$86 Trillion

Bill Archer Former Chairman of the House Ways and Means committee was being interviewed on Lou Dobbs show. He stated that actual debt and other obligations of the USA (i.e. the off cash books things like pensions) runs out to $86 Trillion. So about $70 T beyond the cash debt.

That got me wondering: Could an interesting “per capita” statistic be formed?

U.S. Populations per the PoP Clock is about 315 Million.

$86,000,000 (In Millions) / 315 ( In Millions) people = $273,015 per person.

So my ‘family of four’ would run out at $1,092,063.49 …. which is more than my net worth… Now, as I’m above average net worth, I think “That’s a problem”. http://www.moneyrelationship.com/retirement/the-average-net-worth-of-americans-where-do-you-stand/ shows that NO age group has a net worth over $273,000.

This means, quite simply, that you can sell every bit of net worth of ALL the population of the country and STILL not ‘balance the books’.

Now I suspect this does not include the wealth held by corporations and NGOs and non-profit organizations. But as they can largely just pack up and leave if taxed too much, there will not be a lot of extra money coming from them. Besides, if you DO start having all those assets sold to pay taxes, that drives down the market price… so as more land and buildings become ‘unproductive’ the wealth is gone anyway (see Detroit for an example of loss of value in land and buildings and ‘productive capacity’ under excess taxation and regulation.)

In short, IFF you did confiscate the corporate assets to sell them to raise the shortfall, you end up getting less revenue, not more, as the productive capacity leaves, the asset values plunge, and the employees become the unemployed. Part of the means by which the Laffer Curve bites.

So looks to me like it really doesn’t make a whole lot of difference WHAT congress does, they can’t pay the bills. Take everything and sell it, you still can’t pay the bills. Forget income, have a 100% tax on Net Worth of the nation. We’re still unable to pay all the bills.

So “Hey Congress!”: You WILL be cutting the budget. The only questions are ‘starting when’ and ‘from a high growth low tax economic growth’ economy of capitalism, or from a ‘stagnating and shrinking negative growth decay’ of central planning with over taxed under employed folks. In short, with reasonably happy folks, or with folks looking for someone to blame and (figuratively) “burn at the stake”.

How much do you want to piss off the average citizen when the end game comes? Near as I can tell, the options range from “Pissed enough to have a street rally” to “pitchforks and tar”… Cut the budget now, about 2/5 of the folks will be P.O’d. Cut the budget when you ‘hit the wall’, well, look at Greece. Riots and fire in the streets. Choice is yours, like it or not.

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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41 Responses to $86 Trillion

  1. dearieme says:

    Your argument is weak. Why on earth would you want to pay off the debt? As long as lenders are prepared to view nations as perpetual corporations (mad though it be) there’s no need to pay off the debt. But what is surely true is that at some point you have to stop it growing because there’s no reason to suspect that creditors will endlessly come forward to lend more and more, to infinity. For a similar reason perhaps at some point you’ll need to reduce the debt – but “pay off”; nah! The problem for the US is twofold: (i) Your debt has a short duration, so that the effect of lender reluctance could occur in short order, and (ii) The size of your deficit is a frightener.

    I presume that the chosen method for reducing the debt will be default, in whole or in part, just as FDR defaulted in part in the 30s (contrary to the belief of most Americans). You can default on principal or on interest – your shout.

  2. John Robertson says:

    Unless it is the intention of your federal bank, for the $US to achieve parity with the Zimbabwe dollar.
    How was the rain, is it still coming thru in waves? Not seeing much weather coverage from up here, probably cause its not hot anywhere.

  3. John Robertson says:

    Weather from outside Canada that is

  4. E.M.Smith says:

    @Dearime:

    OK, take out the debt portion. $16 T, that leaves 70,000,000,000,000.00 or $222,222 / person and $888,888 for a family of 4. Still not enough net worth left to pay all the promises to pay for things like Social Security, Retirement, welfare, food stamps, interest on the debt, etc. etc.

    As those expenditures are tied to fixed demographic facts of life (folks WILL get old and retire), those debts MUST be paid as they accrue. The only question is “Sell everything, or look for a lender to lend $70,000,000,000,000.00 at ‘cheap rates’.” As there is no such lender in existence…

    @John Robertson:

    That’s the only way out I see. Repudiation via inflation. I note in passing that “change how CPI is calculated” was one of the items in one of the “budget proposals”…

    Rain stopped, so today was sunny / cloudy and clear (mostly). Nice day to sweep the debris (leaves, oranges, redwood ‘cones’) out for ‘pick up’.

