole cause of high oil prices, and now falling prices.

Answered 09/10/08 11:31:21 by Kevin Hall and Tony Pugh

Q: Isn't it true that Sarah Palin's response that Freddie/Fannie have gotten too big and too expensive for US taxpayers goes to the heart of the issue that US taxpayers are stuck bailing out two quasi-private entities? And, that the US government officials begged the US Congress to give the US Treasury unlimited funds to bail out these sinking entities? Thus, the comment provided after Palin's in your article does not reflect the true nature of these bloated, corrupted, quasi-governmental businesses in which US taxpayers are going to be bailing them out under 'threat' / "pressure' from China/Russian sovereign fund investors? IF these two corporations are truly, completely PRIVATE -- then they don't need federal government intervention nor do they need the $800,000,000 approved by Congress to bail PRIVATE entities out of their own sinking ship. I think Palin fully understood the scope of the mess of Freddie Mac/ Fannie Mae. We taxpayers have been left to foot the bill for corporation. Question -- if Palin erred in her statement as your article hinted at -- why are US taxpayers bailing out TWO massive corporations with US taxpayer funds?

Submitted by from Pueblo, Colorado

A: That's too simplistic a way of looking at things. It's convenient to badmouth Fannie and Freddie now that they are the subject of a buyer's boycott from investors. But let's remember where the entire housing crisis started -- in the private sector with bad sub-prime loans and Alt-A loans which were a notch below prime loans. These were sold into the secondary market by the private sector -- so called private-label mortgage-backed securities instead of Fannie and Freddie mortgage-backed securities. When defaults on sub-prime and Alt A loans soared, these private-label issuances fell apart and this market is virtually dead. Fannie and Freddie have remained healthy with defaults and delinquencies at manageable rates. Their problem is a crisis in confidence, a crisis of what-if. Investors fear home prices nationwide could sink further, and wonder if Fannie and Freddie are adequately cushioned. Since so many of these instruments are held by foreigners and foreign governments, the lack of confidence -- based in good measure because of fears of a repeat of what happened with private-sector issued mortgage bonds -- the Treasury Department moved. All that to say, when Palin said they are too expensive for taxpayers, I doubt seriously she understood the complexities of the national housing market, securitization etc. Maybe it was an issue for the 650,000 Alaskans, but I doubt it. As to begging for a bailout, Fannie and Freddie have been political footballs since their creation. More recently, they have been seen as lobbying in favor of Dems who sought to protect them against privatization. The next president will determine whether Fannie and Freddie are privatized, or perhaps nationalized, making profit for the government. But don't believe they hype and spin that these are somehow awful institutions costing taxpayers billions. Now that theyre in govt hands they might, or they might make money -- Paulson himself said that. As to if they were private they wouldnt need a bailout, the move was to bail out private investors, as was the sale of Bear Stearns -- both sought to protect the broader world of private investors against a systemwide failure. So it is a bit more complex than you have portrayed.

Answered 09/08/08 12:56:18 by Kevin Hall and Tony Pugh

Q: people that do not have good credit how will the lower intrest rate affect them?,clearly refinancing will depend on the best credit score.

Submitted by Joyce Bigby from Pocono Summit PA

A: I think over a longer term, the theory is it will be a rising tide that lifts all boats. But I suspect it will be a good while before those with weaker credit will have ease in obtaining a home loan, car loan etc. Lenders of all stripes are now risk averse, and would rather sit on their capital than lend it to all but the safest of borrowers. The good news for those with weaker credit who own their homes is banks and other lenders are reworking loans, finanlly seeming to have got the message that they will be worse off if the home is in foreclosure than if payments are adjusted and yet anotehr empty home is put on the market where there are few buyers and little lending

Answered 09/08/08 12:25:09 by Kevin Hall and Tony Pugh

Q: A very simple question: G.W. Bush and Dick Cheney have their money in trusts. Are their fortunes in Euros or American Dollars?

Submitted by Maggie from Highland Park, IL

A: I won't touch that one, other than to say there has been a deafening silence from both presidential campaigns about this global financial crunch and the risks it poses to all of us. They focus on trade and jobs, which voters understand more easily, and ignore the broad financial threats that could unravel the economy as we know it.

Answered 09/08/08 12:21:56 by Kevin Hall and Tony Pugh

Q: I fail to see how "open market" and "free market" apply to bailouts of irresponsible, venal banks and lenders. Seems to me those bailouts are the antithesis of "free market". Why can't my neighbors get the same bailout after making bad financial decisions that they hoped would profit them personally, like the heads of Bear & Stearns, Freddie, and Fannie have done? Free market economics seem to work primarily for the purpose of enriching the already rich; there is no mechanism inherent in free market economics for distributing wealth more equitably, only making rich entities richer.

