Questions arise as to how U.S. will pay for everything

How are we going to pay for all this?

Before Katrina, we had a budget deficit of $330 billion. The government had to borrow that much to cover the difference between what we took in and what we spent.

We also spent $680 billion more on purchasing foreign goods than foreign buyers spent on our products. This is called the trade deficit. The largest trade deficit is with China at $162 billion, with Japan at $75 billion. How is this being financed? We keep selling debt instruments like Treasury bills, bonds and notes. Please keep in mind that in the early 2000s we had a budget surplus of $263 billion. Adding to our monetary problems is Medicare costs increasing nine percent per year, Medicaid eight percent and Social Security seven percent.

How is the consumer doing with household finances? Americans are no longer saving. According to the Bureau of Economic Analysis, we have gone from the 1950s where we saved eight percent disposable income to now where we have a zero savings rate.
Credit card debt averages $7,200 per household. With regard to credit card debt, the Department of the Treasury has just doubled the required minimum payments on credit card debt. This does not come at a good time for many Americans.

How about real estate? Is there really a "bubble" out there? In some markets, real estate is probably overpriced. However, the main problem lies with mortgage financing. According to Lou Dobbs, CNN news, Americans have $8 trillion in mortgage debt, with 40 percent of this interest only financing (no equity payments).

Katrina will most certainly add to our deficit problems with huge outlays in federal costs. Congress may have to rethink making the temporary tax cuts permanent. Also, the Federal Reserve Bank System may have to postpone another increase in interest rates when it meets next week. Further, we need to understand that there is a limit to our resources, both here at home and abroad.