Observations on the Total U.S. Debt 30 comments
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Some observations on the total U.S. debt (the numbers are conservative) without commentary. The total is subject to interpretation and the probabilistic treatment of contingent liabilities and guarantees as well as the netting of derivative notionals.
Total US Debt so far: $115 - $315 Trillion dollars? (excluding/including derivatives notional)
$380,000 - $1,037,000 per person.
The break out:
$9.7 Trillion in bailouts
$11 Trillion in national debt
$17 Trillion in corporate/financial debt, and $13.8 Trillion in household debt
$1 Trillion in credit card debt
$10.5 Trillion in mortgages
$52 Trillion in social security/Medicare obligations
Like other government trust funds (highway, unemployment insurance and so forth), the Social Security and Medicare Trust Funds exist purely for accounting purposes: to keep track of surpluses and deficits in the inflow and outflow of money. The accumulated Social Security surplus actually consists of paper certificates (non-negotiable bonds) kept in a filing cabinet in a government office in West Virginia. These bonds cannot be sold on Wall Street or to foreign investors. They can only be returned to the Treasury. In essence, they are little more than IOUs the government writes to itself.
$200 Trillion in U.S. bank derivatives (notional)
Total excluding derivatives: $115 Trillion
Total including derivatives: $315 Trillion
In budgetary context:
$2.3 Trillion budget deficit this year, $10 Trillion in the next 10 years.
In the context of the consumer balance sheet:
$20.5 Trillion of residential real estate
$8.8 Trillion of equities
$7.7 Trillion of deposits and cash
$4.1 Trillion of consumer durable goods
$1.6 Trillion of corporate bonds
$960 Billion of municipal securities
$920 Billion of agency paper
$273 Billion of treasury notes and bonds
Total: $44.9 Trillion
My question: everyone knows the social security underfunding can not be funded - it is a matter of 10 years at most before we hit the SS wall... and yet we brush it under the carpet. Does this mean we have 10 years at best before the economy collapses and thus we will just speculate on increasing market volatility, gambling more and more each day, until the emperor's clothes are revealed? What are the unintended consequences of trading for the sake of trading and increasing volatility? What happens after the SocSec obligations can no longer be postponed?
Is this a problem that can be inflated as well, and is the magnitude of the inflation necessary to plug a $50 trillion domestic hole too big for the global financial system? Also, is the $1.2 quadrillion in listed and OTC derivatives (essentially vol bets) which is an unprecedented number, a direct inference of the increasing desire by all market participants merely to speculate instead of invest?
(For commenters, I bring your attention to the fact noted above that these numbers are subject to interpretation - this is merely meant to provide a frame of reference for the U.S. problem.)
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And dorv562 in comments above (his first) is utter rubbish. The US has more oil than anyone else? Not even close. Global warming a hoax? Right, peer reviewed science is useless according to dorv. "Those politicians calling themselves Democrats are so obsessed with unequally portioned wealth they will destroy our manufacturing and wealth creation and we will all be equally poor ". My friend, give your head a shake. Bush and his Republican friends have destroyed the world's economies all by themselves, Democrats need not apply. The richest Democrats understand that the 'every man for himself' policies of Republicans is a race to the bottom, leading to a class system that would put the US among the worst places in the world to live. Democrats know that the strength of the country is dependent on the health and welfare of the massive middle class, and the rich cannot prosper without a strong base.
As the last 20 years has demonstrated, the US will continue its collapse until the country brings forth a universal health care system. It can't compete in the world where every other developed nation has the safety net of health care and well funded pension system.
Social Security has deteriorated rapidly over the last year and expenditures now exceed non-interest income in 2017. www.fms.treas.gov/fr/i... The program relies on accounting fictions (borrowing from ourselves) before the "trust fund" (which doesn't exist) is exhausted in 2041.
While actuarial tweaking (increasing retirement age etc) might kick the can down the road a bit, its not a permanent solution.
Even worse is the underfunding of the healthcare promises (at all levels).
Increasing burden/taxation on the working population? Highly likely, but again, not a permanent solution and will not be competitive in a global system.
Whatever the outcome, stability, fair and democratic processes, absence of radical upheavels are unlikely to figure high on the probability scale.
In my opinion, that would be about any time now.