Submitted by Diane Wanek from Omaha, NE

A: Your view is certainly one that resonates in many quarters, and purists are quite critical of Secretary Paulson and Fed Chairman Bernanke for encouraging moral hazard -- that is for not allowing investors to bear the consequences of bad investments. I think they would argue back that there comes a time when pragmatism has to carry the day, and that they moved to protect the broader U.S. and global economy, perhaps holding their noses letting some investors off the hook. A big part of the weekend move was designed to help narrow the gap between Treasury bonds and Fannies and Freddies. Investors were demanding higher returns on the latter and this was pushing up mortgage rates. That will change, but it really means little unless banks start lending again.

Answered 09/08/08 12:20:31 by Kevin Hall and Tony Pugh

Q: When the govt. takes over a private corp, is that not the act of a facist govt.? See Truman, USA vs youngstown sheet and tube, Korean conflict.

Submitted by james sexton from Checotah, Ok.

A: Well Fannie and Freddie aren't and weren't exactly private companies. They were created by the government, run like private companies except that they didnt have the same minimum capital requirements as do the commercial banks (investment banks don't have these either) and although Fannies and Freddies explicitly say they are not backed by the U.S. government, the actions of the Congress and administrations has always supported the idea that they are too big to fail and thus have an implicit government backing. The weekend takeover makes that implicit backing explicit, removing uncertainty. That said, it won't be a panacea for all of the problems in the housing, credit and financial markets.

Answered 09/08/08 12:17:20 by Kevin Hall and Tony Pugh

Q: With the housing market in Nevada at it's worst, why do the banks make it so difficult for people to go in and buy while the prices are down. And why would they include an end to downpayment assitance in their package to bail out the FMs? Are there other programs out there to help first time buyers?

Submitted by JC from Las Vegas, NV

A: There are still government programs in place to help first time homebuyers and you are right that this is a good time for first timers to buy (i think there is even tax relief included in the housing legsilation passed in July for first timers!) The problem remains the credit crunch. Banks and other lenders are in a world of hurt, and they are simply refusing to lend in almost all but the safest bets. Credit standards became too loose and now they are overcorrecting in the other direction, adding to the nation's housing woes. As to why there is not downpayment assistance, this is the part of home lending that became unhinged with zero down payment loans, creative second loans etc so that anyone with a pulse could get into a new home. now we are all bearing the consequences. I'd suggest contacting the Federal Housing Adminstration hotlines, there are several on their website, and asking about these programs for first time homebuyers. But FHA too is asking for more money down or higher lending rates for those with less down.

Answered 09/08/08 12:14:09 by Kevin Hall and Tony Pugh

Q: Do you agree with Christopher Laird? He writes that the central banks (Fed and ECB) are weekly infusing $30-$50 billion into the financial system. The Fed or the ECB then take $30 or $50 billion of the bad assets from various and sundry financial institutions that are scattered across the EU and the US. Week after week, the Fed and the ECB keeps adding another $50 to $100 billion of bad assets to their balance sheets, as ‘collateral’ and making ‘temporary’ loans that they keep having to roll over and extend the repayment on. He also states that if the Fed and ECB was to stop the weekly infusions, quite possibly the entire Western financial system would stop dead. And we get a massive world stock crash. Do you agree with his findings? Do you think the Fed and the ECB are fixing the our financial situation? Doesn't the ECB play a big part in the Fannie-Freddie dilemma? Do you think the Fannie and Freddie will be the straw that breaks us? Thank you again, Mary P.S. This is the link to the writer: http://www.financialsense.com/fsu/editorials/laird/2008/0825.html

Submitted by Mary from TX

A: I can't vouch for everything that was written but it is true that central bankers are being asked to provide short-term loans and are moving heaven and earth to ensure that lending does not completely dry up. I don't think the general public is aware of how close we were, and perhaps are, to a financial system meltdown. Fannie and Freddie are certainly front and center to the next chapter of the financial crisis and govt response. I would point you to stories in Friday papers and on Thursday news wires where Bill Gross, the chief of the world's largest bond fund, PIMCO, and the buyer of last resort in the private sector effectively said he is going on a buyer's strike until he says something bold from the Treasury Dept. We are in uncertain times and it may all work out in the wash, or things could get as bad as the Great Depression. It's not overstating things to say the world financial system is in a precarious state. It all works on confidence and products have gotten so sophisticated that it is hard to unwind transactions and everyone is going defensive. no one trusts the guy on the other end of the deal. It's a grim world today in credit markets.