    One more “on the way”, then may get a longer break. Did some pruning of palm fronds and such today too…

  5. Gary P Smith says:

    Another fair comparison is France during the Reign of Terror, where they attempted ‘stimulus’ and ended up with debt being repudiated via inflation. Instead of pitchforks, the legislators went to the guillotine. Read “Fiat Money Inflation In France” by Andrew Dickson White. Kindle version is free.

  6. Peter Offenhartz says:

    The debt doesn’t get paid “back” out of net worth. That’s silly. It gets paid out of future earnings, over the lifetime of each member of your family. And even then, it doesn’t really have to be paid back — only the interest on the debt must be paid. The important number to watch is the debt to GDP ratio, or even debt per capita to GDP per capita (same thing, of course). And the REALLY important thing to watch is interest paid per capita. The rest is politics.

    [Reply: The concept is the Balance Sheet. What's your net assets (national net worth) vs your obligations (national unfunded liabilities). I'm not talking about paying "back" the debt. I'm talking about being insolvent on the Balance Sheet. Saying "well, I'll make some money in the future somehow..." doesn't change the Balance Sheet. We're still flat busted. Like a person with $40,000 of credit card debt and a minimum wage job and $10,000 in the equity of their home. You can make all the projections of lifetime earnings you want, and it's just measuring how long you will be in the debt prison. We're busted and don't have the money to pay off the credit card and our IOUs (which ARE coming due). A Balance Sheet is not politics. It's how far in the hole you are and is there any hope of getting out. Debt / GDP ratio is widely used for national debt, but IMHO is not very useful (other than for hiding the true state of affairs...) If you had a $40,000 / year job would you feel good about a $40,000 credit card bill? Your debt / product ratio would be 1:1 and 'good'... you would also be insolvent and over your head in debt. Busted and in hock. -E.M.Smith ]>/b>

  7. BobN says:

    The numbers are staggering and accelerating, just think what it will look like when the interest rates take off. When that occurs, that’s when the crash occurs. I’m not sure a total collapse can be avoided, but if we try we need to balance the budget and do away with public funded pensions.

    In theory we might be able to grow our way out of it if the problem over a long time, but where does the growth come from, all the previous engines of growth seem to be in decline.

    I think we need something to come along an energize the economy, but as a wise man once said, wishing isn’t a strategy.
    I think we all see the cliff, but what we don’t see is how bad is the landing. Some things can’t be projected, they must be experienced. I fear for my country.

  8. E.M.Smith says:

    OH, and realize that is at the Federal level ONLY. It leaves out the bankrupt States, Counties, and Cities…. They have some more $Trillions of ‘unfunded obligations’ that will be in pursuit of those same pockets of wealth… For California, this estimate is ‘somewhere over $500 Billion’. We’ve got about 38 Million population. http://articles.latimes.com/2010/apr/06/opinion/la-oe-crane6-2010apr06

    That works out to about $13,000 / person. JUST for the State. Just for pension obligations. I’d guess about as much (or perhaps more) is due in County and City. Then again, added on to 222,222 it only makes it about $248,222 … but then we’ve not looked at the State and local debt and ongoing operations and…

  9. John Robertson says:

    Now it used to be, the looters could take the money and run to an unaffected country and pay that country to protect them. But the US dollar going down will impact all currencies and is there enough gold on the planet?
    So whats the escape plan for the exploiters of human stupidity, this time?
    Or is this just stupid all the way down?

  10. E.M.Smith says:

    @John Robertson:

    There’s two distinct groups. The “Third Way Socialists and Business Buddies” and the “Useful Idiots”.

    The “Useful Idiots” are those folks demanding cushy retirements, $190,000 / yr to be a clerk ( presently NOT accepted that pay rate and still on strike in the Port of Long Beach), and never ending unemployment benefits with full medical care and free food via food stamps. Those ‘useful idiots’ will have their ‘due’ shrunk via inflation (as will all the other folks with money denominated income or wealth). They will be periodically “rewarded” with raises by the political “leaders” that will give them the appearance of more money without the reality of more purchasing power.

