The U.S. Debt Quandary

The railroads, Asian and European bonds, dot-coms, real estate, and subprime mortgages were all economic bubbles. So what’s next? The U.S debt situation.

The solution to the U.S. economy is this current financial crisis. We have to go through a long recession in order to right the wrong that the U.S. government has created. The U.S. has to go back and become a producing and saving nation rather than a borrowing and spending nation. That is the only way to curb the U.S. debt situation.

The United States, in 1983, was the largest creditor nation ever seen in the world. In 1985, the U.S. became a debtor nation and in 2006 became the largest debtor nation in the world. The total government debt is over $125,000 per person, which is absolutely horrific. The United States is currently spending $750 billion more each year with other countries than it is exporting to them, with $200 billion going directly to China. What happens if these countries don’t want our debt anymore? Basically, the dollar’s value will decrease severely. So investing in precious metals, such as, gold and silver would work well for a long-term thesis.

So what’s the solution? Well there are a few. We could just stop spending in Washington, but something tells me with Barack Obama in office, the spending will continue (just like every other campaign does). The government could sell off its public land reserves; this would get rid of most of our debt. We also could increase sales tax, cut government spending, and privatize Social Security; yet that would never happen. So let us look at different scenarios.

We could just default on all of our debt. Treasury bills and other government “risk-free” investment would be considered worthless, which means the USD would be worthless. Our country would be bankrupt and we would not have any credit so other nations would never lend to us.

Another scenario would be to have a massive economic fail and depression. The current situation is most closely to this circumstance. Yet we still have a farther way down in order to create a depression. During a big depression our money will be worth much more, but in turn will make our debt seem higher by 10-fold. This would be an example of deflation and much less likely because of Federal Reserve head, Ben Bernanke’s view to stop deflation by all means.

The last scenario would be just keep boosting the debt out of reality. We usually see inflation around 2-4%. But what if it was 100% like some other countries in the world? Basically, by printing all this money to avoid deflation at all costs, it makes our dollar shrink to nothing, and so does the debt we have.

Buying short–based ETFs such as SKF or investing in gold and other commodities would be a smart play for the long-term if you feel the United States won’t get out of this mess for a long time. The government must right the ship first before spending it on other nations. Selling land reserves, slow government spending, increasing sales tax or just taxing the super rich on net worth rather than on income are just a few steps the U.S can take to help fix this future problem. It is only a matter of time before Japan and China and other nations are sick of all the debt we have collected. We have to move back to the producer/saver nation to stop this problem in the future.

Figures taken from Trade Your Way To Financial Freedom by Van Tharp

Comments

[NOWHEREMAN:]

Our's is a Service Economy supplemented by the farming sector. The Manufacturing base of the 60's and 70's has long departed.

There is no manufacturing base to save. An assembly line is not a manufacturing facility. The parts suppliers get their parts from external facilities imported into the US, primarily.

I say: Issue as much Debt as quickly as possible before anyone has time to react. Buy foreign debt, for future use as collateral. Rebuild the Manufacturing base. Let the dollar collapse to let us repay with crap. Get the people to buy American by imposing 100% tariffs on all imports except oil and other commodities needed by our Manufacturing base.

Do all at the same time as rebuilding the infrastructure with Solar and CNG facilities along the way.

Yeah, Yeah, he's off his his Rocker. Just wishful wishing on my part. Its early in the morning, maybe i'm still dreaming.

2008 Dec 03 07:33 AM

[Gone Broke:]

The above article could have been written by Peter Shiff. He;s been saying exactly that for several years now. Shiff is author of "Crash Proof." But Peter's been wrong too. He's been right about the "what will happen" but wrong about how it "will play out." Per Peter, the dollar should be collapsing now and foreign currencies and foreign stocks rising. But just the opposite is happening. The dollar is strengthening and foreign stocks are tanking just like ours.

2008 Dec 03 08:28 AM

[Joyeb:]

A very realistic situation and painful remedy.


On Dec 03 07:33 AM paultaut wrote:

> Our's is a Service Economy supplemented by the farming sector. The
> Manufacturing base of the 60's and 70's has long departed.
>
> There is no manufacturing base to save. An assembly line is not a
> manufacturing facility. The parts suppliers get their parts from
> external facilities imported into the US, primarily.
>
> I say: Issue as much Debt as quickly as possible before anyone has
> time to react. Buy foreign debt, for future use as collateral. Rebuild
> the Manufacturing base. Let the dollar collapse to let us repay with
> crap. Get the people to buy American by imposing 100% tariffs on
> all imports except oil and other commodities needed by our Manufacturing
> base.
>
> Do all at the same time as rebuilding the infrastructure with Solar
> and CNG facilities along the way.
>
> Yeah, Yeah, he's off his his Rocker. Just wishful wishing on my part.
> Its early in the morning, maybe i'm still dreaming.

2008 Dec 03 09:41 AM

[sheridan:]

Foreign economies like China are buying our debt in order to keep their economies from slowing down because we're their driver. It's a self destructive loop-just a m,atter of time before it ends.
US has a very difficult future ahead but we still have all the food, all the water and are more free than most other countries so should work out long term.