Answered 09/05/08 16:22:17 by Kevin Hall and Tony Pugh

Q: Dear Kevin and Tony, I am doind and economic research on the USA, Florida. I wuld like to know where can i find charts and statistic about the current situation. Do you think new companies would take advantage of the economic crisis to invest in the hotel industry in Miami?

Submitted by Maria PDA from Switzerland

A: I think there is a lot of European real estate investment taking place, or recently taking place, thanks to the weak dollar. The dollar is strengthening, which may affect investment but I am pretty sure the Brits and Europeans are plunking down billions on real estate. You may want to try Enterprise Florida, which promotes trade and investment in Florida for more details. Here's their website, you'll need to cut and paste this address in your browser as it is not a live link on our Q and A. http://www.eflorida.com/

Answered 09/05/08 16:00:42 by Kevin Hall and Tony Pugh

Q: Do you relly think that most Americans are dumber thn rocks? If oil goes up 47% per barrel and gas goes up 25% per gallon, then the BIG question is how many gallons of gas comes from a barrel of oil? I bet this question never gets answered...

Submitted by Ken Smith from Phoenix, AZ

A: Last time I checked a barrel held 42 gallons, and those 42 gallons of oil are refined into about 19 or 24 gallons of gasoline. but this varies widely on the type of crude and factors in the refining process. And today there is synthetic crude coming from the oil sands in the Canadian province of Alberta, so it's not a neat and simple answer.

Answered 09/05/08 15:58:20 by Kevin Hall and Tony Pugh

Q: If gasolene prices are not dropping as fast as they should because they did not go up high enough, could you tell me if the price of gasolene went down as far as it should when prices were falling? I am finding it hard to "buy into" your article as I physically watched the prices at the local gas station go up 3 times in the same day. NOT KEEPING UP WITH PRICES? WHO ARE YOU TRYING TO KID?

Submitted by Charles McDermott from Prineville, OR

A: the math suggests the percentages did not move in lockstep. the problem with an article like this that simplifies things is that there are a number of regional variables at play at any one time in the country. The reason your pump prices change three times in a day is something called zone pricing, the way gasoline sellers adjust their prices. The practice came out of attempts to prevent price gouging but it has become a mystifying pricing system. The Federal Trade Commission maintains this system of zone pricing is on the up and up, but critics suggest there are holes in the regulation big enough to drive a price through. The retailer himself does not set the price, but must comply with outside orders for this pricing, and that is why two gas stations across the street from each other can have such different prices.

Answered 09/05/08 15:54:29 by Kevin Hall and Tony Pugh

Q: I think that the crucial question concerning oil is WHY crude oil suddenly shot up in price and WHY that price is gradually dropping. Republicans and conservatives are claiming that the price dropped because Pres. Bush's announcement that he would lift the ban on off-shore drilling. Why would the price drop when Bush's announcement was little more than meaningless political posturing? The Dems controlling Congress and Obama don't seem inclined to open up more land for oil companies NOT to drill in. I bet that in five years some economist will release a sleep-inducing study that will demonstrate nothing conclusively but indicate that the spike in oil prices was due to the convergence of many different factors-- including significant, rampant, and unregulated speculation by hedge funds.

Submitted by WLS from Columbia, SC

A: As a guy who has to read all those sleep-inducing studies, here's hoping it is a lively study! I think most economists agree that there a variety of factors at play. As the Q and A touched on, demand signals were being ignored because oil became a hedge against a lot of stuff. at least one member of the Commodity Futures Trading Commission thinks the huge influx of money into the oil market has pulled up prices. But few economists suggest there is widescale manipulation. prices are higher than they otherwise would have been, but tight supply and a hot global economy pushed up demand. A serious drop in US oil and gasoline consumption, and a slowing global economy are knocking down demand and you can argue that prices would be even lower if not for so much money sloshing through these markets.

Answered 09/05/08 15:51:08 by Kevin Hall and Tony Pugh

Q: Is Gull Island Alaska part of a national wildlife conservatory and off limits for oil production?

Submitted by Gladrags from Tennessee

A: I am guessing the question is really about the legend that Gull Island is atop a massive oil well. An Alaskan petroleum publication debunks that, here is a link to cut and paste into your browswer that explains the history in detail. http://www.petroleumnews.com/pntruncate/690171677.shtml while Alaskan oil gets lots of attention, the real potential for bigger production is in the Gulf of Mexico, particularly deep water and the infrastructure is in place. Alaska's untapped oil would not make a significant dent in global oil supply, while the Gulf, particularly in Mexican territory, holds a lot more promise.