    The first group will have their share of money constantly ratcheted up (fully inflation indexed) and will sink the excess into “stuff”. (Metals, and not just gold, ‘collectibles’, land, real estate buildings, OTHER countries economies). Some, such as Soros, will be “long gold, short dollars” and make money on both sides of the trade ( eventually to cash out and into some other currency such as Swiss France or “whatever” is sound at the time). You see, they don’t really need a rising currency to ‘store their value'; they can buy a ‘short sell contract’ on a falling currency and make money on the deal… It’s how Soros made his Billions. Clear now why he promotes Loony Left ideas and groups all over the place? It’s an investment in currency and economic destruction.

    Like taking out life insurance on someone and then shooting him. Nice safe way to make money… for them…

    So Al Gore is buying homes and stock in companies making things being mandated by the government. Soros is ‘long gold’, but not clear exactly what currencies he is short of. GE is selling mandated wind turbines and ‘special’ light bulbs that pass the ‘light bulb ban’ (any guess why GE is the only company selling 100 W incandescent bulbs? They are “colored” so have an exemption. The “color” is a pale bluish and gives a more natural color, but at even WORSE energy economics.) But if you want an Incandescent bulb, that’s your choice… As the 19 cent IC bulbs are now gone, the GE ones sell for in the dollar+ range each… GE invested in a president and some congressmen… so there are lots of places to invest…

    This will work for about a decade. (Maybe ‘decade MAX’). Then we enter dramatic inflation and economic stagnation. See Greece as ONE example. (And most any Latin American country at various times in the last 100 years… and Many African countries… and…) That will continue until folks get sick enough of it that they elect another Ronald Regan type, or the society collapses. (At which time the gold isn’t so useful and land only has value to you if you have enough guns and political connections to hold onto it… see South African white farmers for an example of ‘class envy’ in an end stage, though flavored with some racism too.)

    I’m still hoping we can avoid that end game, but the trend is increasingly toward “not”.

    If I had the means, I’d likely be moving to New Zealand or Canada… or a selected island … or even Panama / elsewhere in Latin America with offshore investments… Instead I’m stuck in California and going to be on ‘the point of the spear’…

  11. omanuel says:

    Yes, we are headed for disaster. Purposeful deceit has been the engine for sixty-seven years, since the United Nations was established on 24 Oct 1945.

    http://omanuel.wordpress.com/about/#comment-1807

    How will it end? As Mozart’s Vespers Solennes ends, with the singing of Magnificat.

    http://omanuel.wordpress.com/about/#comment-1883

    RTG (Reality, Truth, God) and the unalienable rights and creativity of mankind will not be subdued by wannabe world tyrants.

  12. John F. Hultquist says:

    The WSJ had a Nov. 30 story about Costco borrowing $3.5 Billion to pay a $7 per share dividend this month. They show some numbers regarding the “take home” for doing this now in contrast to when P. Obama’s tax fairness kicks in next year. Jim Sinegal, co-founder+ of the firm and a major supporter of the Pres., gets to keep an extra $6 Million. Other big winners include Bill Gates, Sr. and Charles Munger of Berkshire Hathaway.
    This is all very legal and probably in the best interest of all holders of the stock. Other companies are doing similar things. Oracle is paying its 2013 dividends in 2012.
    My take is that these sorts of things are the preliminary moves of folks as they try to defend against the various government debts mentioned in your post. No one knows how to stop this bloat of obligations and current spending plans indicate they are not even trying. Its an old cliché but this is like watching a slow motion train wreck.

  13. Ralph B says:

    Is it written anywhere that the “promises” have to be paid back? The current on the books debt yes there is an amendment that says that is supposed to be paid…but where does SSA say they will for sure pay you? I see that $70T as rather nebulous…what can’t be paid, won’t.

    In my opinion (worth its weight in Greek Bonds) if you want changes made pull SS and Medicare from the general fund and then make them required to have a balanced budget. Once everyone starts screaming changes will be happen…right quick too. Not many will listen when retired civil servants are whining about their pension when they are emptying your pockets.

  14. P.G. Sharrow says:

    Borrowing the money also moves the corporate income for the dividends to whenever the loan is repaid and the interest is deductible.People get more money this year and the Government gets less next year. Good deal for everyone. Their stock will tank after the payout date. ;-) pg

  15. Steve C says:

    Disclaimer: In matters of “high economics” I count myself a complete Village Idiot. I have no trouble with the honest “accountancy level” economics of running one’s own, or one’s company’s own, finances: if we have x coming in and y going out, that leaves x-y to spend on the necessities (or frills) of life as we will. That’s just arithmetic. The grand scale stuff which appears to be crashing the world at the moment is another matter, though: whenever I look at and try to understand it my “meatware CPU” locks up until I give up in despair.

