Let's talk about debt, baby. Let's talk about you and me. Let's talk about all the problems, and the bad things that may be...

Alright, so perhaps that isn't exactly how you remember that song from the 80's, but unlike "Salt 'N Pepa," this problem is here to stay for a while.

Last week the US Senate voted to increase the federal debt limit by $781 billion, raising the debt ceiling to nearly $9 trillion. Soon thereafter, the congress passed a $2.8 trillion budget including $92 billion in additional war spending and hurricane recovery funds.

Let's take a second and let those numbers sink in. The United States owes about $9 Trillion. That's more than 3 times the budget we just passed for next year. There are about 300 million citizens in the US. Quick arithmetic shows that each and every man, woman, and child in this country is now in debt around $30,000 to cover this. Congratulations, I guess we all just bought new cars (yes, including the baby).

Anyone curious can actually see the current government debt, to the penny by looking at the Dept. of Treasury's website. The interest expense on this debt is also available from the treasury. This shows the interest payments for 2005 to be just over $352 billion or about 16% of the 2005 budget ($2.15 trillion).

In order to get a clear picture from these statistics, let's generalize for a moment. Imagine the federal budget as a large round pie. Now slice that pie into 3 nearly equal thirds. The first third represents the part of the budget eaten by defense. The second third represents the "entitlement" or non-discretionary spending of the United States (Medicare, Social Security, etc...). The last third represents everything else, all the discretionary spending from highways and parks, to education and housing. Now take this last third that represents all the government programs that are so dear to many voters and cut it clean in half. Take one of these halves and give it to your lender for that represents the interest we are paying on our debt.

Unfortunately for all of us, every single one of these "slices" is growing and the tax revenue from the economy is not keeping up. The difference, of course, is what we are borrowing to make ends meet and that is the federal deficit ($318 billion in 2005). Every time the deficit is a positive number, we have just borrowed more money and are increasing our debt. Every increase of the debt requires more interest maintenance leaving less and less for discretionary spending.

Of course, like our own families, the government can't continue borrowing money forever. In the short term, increased debt means higher interest costs to borrow more. We are already seeing this take place as real interest rates have risen dramatically over the last two years. In the long term, we simply cannot have our entire discretionary budget be eaten up by interest payments so something needs to be done. What can be done? Just like we all need to decide for our own family budgets, there are really only 3 options: 1.) Make more money (raise taxes) 2.) Spend less money (cut programs) 3.) Continue borrowing at higher and higher cost.

President Bush inherited a surplus when he took office in 2001 and has run deficits ever since. Politicians naturally prefer to borrow more money, as opposed to raising taxes or cutting programs as there is far less fallout in the short term from voters. California is a particularly poignant example of this policy. The problem is that they are simply delaying the problem (and making it much worse) for the next officeholder. Whoever wins the next presidential election will likely have no choice but to combine cutting spending and raising taxes, a sure-fire approach towards short term economic shrinkage. In real terms, this means that our standard of living is likely to drop in the future to pay for the spending-spree we've been "enjoying" over the last few years.

In reality, tax cuts, two wars, high energy prices, homeland security spending, natural disasters, and a major expansion of Medicare have left us in need of vast amounts of money that much of the rest of the world have so far been happy to offer us in exchange for higher interest rates. As most of us realize at home, it's easy to spend money, especially borrowed money. It's much harder to pay it back. We, as a country, have managed to spend ourselves into a pretty deep hole that will require some painful discipline to extricate ourselves from.

One of America's greatest poets, Ralph Waldo Emerson once warned "A man in debt is so far a slave." The United States used to be world's largest creditor, now we are the world's largest debtor. While much of our debt is still to ourselves in the form of privately held government bonds, we are increasingly beholden to foreign powers lending us money. If we are to retain our place as the world's greatest economy and wish to set our policies according to our own interests and not that of our creditors, we absolutely must start putting our own financial house in order.

Though this column delves into topics as varied as society, economics, and politics, on occasion topics of entertainment sufficiently bleed into the issues of the day as to warrant comment. One such work is the recently released film, "V for Vendetta." Though somewhat flawed, "V" presents issues from terror, factionalism, and repression to the dangers of liberal democracy devolving into authoritarian fascism. Presented in a near-futuristic dystopian genre, the film consistently entertains, offering a thrill ride of drama, subterfuge, action and as the title suggests, vendetta.