2008 Dec 03 09:52 AM

[Fedupwithbu...:]

The US way of doing things has got to revert back to when we were successful, don't you think.
This modern day society of over political correctness, the attitude of free credit, have it now worry about it later, let every one else support me and I don't care, what's in it for me attitude, has got to stop now.
We gave our job base,along with it's tax base and our technology, supposedly, to the poor third world countries and thus sold out our country as a whole, in order to allow a select few greedy corporate fatties, crooked politicions and overly monied stock traders to become zillionaires.
We need to demand all US companies produce their goods on US soil, pay their fair share of taxes and let american workers get back to work and pay their fair share of taxes.
Tax/tariff all foriegn goods entering the US.
Slam the door of free credit being offered to every Tom,Dick and Sally that is not fiscally responsible.
Cut the fat from the government, reduce the amount of people that are not doing a good job.
Get americans back to work in american companies, located and paying taxes in america, might be a good place to start.
Instead of trying to solve all the worlds problems, let the charity begin at home, fixing our situation first and foremost.
We also need to dramatically reduce our dependance on oil and fossil fuels, by immediately giving our power grid a massive overhaul, in order to take advantage of all the solar, wind and ocean power available.
The reason the wind generators aren't all running all the time is because they make too much power for the antiquated grid to handle, yes you heard right, too much power.
How much daily power could be produced from 100's of square miles of grids of high tech photovoltaic cells, located in our desert southwest. The power generated during the days direct sun, would be enough to melt our current power grid from all the power !
First lets take care of the problems facing America, and take care of our people who built and gave their lives to defend this country..

2008 Dec 03 11:01 AM

[Jason Rines...:]

From the article "or just taxing the super rich on net worth rather than on income are just a few steps the U.S can take to help fix this future problem."

I resent this statement. If some reading this became 'super rich' it likely meant hard work, endless research, putting up with lazy, incomepent employees and PC attitude of state and local governments ready to fine a business for at the drop of a hat, etc. etc. etc. The super rich in the banking industry tied directly into Washington which has been for sale should be criminalized to not reenter the business community in America and we move on. Citizens that are fed up of what our government has become must get off the couch, chuck away the bowl of potatoe chips and research which of there local representatives are fleecing the system. History tells us that will occur. The entire tax code is a joke. Lower all taxes to 12% for every class like Ireland and watch the foreign and domestic tax revenues explode. Socialism is a failed model and in 6,000 years of it being tried has failed every... single... time.

2008 Dec 03 11:51 AM

[Brandon Pil...:]

You resent taxing the super rich? I'm talking about taxing the top .5-1% on wealth, like Bill Gates, Warren Buffett, and people who won't feel it. Steve Jobs, Apple's CEO (great CEO and company) has a salary of 1 dollar. The US is losing out on a lot of money with CEOs doing this. I'm not saying taxing 35% of ones wealth but maybe like 1% every year, because 1% of 1 billion dollars is 10 million, It won't hurt that person's wealth, but it will help the US finance projects.

And Warren Buffett donated all that money to get a TAX WRITE-OFF, not because he cares about the B&M Gates Foundation. He saw it was going to be taxed by the government anyways so he donated it so he wouldn't lose as much.

BP

2008 Dec 03 12:02 PM

[mc2406:]

As pointed out by the author of this article ( 20-years old!) the only rational way to right America's ship is restrained government spending and for each American to take personal responsibility for limiting his/her own spending to his/her means, or (horrors) saving some money. With today's professional politicians interested only in getting reelected this sort of tough medicine is, of course, unlikely.

2008 Dec 03 02:23 PM

[axelrod608:]

Our debt problem is the assumption that it will never have to be repaid. The government operates on the assumption that it can just keep growing the debt forever, without limit.

If you think of debt as pre-spent income - which it is - the reality dawns that our "obligations" are unpayable. Federal, State, local governments, corporations, individuals and families are mostly carrying an unpayable level of debt which is going bad at an alarming rate.

At no level do we have the income to service our debt load. And to be operating on the assumption that we can just keep on printing more money to forever put off the day of reckoning is a societal fiction.

2008 Dec 03 02:54 PM

[norom:]

Americans are spoiled. I say that because we never really understood the concept of supply shortage, except for a brief period in the 30's, (yes I know the depression lasted up to the 50's but the supply shock of the hawley-smoot tariff act was fast and brief).

We always favor inflation over recession, and can't understand why countries like Germany and Japan actually PREFER recession to the alternative.

We HAVE GOT to stop panicing over the R-word and shrugging our shoulders over the I-word. There is nothing on earth more destructive to a society than inflation, it has greater economic impact that war. We have to choose recession over inflation.