    It would be an interesting exercise to repeat your calculations on a worldwide, rather than just a US, scale. From my idiot’s viewpoint, it seems that all of the major economies of the world – where an idiot like me might expect most of the world’s wealth to be accumulated – are “in debt”, to a coven of international banking entities which have usurped outright the rights of governments to shape and scale their countries’ economies in the interests of their peoples.

    Worse, these entities are permitted (by themselves) to charge arbitrary rates of interest (decided by themselves) on the “wealth” they “create” out of thin air. Given that the only ways of creating actual wealth are (a) make something and sell it or (b) grow something and sell it, then, as the figures have grown ever more insane over the years, this has in effect turned all the populations of all the governments into no more than slaves to the international banking cartel. Their whole lives are reduced to struggling to pay escalating quantities of arbitrarily created “money” to their governments to pay as “interest” to banks which are permitted to create ever more of it with a snap of their fingers. When the figures were smaller and there was still genuine wealth within some countries at least, this was less obvious, but now it has escalated to the sort of insane levels you detail above.

    My dark suspicion is that, were you to do such a worldwide audit, you’d find that the world as a whole is “in debt” to these nebulous, stateless entities. A darker suspicion is that, were you to do a full historical audit of all the secretive wheeler-dealing in which the banking sector – your Fed, our Bank of England, all of them – specialises, you’d find precisely where all the world’s real wealth has consolidated, to be replaced out here in the real world by the worthless bits of printed fiat paper blowing around our ravaged countries.

    Correct me if I’m wrong, but I believe that none of the world’s major banks has ever been subjected to such a full audit: if that’s right, it must be one of the most spectacular errors in world history. You say above “I suspect this does not include the wealth held by corporations and NGOs and non-profit organizations” … but I suspect that not even the biggest of those is in any case more than a “front office” for shovelling telephone numbers of our hard-earned wealth – our work, dammit – into the gaping maw of the banking “cuckoo in the nest” and inventing yet more baroque ways to continue and expand the process. (“Carbon credits”, anyone?)

    How the hell the situation can be resolved I’ll have to leave to more subtly skilled experts like you. To me it seems that – like my brain when it tries to understand what’s going on – the entire world economy is in desperate need of a reset button. Annul all usurious debt, redistribute the boodle on a per capita basis among countries and start again. Oh, and maybe an international law that ALL banking shall be wholly transparent. Good luck with that grand audit …

  16. Graeme No.3 says:

    Steve C:
    Like you I am lost as to how we get out of this situation. Obviously inflation will be rampant.

    The root cause though, is the politicians’ desire to buy popularity by spending money, and of the keenness of a large percentage of the population to get “their entitlements”. By spending more than the income (total taxes etc.) year after year, the politicians have had to borrow from the banks, which they do by creating bonds. The banks tend to “pass on” the debt i.e. sell it to the public, trust companies etc. If fact anybody who believes those bonds are safe (or is constrained by legislation to buy them e.g. lawyers holding inheritances).

    Naturally, as the debt has risen so has the interest rate. At around the 100% ratio debt to GDP the level of interest is such a burden that borrowing more money doesn’t make sense. But the politicians still want to spend, so they invent ways of selling bonds e.g. in the UK the Government creates bonds which it sells to the Bank of England (i.e. itself). Well, the Bank of England was created (as a private company, 1696) to buy up government debt when no one else would. Having created this money the UK Government then spends it on “essentials” such as foreign aid to poor countries to install wind turbines etc.

    So there is more money in the UK but the amount of “goods” is static if not declining slightly. The result will be inflation, and has EMS points out, at a very high rate. Mark Twain’s comment “buy land, they’ve stopped making it” has considerable truth in it. Historically the ownership of land has attracted taxes as the owner can hardly deny his holding without losing it. If there is a breakdown of law and order then, as noted, you will have to defend your ownership. The same with gold which will also retain value.