After an almost hopeless year in film in 2005 that offered virtually no reason to go to the movie theater (let alone view a cloyingly depressing Oscar slate), "V" finally provides a reason to go to the movies again. Released in both the standard 35mm format, as well as a stunning 70mm IMAX cut, the movie quickly draws you in to its Orwellian world of governmental dominance. Produced by the same Wachowski brothers that brought us the Matrix series of films, you know you're in for some stunning sights and sounds.

"V for Vendetta" is, at its heart, a revenge thriller based loosely on "The Count of Monte Christo." It is set in a post-apocalyptic London, sometime in the 2020's. The title character "V," played by a fabulously masked Hugo Weaving (Agent Smith from the Matrix) sets out to exact vengeance on senior members of a repressive government regime while in the process, setting the people of England free from a tyranny of their own creation.

The film begins with the nursery rhyme "Remember remember the fifth of November gunpowder, treason and plot. I see no reason why gunpowder, treason should ever be forgot." As a frightened Natalie Portman is preyed upon by government enforcers known as fingermen, the Guy Fawkes masked "V," comes to her rescue, instantly sealing his hero credentials. We soon learn that "V" likes to set things on fire, and like his historical alter-ego, plots to destroy the houses of parliament with large amounts of gunpowder. While the new "gunpowder plot" makes up one of the film's primary threads, we seem to forget that Guy Fawkes was not the hero of November 5th, but rather the villain. The original Fawkes was a 17th Century Catholic mercenary hired to kill the protestant English King James I and his assembled parliament. His capture and execution are celebrated on November 5th, not the gunpowder plot itself.

Much like depression-stricken Weimar Germany of the 1930's voting for Hitler, a terror ravaged Britain voted for its own brand of fascists vowing to restore "order and security." The protagonist "V," soon to be joined by the ever talented Natalie Portman as "Evie" remind us how quickly we can lose the freedoms and liberties we enjoy if we fall prey to fear and mistrust. Unfortunately, the Wachowski brothers chose to put the source of the fear and mistrust that drove Britain to fascist madness as -- have you guessed it yet? -- the United States. America is shown (briefly) in the film to be in the midst of a bloody civil war rendering us impotent to do anything for our erstwhile cousins in Britain. The reason for all this global uneasiness? "America's War," mentioned as background images of the US Military in Iraq flash by, created a world of utter chaos and terror causing Western society to all but fall apart.

"V's" vendetta against the government for what they have done to him personally, as well as society at large, turns him into a rather likable terrorist. Therein lies the other problem with this film. As the New York Times wonders, "Is the man in the mask who wants to make Parliament go boom Osama bin Laden or Patrick Henry?" The audience find themselves rooting for "V" as he kills and maims both the guilty alongside the innocent in plenty of wanton violence designed to "wake up" the people at large. One man's terrorist has always been another man's freedom fighter, however the distinction always lies in the guilt of the targeted. The film, originally slated for a November 5th release, was ironically delayed because of the London tube bombings of the time.

Despite its obvious political overtones, "V for Vendetta" is recommended for its thought provoking themes, clever dialog, and stunning visuals. It is unfortunate, however, that the film's themes are often paradoxical and only serve to reinforce a uniquely Western self-loathing introspection. Following the movie I couldn't help but think that it was important for them to make the point that America was immobilized by civil war and therefore unable to come to the rescue. After all, the America of today would never stand idly by and allow Europe to fall into totalitarian chaos. Three times in the twentieth century we intervened to prevent just that.

One of the aspects that sets Western societies apart from the rest of the world is that we are able to look at our own faults and learn from them. To us, this is an integral part of our political and sociological heritage. To many others, notably in the Islamic world, admitting fault or internal problems is a loss of face and thus tantamount to suicide and loss of power. Let us not forget that combating intolerance and fighting for liberal pluralism is precisely how we must defend our way of life. "V for Vendetta" rightly points out that eternal vigilance is the price we pay for liberty (Thomas Jefferson), but gets lost in not recognizing that that is precisely what America is doing today.

According to the California Association of Realtors (CAR), California ranks last in the US in housing affordability.  Read differently, this means that California has the highest housing prices -- on average -- of anywhere in the United States. This is certainly no surprise if you are a resident of California.  CAR reports that "as a whole, only 18% of California residents could afford to purchase the median-priced $495,400 home, down 3% from a year earlier, and buyers had to earn $115,910 annually to qualify for a standard mortgage loan."