On Dec 03 07:33 AM paultaut wrote:

> Our's is a Service Economy supplemented by the farming sector. The
> Manufacturing base of the 60's and 70's has long departed.
>
> There is no manufacturing base to save. An assembly line is not a
> manufacturing facility. The parts suppliers get their parts from
> external facilities imported into the US, primarily.
>
> I say: Issue as much Debt as quickly as possible before anyone has
> time to react. Buy foreign debt, for future use as collateral. Rebuild
> the Manufacturing base. Let the dollar collapse to let us repay with
> crap. Get the people to buy American by imposing 100% tariffs on
> all imports except oil and other commodities needed by our Manufacturing
> base.
>
> Do all at the same time as rebuilding the infrastructure with Solar
> and CNG facilities along the way.
>
> Yeah, Yeah, he's off his his Rocker. Just wishful wishing on my part.
> Its early in the morning, maybe i'm still dreaming.

2008 Dec 03 03:54 PM

[unclej0:]

There is no need for hysteria. Our problem of changing from a consumer nation to a saving nation can be accomplished in moderate ways.

For example, by ending payroll taxes and employer pensions and health care benefits, we can make our manufacturing much more competitive.

The pensions and health care then become social costs, not labor costs. Where will the money come from? Institute a VAT. This will make tariffs unnecessary, as it will tax imports as much as US products. The higher cost of imports will encourage saving. This will improve our balance of payments and make it easier to control inflation.

There are two important downside factors.

1) The VAT? A new tax!!! How very European!!! This problem is political. Will any elected office holder risk his precious incumbency to serve the nation? Maybe a few but we need a majority in the House and a super majority in the Senate. We will indeed have to exhaust all of the alternatives before doing anything rational.

2) Our beloved global capitalism feeds on growth. In order to moderate American consumption we shall produce a period of recession. This cure is necessary and if we dont take the medicine soon it will be forced upon us with much more pain later.

These are the conditions that prevail. I wish Obama well. He is a decent man, an intelligent man, and a competent man. He has a very brainy cabinet. But can they do the politically impossible?

2008 Dec 03 07:09 PM

[Did U Think...:]

Great plan. Now, what about those of us who did the right thing, saved and did not over spend, have no debt and a wad of cash in the bank. Screw us then brother, is that it? Screw the smart and responsible ones and steal the value of their savings to give to the wild borrow and spend crowd? This could cause a civil war as fiscally conservative states like TX no longer want to be in the same country as fiscally liberal CA, etc.

And what about all those foreign, nuclear capable countries you are talking about pulling a fast one on, huh? China aready warned us that if we fvcked them on fannie/freddie debt that "if it is not the end of the world it will be the end of the financial world as we know it.".

No, big guy, we can't just laugh this one off and look for someone else to fvck over this time. We are going to have to eat this one ourselves.

This is recipe for world war.


On Dec 03 07:33 AM paultaut wrote:
" I say: Issue as much Debt as quickly as possible before anyone has time to react. ... Let the dollar collapse to let us repay with crap."

2008 Dec 04 02:12 AM

[Robert Mcdo...:]

Your figure of $125,000 for Government Debt per person in USA is out. The population is 301 millions. As of November 19, 2008, the total U.S. Federal debt was $10.6 trillion = about $35,200 per capita (that is, per U.S. resident). The October 3rd, 2008 bailout bill (H.R.1424), section 122, raised the U.S. debt ceiling from $10 trillion to $11.3 trillion. But, $5 trillions is debt internal to Government = between Government accounts.
Roughly $6.3 trillion is owed externally to Government over many years = £20,900 per person resident in USA or about $55,000 per household. But, non-Government private sector debt is about $37 trillion owing by business and households = $122,900 per person, or $323,200 per household. All these debts have offsetting wealth holdings and the debts will not be a burden on all equally. Some commentators add in unfunded debts looking forward decades that are paid out of each year's Government revenues (about 25% of which is taxation earned annually on Government's own spending) e.g. Medicaid, Social Security, Medicare, veterans' pensions, and similar obligations, this figure rises to a total of $59.1 trillion, or $516,348 per household In 2007, the public debt was 36.9% of GDP, with a total debt of 65.5% of GDP. As a % ratio to GDP US Federal debt is only the 27th largest. Why should this be a worry?

2008 Dec 04 05:59 AM

[1,000,000 S...:]

... and as a modest proposal, issue special visa's that align individuals after 5 or 10 years (develop a vesting schedule) for American Citizenship for $1,000,000? A million entrants into the US with a $1,000,000 would provide not just an immediate injection that would dwarf the 700Billion, but it would provide an opportunity for all those individuals to contribute by filling empty foreclosed homes (rent or sales), pay sales & property tax and more.

The fact of the matter is America is the "ultimate gated community" in terms of people trying to get in. It is in fact American Dollars that are being funneled out of the country either through oil transfers to the middle east or through the walmart effect of industry. Trillions are sitting in the sidelines in Asia (China & India) or the Middle East and even in Russia (the recent oil boom and gas shipments to EU).

The problem is not "too much" immigration, its not enough of the "better" contributing economuc immigration. Fill the empty homes, refund the banks and financial institutions, and get the economy cash flow and velocity back through high income, high talented, willing supporters of American capitalist values. Give the 1,000,000 Squared plan a chance to work.

2008 Dec 08 10:17 AM