In such comparisons, the US does have problems. We has an inflated defense sector that sucks investment away from infrastructure. There is a bloated health care sector that is out of control in end-of-life spending. Infrastructure is in bad shape. The K-12 education system needs help in some places. We have an energy system that is way dependent on oil and will be expensive to replace.
The US also has some important advantages. It is still destination number 1 for smart ambitious people -- if we get back on track with sensible immigration policies. It has an amazingly effective system of technology investment and the best higher education system bar none. North America still has huge amounts of open space. There are lots of willing workers coming up from Central America. Finally, the geopolitical situation will always favor North America - since it is a unique save haven with stable politics.
Certainly places like Brazil, Russia, India and China are emerging. Kudos to them if they can keep it going. We will all sing their praises if they can develop stable countries with low levels of corruption and high levels of personal freedom and satisfaction. But imho they have a lot further to go in those matters than the US does in fixing its problems.
On Apr 12 10:55 PM wobatus wrote:
> If I manufacture bobble-head dolls, is that tangible wealth creation?
> If I am a brain surgeon, I don't add any tangible benefit to society,
> but am a paper shuffler?
>
> Will society collapse if we start taxing income above $90k or so
> for fica, lower benefits somewhat, particularly for those of means,
> add a portion in private accounts (not looking as popular of an idea
> now as it looked 2 years ago), and raised the retirement age to more
> closely match current life expectancy?
>
> Medicare requires some substantial reform as well, but is it not
> possible we will eventually have to deal with this, in some admittedly
> imperfect way?
>
> Not asking whether any of this is the correct response, but is it
> at all feasible we will make SOME progress.
>
> Things sure looked bleak at Valley Forge, 1932, Pearl Harbor, '73-74,
> '82.
>
> We need cynics and folks to point out the problems. But not just
> them.
We need to decide what we're really willing to pay for, and not bet on the come of continued high growth that came from debt issuance.
BTW, I'm not ignoring that our ABILITY to incur debt related--in the past, at least--to our ability to defend ourselves. We just cannot continue to incur more and more debt.
On Apr 13 06:04 AM kingaj wrote:
> In such comparisons, the US does have problems. We has an inflated
> defense sector that sucks investment away from infrastructure. There
> is a bloated health care sector that is out of control in end-of-life
> spending. Infrastructure is in bad shape. The K-12 education system
> needs help in some places. We have an energy system that is way dependent
> on oil and will be expensive to replace.
Talk about short-term outlook! Congress just has to worry about getting re-elected.
On Apr 13 09:23 AM Ferdinand E. Banks wrote:
> I don't remember people worrying when Ronald Reagan was borrowing
> more money than had been borrowed by the US governent in the history
> of the Republic, to include two world wars. If the US production
> section can be put into some sort of order, the people who are holding
> that debt will hold their water.
Thanks, odin, for the comment, but who voted for Bernanke, Greenspan, et al? Who voted for them to engage in their monetary inflation?
Since there is no way to tax our way out of this, the only alternative to monetary inflation is debt repudiation. I don't think the ruling classes (both current parties in the U.S.) would allow this, since their interest are aligned with the ruling parties in other countries (and not with U.S. citizens).
If our only two choices are RINOs and Democrats, it doesn't matter whom you vote for.
The good news is, your Social Security is guaranteed. The bad news is, your monthly check will only buy a Happy Meal. (No apple pie for you.)
On Apr 13 02:12 AM odin wrote:
> This is not a problem that is easy to just inflate away. Remember,
> this is a constituency that still votes and they will not stand for
> the real value of their benefits eroded away...
The problems are still resolvable IF politicians on both sides of the aisle start behaving, and Obama decides to actually be a chief executive, not an Apple Ipod salesperson. And the parties have to continue a more fiscally prudent path beyond a single moment in front of a teleprompter.
www.nytimes.com/2009/0...
"Debt ... is a claim on the economy’s ability to generate wealth in the future. 'The ruling passion of the age,' Soddy said, 'is to convert wealth into debt' — to exchange a thing with present-day real value (a thing that could be stolen, or broken, or rust or rot before you can manage to use it) for something immutable and unchanging, a claim on wealth that has yet to be made. Money facilitates the exchange; it is, he said, 'the nothing you get for something before you can get anything.'
Problems arise when wealth and debt are not kept in proper relation. The amount of wealth that an economy can create is limited by the amount of low-entropy energy that it can sustainably suck from its environment — and by the amount of high-entropy effluent from an economy that the environment can sustainably absorb. Debt, being imaginary, has no such natural limit. It can grow infinitely, compounding at any rate we decide.