Using some quick, back-of-the-envelope type calculations: A couple earning $115,910 (the figure CAR says is needed to buy the Median home in California) takes home about $6,300 per month after taxes. A $400,000 mortgage, fixed at 6% for 30 years would require a monthly payment of approximately $2,400. Add to that the roughly 1.8% in property taxes and Mello-Roos that most new home buyers have to pay and you need an additional $800 per month.

This means that a couple earning $115k per year would be spending about half their income on mortgage and property taxes. But wait a second, according to the California Dept. of Finance, the median California household income is $49,320 or 42% of what is necessary to buy the median California house.  In fact, according to The Hoover Digest, if your household makes more then $100,000 in California, you're in the top 11% of income earners!  Of course, this is also assuming that you can come up with the $100,000 or so you need for a down payment.

Few first time buyers have the $100,000 necessary for a down payment for a traditional 80% mortgage.  What can a family in this position do?  If you listen to the mortgage advertisements you find out that you can take a 0% down loan!  What does this mean?  Essentially that you take a traditional loan for 80% of your home's value and a "second" mortgage for the remaining 20%.  Of course, interest rates for "seconds" run about 2 points higher than firsts and tend to amortize over 15 years, not 30. Therefore, taking a "second" for that $100,000 you need approximately an additional $1,000 a month.  This brings the monthly maintenance for mortgages and prop. taxes for a "median home" up to about $4,000 before the family even begins to spend money on utilities, food, fuel, cars, HOA's, etc...

So a family in the top 11% of income earners in the state needs to spend about two thirds of their income on housing in California?  No wonder housing is completely unaffordable to most in this state.  Worse, as more and more families take 0% down loans, or interest-only loans (where principal is never paid back) the risk of default increases dramatically.

Imagine if interest rates go up a mere 2%. Short-Term interest rates are already 2% higher then their lows and mortgage rates must "catch-up" eventually.  The same family who needed $4,000 in maintenance a month, now needs more than $5,000 a month.  What was already a "stretch" to begin with suddenly becomes completely unaffordable and many families may begin returning their homes to the banks.  If this happens en masse, it will make the Savings and Loan crisis of the 1980's seem like small potatoes (and that cost about $1.5 trillion).

Unfortunately, the real effects of the housing problem are much harder to measure.  Young people are living with their parents longer.  Couples are waiting much later to have their first children.  Mothers are increasingly unable to stay at home, needing to provide a critical second income.  Fathers often have to work two jobs to make ends meet having less and less time to spend with their children.  Society increasingly has to foot the bill in programs such as Section 8 (housing assistance) which accounted for a full two thirds of the entire Federal Housing and Urban Development (HUD) budget in 2005.

So what can be done about this problem?

First, California tax codes need to be reexamined.  Although a savior for many, California's famed Proposition 13 is having the unintended consequence of forcing young home buyers (who can least afford it) to subsidize the property taxes of older residents who have owned their homes longer.  Taxes on builders and Mello-Roos are passed on to homeowner's dramatically increasing the cost of home ownership.

Second, examine housing regulations that markedly increase the cost of homes.  According to a UC Berkeley study, average housing regulation in California adds over $40,000 to the cost of each home. In my neighborhood, the installation of "methane monitoring and diffusion" systems which were mostly a political compromise rather than a necessary safety issue, added approximately $25,000 per unit to the cost.  Many of these regulations are wasteful and unnecessary.

Third, build according to reality, not fantasy.  Housing development is not keeping up with demand in California.  This is by far the biggest reason for the run-up in housing costs as supply and demand dictate price.  There are many reasons to block housing development on environmental, overcrowding, quality of life, traffic and other grounds.  While the nuisances of development are all valid, the net result is that not enough building is occurring and that is causing prices to soar.  In places like Los Angeles, some higher density neighborhoods are starting to appear, but many more will be necessary to keep up with demand and curtail urban sprawl.

These steps may begin to reverse a trend of un-affordability that has grown steadily since the 1980's but really taken off in the 2000's.  We don't have a choice.  The alternative is to see California get older and older as young people are priced out of the market and to other states.  The only people owning homes will be those who managed to "get in" before the huge run ups and protected by Prop. 13.  The high-tech and entertainment businesses that California's economy depends on will find it increasingly more difficult to retain qualified young people as they simply cannot afford to live anywhere near their jobs (or commute on the countries most congested roads).  In short, if California doesn't start paying more attention to our "Housing Crisis," it may soon have a whole host of new crises we can scarcely afford.