Answered 08/25/08 15:42:18 by Kevin Hall and Tony Pugh

Q: What about changing the banking laws? A one time user fee would be more in the line of a long term loan. For instance on a $100,000.00 mortgage the borrower would be charged a simple one time fee of say 10 %. So that the borrower would pay back a total of $110,000.00.

Submitted by bovinestack from cowtown

A: sounds attractive, but the reality is that we have an open market system in which banks are free to set the prices and regulators push back (or were supposed to have done so) when things get out of hand. telling banks what to charge is unlikely to pass Congress, however, banks may see it in their interest at some point to come with a simpler way of doing things. Some proposals like those of Yale economist Robert Shiller suggest a more technological approach, allowing computers to constantly recalibrate the monthly mortgage based on an ability to pay. will be interesting to see what comes out of this mess when the national housing market finally hits bottom. when that is remains anyone's guess.

Answered 08/25/08 15:36:44 by Kevin Hall and Tony Pugh

Q: I believe the dollar has lost about 1/2 its value in recent months. Would this then make well priced U.S. real estate a good investment?

Submitted by Dennis Bianchi from Santa Fe, NM

A: the dollar is actually on the climb after a gradual six year drop that picked up earlier this year. and yes, the weak dollar has attracted a lot of foreign investors in real estate, although a lot of the european money was bet earlier on the housing market that's gone bust.

Answered 08/25/08 15:33:25 by Kevin Hall and Tony Pugh

Q: Well, only the blind cannot see now that Israel is blocking the SAFE passage of Middle Eastern Oil to the Mediterranean, and Russia is taking advantage. I would ask the economical advisers what do they think is the impact of this geopolitical fact ? What would be the economic impact if Arab oil would have safe pipeline access to the Mediterranean ports ?

Submitted by Norberto from Buenos Aires

A: Again, I'll ask that you keep race and politics off of this economic Q and A, if you care to rephrase it as an economic question we will respond.

Answered 08/25/08 15:32:18 by Kevin Hall and Tony Pugh

Q: First, I ask what can everyday people do to help the economy? People seem to be either misinformed or just misunderstand about what is really going on. Then only get angry because they feel helpless. So much pulling and pushing to do this, do that, save this, save that, invest here, not there. Example: Buy high price light bulbs to save energy. Then have to find a place to dump them because they are dangerous to our environment. Buy motorcycles to save gas. What about adding cost of motorcycle, helmet, and insurance to your monthly payments? How long is it going to take you to see a savings? The average person is not going to invest in the market because they can not see, touch, taste or much less understand it. The average 25 year old looks at a $100 bill and thinks that could only buy 2 pairs of jeans...on sale. Then mininum wage is up to $6.55 X 40 hours= $262.00 before taxes. How much is average household bills? No, not everyone can get more education to improve. The world still has to have low men on totum poles. So, can you tell us a simple way we can start to help the economy? Maybe run all 545 or so out of goverment? As for Lewis from Chicago, Illinois remarks and to any others that feel the same. Have you given true thought to what if Bush had not went into war on their soil? I think everyone would agree that this war is breaking us, but it might be worth the investment to know that when we lay ours heads down at night, we can sleep in peace. Most of us have no idea what it is like the have bombs going off next door. Thanks again, Mary

Submitted by Mary from Quanah, TX

A: nothing to add from here.

Answered 08/25/08 15:30:42 by Kevin Hall and Tony Pugh

Q: How does a regular citizen who has a plan to stimulate the economy be heard?

Submitted by Kelvin Warren from Citrus Heights Ca

A: Probably your best bet is via your local congressman, or your local newspaper's op-ed pages. Truth be told, it's awfully tough for an average Joe (or Kelvin) to get a voice without being part of a think tank, non-government organization etc. The Internet is a great equalizer. Send it to this and other Q and A's for others to see. who knows where it goes. But this forum is rather short, so be concise.

Answered 08/11/08 17:33:43 by Kevin Hall and Tony Pugh

Q: So, having destroyed Iraq and murdered over a million of its citizens the US should expect the Iraqi's to lick their wounds and spend their own money to repair damages caused by US aggression? Seems like the Jews think the same way. 4.5b in destruction of Palestinian infrastructure and another 6.5b in the destruction of Lebanon, summer of 2006, and the low life ZioNAZI basta*ds expect the Lebanese people to lick their wounds and 'pony up' to repair Israel's destruction? Meanwhile, billions flow to the Jewish cut throats to continue the carnage in Gaza and the West Bank?!!!! TheAZCowBoy Tombstone, AZ.

Submitted by TheAZCowBoy from Tombstone, AZ.

A: This is an econ q and a, find somewhere else to spew hate, there are plenty of venues elsewhere for that nonsense.

Answered 08/11/08 17:32:00 by Kevin Hall and Tony Pugh