    Returning to earlier times, the events in 1719/1720 may be of interest. The British Government has racked up debt of £36 million, vastly in excess of the annual budget. The French Government was in even worse shape, it wasn’t able to pay most of the interest on its debt. The Mississippi scheme and subsequent default took care of that, at least until the Revolution where the new government issued paper money based on (confiscated) land. They kept issuing paper money while selling/ helping themselves to the land. Naturally there was enormous inflation which reduced the debt.
    The British were a little more restrained with the South Sea Bubble, but that involved a default (or haircut in current parlance) on a lot of the debt. They paid interest on the remainder for 140 years until inflation meant it could be paid off as an item in that years budget.

    The moral is “put not your trust in princes” and don’t buy their debt, either bonds or banknotes/ “money” in the bank etc. Beyond that I don’t know what you should do, but being outside large cities and with some self sufficiency seems a good start.

    P.S. Chiefio, don’t ignore Australia, once we get rid of the current Federal government next year.

  17. philjourdan says:

    YOu slipped a digit in your post, but did the correct math in a response (86-16 = 70, not 60).

    Another point of disagreement is the states. Almost 40 of them are solid. And fiscally sound. That leaves 11 (last I heard) that are insolvent. But that is 11 of the biggies (a few smallies). So I think the states are close to a wash.

    Now on to my comment. The insolvency is a perpetual motion machine. The only way to solve it is to inflate the dollars, making future dollars cheap (or worthless). But the calculation of the $86t is based upon current dollars, not discounted dollars. So the only way to stop it is to freeze benefits – irregardless of inflation (yea, like that will ever happen). But the benefits are indexed against inflation, so even if you inflate the dollar, the dollar amount gets inflated with it. The vicious cycle.

    Of course there is one other way to solve it. Logan’s Run. Coming to a regulation near you soon.

  18. DirkH says:

    philjourdan says:
    5 December 2012 at 4:12 pm

    “But the benefits are indexed against inflation, ”
    …measured with the CPI.

    I don’t know enough about the changes they made to the computation of the CPI but the interest in computing a lower inflation number is obvious.

  19. E.M.Smith says:

    @JohnF.Hultquist:

    The Democrats like to use “Static Scoring” (assuming nothing changes) while the Republicans recognize that ‘things change’ so use “Dynamic Scoring”. This is one of the major reasons that the Democrats are often ‘surprised’ that their schemes fail. What we are seeing with the dividends is a minor example of the “Dynamic” happening now. Money will be moving between countries, changing asset classes, etc. etc.

    @Ralph B:

    Typically there is something in writing saying the obligations have to be paid. The “right” fix would be to change that and recognize the reality. But that loses elections. So instead the “nominal value” gets paid, but the currency becomes toast… Watch for buggering of the CPI to dodge the “inflation adjustment”…

    @P.G.Sharrow:

    Stocks usually drop on the “Ex-dividend date” that is a bit different from the actual “payout date”. I know, pointless trivia… but you do need to watch the ‘ex-dividend date’ when trading high dividend stocks for coupon clipping…

    @SteveC:

    The “village idiot” is usually better in touch with reality than government accountants and politicians…

    World as a whole is likely worse than the USA. Europe in particular.

    Don’t know that I’d grace this with the word “calculations”… more like “rough estimate / numeric muse”. Just a way to get a perspective on things to try to reach a ‘reality view’…

    Why your “MW CPU” locks up is simple: You think in terms of reality. You need to add in that the basic metric (the ‘value’ of the currency) is a ‘rubber ruler’ under political control. Then you need to add in that the “Responsible Parties” are not at all responsible people. Only in the world of government would a credit card debt 1.5 x your annual total income be thought of as an acceptable ratio and the idea of never paying it down would be business as usual… Basically, to understand “Sovereign Economics” you need to think upside down from a private business. The purpose is to find ways to run the scam, not actually make net wealth… Think in terms of a Ponzi and it ‘fits’ better… Hope that helps.

    BTW, “how it resolves” is highly debated. Marxists call this “the inevitable contradiction of capital” while Capitalists call this “the social ills of socialism” while Monarchs call this “Can you give us a loan? No? Well, about that tax rate”…) Managed Market / Mixed Market Democracies typically use “We’ll gladly pay you $1.10 in a year for a $1 today… but that $1.10 will buy what $0.90 does today…” So watch for different “fixes” in different economies.

    Occasionally you get wars and revolutions and folks just flat out repudiate the debt.

    So depending on the nation and the context, you can get anything from confiscation of wealth to repudiation of debt to nominal payment in worthless currencies to a People’s Revolution to…

    @Graeme No.3 :

    Nice examples. FWIW, I almost moved to Australia once. In the ’80s. Then you went a bit nutty for a while… I’d not mind living there, but at this point it’s further ‘around the bend’ than the USA (though we’re set to race past you while you are slamming on the breaks and turning the wheel)… Frankly, if anyone offered me a job “down under” I’d be there overnight. ( 18 hours last time I took the flight ;-) After all, I could always leave again if it went back to ‘wonkey’ ;-)

    Besides, there are some great wines in Australia… and “90 Mile Beach” near Melbourne was wonderful… and you know how to grill a steak… and the beer beats ours in just about all categories (our micro-breweries are about a match).

    FWIW, one of my “Mum’s Uncles” moved to Australia, so some number of folks named “Sumner” there are my relatives. Sailor in HM Merchant Marine in the early 1900’s time frame. (or maybe late 1890ish… it’s a bit unclear as there were several generations of sailors with the same name in that line of the family… Mom’s dad and grandpa too…)

    But I digress…

    @PhilJourdan:

    Thanks! Corrected it. (It’s hard to see strait when your blood is boiling and you are spitting venom at snakes ;-)

    Frankly, the mind boggles at the size of the number and just recoils in horror…. wanting to “run away”…

    @DirkH:

    Under Ronald Reagan they took out the “volatile” things (that just happened to be going up the most). Recently they’ve taken to quoting it ‘minus volatile food and fuel’ (that just happen to be going up the most)… The emphasis has been moving toward weighting wages higher (so if what you BUY is going up, but what you MAKE is not, well, that’s not inflation…)

    That’s why I use my own benchmarks. From about 1964: Loaf of bread – 10 cents. First class stamp – rising from 3 cents to 5 cents. House (in rural town) $7000 (sold for $80,000 about 15? years back). Suit of mens ‘fine’ clothes (all time periods) One Ounce Gold. (About $45 then). Gold $35 to $45 depending on exact year and Nixon… Teachers Pay / Police Pay (‘good’ jobs) was about $11,000 and $14,000 / year respectively. Comic book – 10 cents. Gasoline – 25 cents / gallon. There are more, but you get the idea.

    Now some of those will be diverging. We bought a B&W TV for what would now be about $7,000 (first in town ;-) and clearly now the HD one at $400 is a much better deal. Weighting those changes is what causes all the nutty things… But that house is about 1/10 of current price and the loaf of bread is about 1/20 (or 1/10 if using cheap Walmart bread). Gasoline is about 1/15. Teacher pay? About 1/5. Hmmmm…. Police pay? About 1/10 to 1/20 depending. Clearly the police union has done better than the teachers union… Similarly gold is about 1/37 so has some “fluff’ in the present price.

    Overall, the $US is worth about 5% of the price it was worth in the early ’60s. So I use 1/20 as the present general ratio for my estimates. Now, if you bought a 40 year bond in 1965 would you have been happy in 2005 when it was ‘paid back’? No?…. So first rule is never buy a bond longer than 10 years as an ‘investment’. (Trade, yes, investment long term hold, no).

    It’s likely you could just price an acre of some particular kind of farm land (pasture or corn or wheat) and plot it directly. “Crap land” that used to be about $50 / acre is now about $1000 (and rising) while ‘good land’ that was about $1000 / acre is running $10,000 to $20,000 (orchards can be costly to establish). Though I haven’t checked farm prices in a few years, so might be out of date on those…

    THE fundamental fact of inflation is that “Stuff” goes up in value and “cash” goes down. Watch out for taxes on “stuff” or outright prohibitions on ownership. (FDR and Gold anyone?…)

    Then one can always just swap to a different currency. The Swiss Frank was 12 cents in the past. I first traded it at about 25 cents. Right now I think it’s about a $US ( $1.08 per these folks: http://fx-rate.net/CHF/ ) So just putting your money into FXF can help. (Or, like rich folks, call your broker and ask them to change your default currency… Schwab is now offering an ‘international’ account where you can trade markets around the world ‘in local currencies’…)