Dear President Bush,

I am not one of your vehement detractors. I am not one of your avid supporters. I am not a staunch conservative, and I am not a bleeding-heart liberal. I am a well-educated, pragmatic "middle of the road" American who is too often ignored in today's increasingly polarized politics. I voted for you, and I am disappointed in you. If you are interested in regaining my trust, and with it perhaps the trust of many Americans like me, here are some suggestions:

One of the great American maxims holds that you should "say what you mean and mean what you say." Following this policy would already take you a great deal of the way towards regaining credibility. For example, your 2006 State of the Union address proclaimed some grand ideas on some very critical issues. You told us that "we have a serious problem: America is addicted to oil, which is often imported from unstable parts of the world." You are absolutely right, however the problem is, that I don't believe you're actually doing anything substantial to change it.

You could have announced a new "Manhattan project" for the 21st century to develop this critical technology. You could have announced a US equivalent to the Ansari X prize (you know, the one that offered $10m to anybody who could viably launch themselves into space and return -- twice) that would reward private initiative into alternative energy. You could have announced a gradual mandatory increase in the required MPG ratings for all cars sold in the United States. You could have done many things to lead this country, and the world, into greater energy independence but instead only offered that "Since 2001, we have spent nearly $10b to develop cleaner, cheaper, and more reliable alternative energy sources." Unfortunately, spending about $2b a year is a drop in the bucket and doesn't amount to any substantial government investment in changing our addiction to oil. If this is all the Federal government is willing to do, then why mention it in your speech at all? This is precisely the problem that I have with your credibility. Words without actions are simply lip service, and paying lip service alone to the great issues of the day can only harm your reputation, not help it.

Remember in 2004 when you announced to the country that you had a "bold vision" that Americans will walk on Mars by 2020? I understand that you were trying to reinvigorate a war weary country in the same way that Kennedy did with his "Man on the moon" speech. The difference is that after proclaiming this grand vision you never followed it up with anything approaching proper resources and basically allowed the whole issue to die. The unfortunate consequence of these sorts of proclamations is that saying them and then doing practically nothing only turns a cynical public against you. It is too easy to think that this was merely a political stunt to divert attention -- albeit briefly -- from Iraq.

Speaking of Iraq... You have clearly staked your presidency on American success in Iraq. Many of your detractors think that you cynically took the country to war over non-existent WMD's, or some misbegotten personal vendetta. I supported you on the war in Iraq because cynical politics aside, the US has a vital interest in Middle East stability, and Iraq is literally the heart of the Middle East. Why not say it like it is? The United States cannot allow petty dictators to blackmail the world with energy, weapons of mass destruction, or terrorism. We couldn't allow Saddam to do it, and we can't allow the Mullahs in Iran to do it either. It is very unfortunate that pan-national bodies that have been set up to promote peace and stability have summarily failed to do so. We can not watch the UN, the EU, or anyone else allow entire regions of the world to slide into anarchy, fundamentalist theocracy, or hotbeds of terrorism. While the world debated endlessly, America acted. Why not say -- and say loudly -- that "America has no interest in empire, religious crusades, or sectarian squabbles. America has an interest in maintaining peace and promoting democracy and liberty as a means towards achieving peace." That is something everyone can understand and get behind. You should challenge the rest of the world and ask "What do you think is more dangerous, a world where America acts, even when it may be unpopular, or a world where America does nothing?" There simply is no other country that can project power the way the US can and, despite much public rhetoric, many in the world know this and thank God (whatever God they believe in) that we do.

True leadership does not require saying the things that pol's (or polls) believe to be expedient at the time. True leadership entails recognizing the tough challenges of the day and making the country understand why they are imperative. Many of today's problems are necessarily larger than any one president and may take generations to truly solve. We Americans tend to have short memories and even shorter attention spans. This is why it's important to set policies that will pass the test of time and lead us in the right direction, regardless of who sits in the oval office. This simply can't be done without credibility. Many past presidents, Wilson, Roosevelt, even Reagan recognized this and our world is better off for it. Say what you mean, and mean what you say and I will begin to believe again.