I was not a good father today.

Instead, I engaged in laboriously hand-entering data to satisfy a question that has been bothering me for a while.

The issue that was worrying at me was the apparent discrepancy I’d mentally noted between the happy-happy increase in existing home sales, as reported by the NAR last week, and what I remembered from the MBS mortgage application releases.

But who could be sure?

Perceptions can be tricked and need to be tested and subjected to fact-based inquiry.

The way that the US is planning to fund all of the bailout and stimulus activity is by borrowing the money.  As any long-time reader here knows, the rate of US savings has been less than stellar over the past 15 years or so, indicating that borrowing from foreign sources is necessary to plug the gap.

The way we keep an eye on this is by watching something called the Treasury International Capital, or "TIC," report.

What this report from the Treasury Department measures is the aggregate total of money coming into vs. heading out of the US. Money flows in and money flows out.  When it comes in, it lands in bank accounts and bond and equity purchases.  When it leaves, the various financial assets are sold and the money flows home, wherever that happens to be.  All of this is tracked.

Admittedly there are a lot of moving pieces in this measurement, but, roughly speaking, for everything to balance, the amount of money coming in needs to equal the amount of money being borrowed by the US.

If it does not, then the official deficit of the US government will compete with local needs for borrowing while the trade deficit will erode the value of the dollar.  If and when both domestic and foreign sources of lending are insufficient for the task, then we’d expect the Federal Reserve to cave in and simply print up the difference.

If I was ever given just one chart, just one piece of data, to make the case that we were on an unsustainable path that had a date with a long period of contraction and economic hardship, it would be this one.

Figure 1: This chart compares total debt (or “credit”) in the U.S. to GDP (or Gross Domestic Product) on a percentage basis. Current total credit-market debt stands at more than 340 percent of total GDP.

As we can see on this chart, the last time debts got even remotely close to current levels was back in the early 1930s, and that bears a bit of explanation. The debt-to-GDP ratio back then didn’t start to climb until after 1929 (blue arrow), because debts remained relatively fixed in size, while it was the GDP that fell away from under the debts. With the exception of the Great Depression anomaly, our country always held less than 200 percent of our GDP in debt (green circle). In 1985 we violated that barrier and have never looked back.

Well, folks, history was made today. The US now has an official "range" of between 0% and 0.25% for the Fed Funds interest rate.

Of course this is no different than what the effective interest rate has been for a while (so the Fed is, as always, merely following the market), but now it’s official.  

Perhaps our fellow readers from Japan can tell us what comes next.

I want to recall that, at the time of the Fannie and Freddie bailouts at the beginning of the summer, Hank Paulson, backed up by a compliant Congressional Budget Office, made the claim that any bailout of Fannie and Freddie was largely symbolic and not likely to cost the taxpayers much, if anything at all.

Here’s a blast from the past from the July 22 issue of USA Today: