U.S. to the World: Brother, Can You Spare 420 Billion Dimes?

by: Philip Davis

We have had many discussions about our $8.4 trillion dollar debt and how that ultimately has to be a concern to someone some time. This may be one of those times.

This week, the Fed decision coincides with day one of three auctions this month where we have to sell $42Bn of notes to finance our monthly debt.

Shocking though it may be to those of us on a budget, our government, in its very finite wisdom, spends $500Bn a year that it doesn't have. This is why, in a single month, we have to borrow from our foreign neighbors more money than either Bill Gates or Warren Buffet (the richest people to ever walk the planet) amassed in their entire careers.

This is not to say that the Government spends $42Bn a month. $42 billion represents the amount the government overspent this month. We never discuss the actual amount the government spends - never ever ever - as it is an figure so shocking that the mere mention of the full amount can give you an aneurysm right on the spot!

So to put this in perspective, let's say you are the richest guy on the block by a mile (US $12T). You have 1 friend who's rich but not in your league (Japan $5T) and there are several people in the cul de sac who are doing ok (Germany, UK, France, China and Italy - $1-2T) and about 27 other guys who make over $100Bn but certainly can't afford to get into to your G8 club.

Your two closest neighbors, Canada and Mexico, earn about 1/20 of what you do and that's mainly because they are able to do a lot of work with you and it just rubs off.

Now, as much money as you have, you still live above your means and you really, really, really wanted to buy a shiny new war which you didn't save up for it but you bought it anyway even though you were still paying for the last one (but your Dad had one and you always said that when you were President you'd get one too!). Also, when you moved into your nice white house you promised 300 million people you'd give them $300 a year to elect you and you weren't very good at math (C+) and didn't realize it would cost you a trillion dollars over 8 years.

You also didn't realize that those little tax breaks you gave to 3 million rich people amounted to another trillion dollars. Then the contractor tells you the war's going to cost a few hundred billion more than you thought and another 20 million people who used to work for you turned 65 this decade and you promised them you'd pay them back and suddenly you are short on cash...

So you're sitting in the club with Japan in 2001 and you say, "Help me out here, I need a couple of hundred billion to get through a rough patch - I'll give you a note with interest." Japan says sure -- even though it's 5% of his total income -- because he's sure you're good for it. Then you do it again in 2002, 3 and 4 and, one day, Japan is sitting in the club with the other G8s and says "Man that US is into me for a trillion dollars and he had the nerve to ask for more." Then Germany says "Holy cow, he hit me up for half a trillion too!"

Then all the countries get together and realize they lent you over $3 trillion and worse, they find out you borrowed $5 trillion from your kids too!

Suddenly the phrase "Not worth the paper it's written on" applies to your "notes."

We can keep offering to pay more interest but it is becoming apparent that we are unable to pay the interest on the notes we already wrote without writing more notes at higher interest.

So we tapped out all our friends at the G8 club and they are all starting to get a little nervous about lending us more money. We set off to go down the street and see if anyone else can spare a little but it’s not so easy:

* We always talk about how rich the Saudis are with all that “oil money” and they do rank 19th in the world, yet they only make $300Bn a year, even at these high oil prices.
* Israel has the largest per capita military budget in the world with an enviable tech-driven market of their own, yet the 35th ranked nation does it with just $105Bn.
* We went a little further down the road and asked Peru (the 48th richest country) if we could borrow $42Bn this month but Peru laughed and told us they only make $55Bn all year and suggested we switch to generic brands or something so we walked away because you just can't talk to some people...
* Jamaica is the 101st richest country in the world with a GNP of $7Bn. There are over 100 individuals and more than a thousand corporations in our country who have more money than Jamaica does, yet Jamaica runs no debt and seems very happy whenever we drive by and hear the music playing.
* Tonga (207th) gets by on just $11 Million a month, roughly what we spend on gum every day.

So the Fed has to set the rates and once again we will see if some of our friends will see us through another "rough patch" this month. They have given up asking us if we have a turnaround plan, they are just worried that we will finally go bust and take a big portion of their life savings down with us but how long can they afford to support us before we pull them down too?

Resource: Countries of the World Gross National Product (GNP) distribution - 2003