Whenever an economy allows debt to grow faster than wealth can be created, that economy has a need for debt repudiation. Inflation can do the job, decreasing debt gradually by eroding the purchasing power, the claim on future wealth, that each of your saved dollars represents. But when there is no inflation, an economy with overgrown claims on future wealth will experience regular crises of debt repudiation — stock market crashes, bankruptcies and foreclosures, defaults on bonds or loans or pension promises, the disappearance of paper assets.
....
Soddy would not have been surprised at our current state of affairs. The problem isn’t simply greed, isn’t simply ignorance, isn’t a failure of regulatory diligence, but a systemic flaw in how our economy finances itself. As long as growth in claims on wealth outstrips the economy’s capacity to increase its wealth, market capitalism creates a niche for entrepreneurs who are all too willing to invent instruments of debt that will someday be repudiated. ...
...
Soddy distilled his eccentric vision into five policy prescriptions ...: The first four were to abandon the gold standard, let international exchange rates float, use federal surpluses and deficits as macroeconomic policy tools that could counter cyclical trends, and establish bureaus of economic statistics (including a consumer price index) in order to facilitate this effort. All of these are now conventional practice.
Soddy’s fifth proposal ..., was to stop banks from creating money (and debt) out of nothing. Banks do this by lending out most of their depositors’ money at interest — making loans that the borrower soon puts in a demand deposit (checking) account, where it will soon be lent out again to create more debt and demand deposits, and so on, almost ad infinitum.
One way to stop this cycle, suggests Herman Daly, an ecological economist, would be to gradually institute a 100-percent reserve requirement on demand deposits. This would begin to shrink what Professor Daly calls 'the enormous pyramid of debt that is precariously balanced atop the real economy, threatening to crash.'
Banks would support themselves by charging fees for safekeeping, check clearing and all the other legitimate financial services they provide. They would still make loans and still be able to lend at interest 'the real money of real depositors,' in Professor Daly’s phrase, people who forgo consumption today by taking money out of their checking accounts and putting it in time deposits — CDs, passbook savings, 401(k)’s. In return, these savers receive a slightly larger claim on the real wealth of the community in the future.
In such a system, every increase in spending by borrowers would have to be matched by an act of saving or abstinence on the part of a depositor. This would re-establish a one-to-one correspondence between the real wealth of the community and the claims on that real wealth. (Of course, it would not solve the problem completely, not unless financial institutions were also forbidden to create subprime mortgage derivatives and other instruments of leveraged debt.) ...."
Cosimodo
On Apr 13 08:51 AM wobatus wrote:
> I get two negative recs for that? OK, it is a bunch of Tyler followers
> after all. How about just the first part: is it the case that only
> manufacturing adds value? Bobble-head doll makers rate over a doctor
> because they manufacture a thing? I'd like some kind of refutation
> of that instead of just negative comments recs.
On Apr 12 10:57 PM wobatus wrote:
> why 3-5.75%. Citi is offering 0%. :)
On Apr 12 10:55 PM wobatus wrote:
> If I manufacture bobble-head dolls, is that tangible wealth creation?
> If I am a brain surgeon, I don't add any tangible benefit to society,
> but am a paper shuffler?
>
> Will society collapse if we start taxing income above $90k or so
> for fica, lower benefits somewhat, particularly for those of means,
> add a portion in private accounts (not looking as popular of an idea
> now as it looked 2 years ago), and raised the retirement age to more
> closely match current life expectancy?
>
> Medicare requires some substantial reform as well, but is it not
> possible we will eventually have to deal with this, in some admittedly
> imperfect way?
>
> Not asking whether any of this is the correct response, but is it
> at all feasible we will make SOME progress.
>
> Things sure looked bleak at Valley Forge, 1932, Pearl Harbor, '73-74,
> '82.
>
> We need cynics and folks to point out the problems. But not just
> them.
Take Tyler's breakdown excluding the $52 Trillion in Soc/Med and add the unfunded liabilities tab from ZenRazor, bingo $148 Trillion.
As far as forecasting into the future is concerned, its an exercise in Futility, we don't know whats going to happen 6 months from now let alone 10 years from now.
I mean if the feared, Freefall in the USD does occur, we will wind up paying our external debts by at least 50% less. After all, the USD is not supported by anything But Faith.