National Debt: A Chinese Stress Test

Gone are the times when the President of the United States could begin a speech with “My Dear Fellow Americans”. Now it's "My Poor Fellow Americans".

ChartingTheEconomy.com has produced the scary chart below which should make the national debt more meaningful to Americans. Per capita national debt stood at $30k in 2007. It will have jumped 50% by 2010 to some $45k, on its way to nearly $70k (minimum) by 2019. How about that for a stress test, especially since most of this debt will be to the Chinese!

Servicing that rising burden and, eventually, repaying it will severely hamper (through higher taxes) the capacity of the American consumer to grow his expenditures like he has been used to. Leaner years ahead my friends!

The above chart shows the per capita portion of the national debt, and forecasts where it is headed under the Obama Administration’s budget plan. The purpose of the chart is to personalize the national debt. When we hear numbers like $10 trillion it is difficult to understand the magnitude of the problem. I hope this chart brings some perspective to the issue.

Note: I believe the actual per capita portion of the national debt will likely be higher than what this chart forecasts. Why? As I have said before the Obama Administration’s budget proposal, which this chart is based on, appears optimistic. It forecasts only a slight recession for 2009 and strong growth for the following decade.

Data Sources:
> Forecast data is from the Office of Management and Budget, A New Era of Responsibility Renewing America’s Promise, Table S-9.
> U.S. Treasury, Treasury Direct
> U.S. Bureau of Economic Analysis, Table 2.1 Personal Income and Its Disposition
> U.S. Census Bureau population forecast

Comments

[samba:]

Will it be chinese owned? I thought that as of january they have almost completely stopped increasing the amount of dollar debt they own and are looking for a way out of the rest.

I think most of the debt will be US government owned, through QE and other back channels such as TARP, Talf and Turd (or whatever the next one is called).

When they write of this debt, which it ofcourse makes sense to do, e.g by back door nationalisation of Citigroup, it is inflationary, as the 150bil the government has given it stays in the pockets of the citigroup counterparties, however all the government has in return is a crap company, which isnt worth 150bil

so each dollar will lose a bit of its purchasing power, if this happens a lot, as it did in the 30's where monetary base increased by 100% over 10 years, then can that be considered hyperinflation

Apr 26 04:09 PM

[cynewulf:]

When the Chinese choke on American dollars,what happens next? How do we sell Treasuries when the dollar is sinking? How do we finance our debts when nobody wants our bonds? When capital flees and inflation roars, how is the consumer able to consume? There bills will be going up, relative to their incomes. Stimulus on the backs of Chinese peasants will ultimately fail. They can only eat so much of our debt before they choke.

Apr 26 04:23 PM

[ArtfulDodger:]

Mr. Denis Ouellet:

How is it that you figure most of the debt in 2019 will be to the Chinese?

At this time, the Chinese have about $700b in treasuries and another $300b invested in the US.

The US national debt is something on the order of $11.2t. (zfacts.com/p/461.html)

How is their current paltry percentage going to grow to a majority?

Perhaps you should have used a subjunctive.

Apr 26 04:26 PM

[Denis Ouellet:]

The gist of the comment was on the growing national debt and its significance for each American. The Chinese part was written with tongue-in-cheek given that China has been the primary buyer of US Treasuries for quite some time.
The title was Seeking Alpha's and not one I would have personally chosen (My post title in news-to-use.com was somewhat marktwainish: "My Poor Fellow Americans")
Thanks for reading me and for your comment


On Apr 26 04:26 PM ArtfulDodger wrote:

> Mr. Denis Ouellet:
>
> How is it that you figure most of the debt in 2019 will be to the
> Chinese?
>
> At this time, the Chinese have about $700b in treasuries and another
> $300b invested in the US.
>
> The US national debt is something on the order of $11.2t. (zfacts.com/p/461.html)
>
>
> How is their current paltry percentage going to grow to a majority?
>
>
> Perhaps you should have used a subjunctive.

Apr 26 05:25 PM

[Osterix:]

I believe the proposed Treasury Underwritten Restructured Debt program will remove many worthless bank assets from their books without affecting the real economy.


On Apr 26 04:09 PM samba wrote:

> Will it be chinese owned? I thought that as of january they have
> almost completely stopped increasing the amount of dollar debt they
> own and are looking for a way out of the rest.
>
> I think most of the debt will be US government owned, through QE
> and other back channels such as TARP, Talf and Turd (or whatever
> the next one is called).
>
> When they write of this debt, which it ofcourse makes sense to do,
> e.g by back door nationalisation of Citigroup, it is inflationary,
> as the 150bil the government has given it stays in the pockets of
> the citigroup counterparties, however all the government has in return
> is a crap company, which isnt worth 150bil
>
> so each dollar will lose a bit of its purchasing power, if this happens
> a lot, as it did in the 30's where monetary base increased by 100%
> over 10 years, then can that be considered hyperinflation

Apr 26 05:36 PM

[skitahoe:]

I had no idea the debt was so low. Let's just eliminate it. The FED should just lend each of us $30K at the current rates they're lending to the banks, say 0.25% for 60 years. We could all pay it back for roughly $50 a month.

While I wrote this in gest, if we eliminated the debt by such a simple manipulation of accounting, essentially just saying that's what the FED's doing and adding $600 a year to our average tax burden, I have little doubt that our taxes could be reduced by $600 a year in eliminating the debt, so we could eliminate the debt by just doing it all with creative accounting.

If we did it, we could start building a new debt immediately, just wipe the slate clean.

Gary

Apr 26 06:17 PM

[Spook:]

I don't think it will be Chinese owned.

The chart shows a linear progression toward $70K by 2019, this is being based on current conditions and current assumption.

Note that any country, even Russia was once broke, can rebound, yes through oil and natural resources or some other forms of product/service that it can sell outside, we may not know what's in th future, but with the current household saving at 4%, if the trend continues, the deficits may reduce in size, but at that time, America will no longer the superpower, it will be like another U.K, Germany and Japan, big economy but second power.


> Will it be chinese owned?

Apr 27 08:18 AM

[kelm:]

The US national debt is only one piece of the total debt. It is total debt that is what impairs the economy. Total debt, sum of national, state, municipal, corporate, and personal, is around 400% of GDP - record levels. By contrast, looking at total debt, the period immediately after WW II was actually a LOW point. So if you want to personalize it take the total debt numbers and divide that up by population or family. The numbers will dwarf what you show here.

Hoisington Capital Management puts out a quarterly report that has the data I am referring to.

Apr 27 11:23 AM

[ArtfulDodger:]

Good response. Thank you. AD


On Apr 26 05:25 PM Denis Ouellet wrote:

> The gist of the comment was on the growing national debt and its
> significance for each American. The Chinese part was written with
> tongue-in-cheek given that China has been the primary buyer of US
> Treasuries for quite some time.
> The title was Seeking Alpha's and not one I would have personally
> chosen (My post title in news-to-use.com was somewhat marktwainish:
> "My Poor Fellow Americans")
> Thanks for reading me and for your comment

Apr 27 01:55 PM