    That’s why I have the currency “races” page and keep an eye on the ‘rubber ruler’. I don’t really care WHAT the CPI is, the ‘race’ tells the truth… So for a while the $US has been held up by ‘crap’ in the EU, but the wobble is interesting:

    http://chiefio.wordpress.com/2011/12/13/gld-gold-vs-silver-and-currencies/

    http://bigcharts.marketwatch.com/kaavio.Webhost/charts/big.chart?symb=fxe&compidx=aaaaa%3A0&comp=gld+fxb+fxy+fxf+fxm+fxs+bzf+fxc+fxa&ma=4&maval=25&uf=0&lf=2&lf2=4&lf3=1024&type=4&size=4&state=15&sid=2434655&style=320&time=8&freq=1&nosettings=1&rand=8535&mocktick=1

    Interesting that the second one shows the Mexican Peso presently winning… US Dollar worse than the peso? Well, yes…

    As inflation picks up (whenever it does) the lines will start to diverge. (Maybe I ought to make an inflation metric page / chart set…)

  20. agimarc says:

    There is another path – default. The US has two classes of debt holders – internal and external. External includes other nations like China and a bunch of the NGOs. Solution for them is for Uncle to simply default on debt payments, leaving the creditors hanging. This will ensure that nobody but nobody from outside our borders ever invests in the US again, which is a feature, not a bug. It serves to starve the beast.

    Internal debt – Archer’s number – is more interesting. How would you default on internal debt? Better yet, what assets do the feds hold that might defease that debt? Uncle holds hundreds of millions of acres of public lands, mostly in the west. These include but are not limited to National Parks, National Forests, Wilderness Areas, National Monuments. Congress could start returnign those lands back to the many states individually to use as they see fit in return for a complete defeasement of all federal debt within those states. The state then figures out how to use those lands to square things with their citizens. Military can lease military lands from the states and will likely relocate to states with reasonable accommodations.

    Of course, this benefits mostly the western US and Alaska, which states did not enter the Union on an equal basis, having appreciable percentages of their lands held back or expropriated by Uncle sometime after statehood.

    What would they use to benefit the non-landed states? I would sell or otherwise transfer offshore outer continental shelf acreage for oil and natural gas and fishing and mining to those states.

    You could only do this once, but once Uncle defaults on the internal debt, they no longer have any rationale for the bloated leviathan it has become. And you starve the beast of incoming monies for Social Security, Medicare, Medicaid, welfare, unemployment, etc. No incoming money = no incoming power and the entire mess collapses quickly into something manageable and we can start it all over again. Cheers -

  21. philjourdan says:

    @agimarc says: 5 December 2012 at 9:02 pm

    Re: Defaulting on internal debt – it is called printing money. For all intents and purposes that is what they are doing, but it is also very inflationary (call it hyper inflationary). As long as you PRETEND it is debt, then it is not so inflationary. Once you throw that facade away, it becomes pure inflation.

  22. adolfogiurfa says:

    @E.M.Your intelligent analysis shows that “you´re done baby”. Now, according to the Keiser report, the “bubble” now is in bonds, so, the expected phenomenon is like jumping from a cliff wearing an explosive jacket. Wow!
    When shall we welcome you down here?

  23. adolfogiurfa says:

    I really suspect you are being cheated, as there is no real possibility for anyone with a little of compassion to tell the truth about such awful news. Not even a war will work by now. Gotto think a better way: There is only one solution: To increase the flow of transactions of REAL GOODS using another currency (local currencies?). Barter won´t work as we are too many. But, if everybody goes out to sell something made by every one, such exchange will make things flow; this time it will have to be without banks whatsoever. Local stock (real) exchanges can work and facilitate local survival.
    Back to basic economics! That´s what happened in Peru, in a certain way; here there was no unemployment checks or anything like that. Read carefully: I have witnessed people on the streets selling everything, and those who did it became small, medium and big entrepreneurs, whose revenues account for almost half of the country´s GDP.
    (However, politicians want to ruin all this success by re-distribution policies, like universal health care,etc.)

  24. agimarc says:

    philjordan: Good reminder about printing money. I always looked at that as inflating their way out of debt and stealing your savings, with the second being the primary goal (more dependent people = more democrat voters). I was looking at defaulting on the internal debt as a way to draw a sharp line and stop the flow of money from our pockets to theirs; essentially a way to change the game or stop it. As long as the taxes are paid and the printing presses roll to make up the difference, the current game continues. No default. And the size of debt only increases depending on how serious the inflation becomes. Cheers -

  25. P.G. Sharrow says:

    @Adolfo ; There is something about politicians. If something works, they want to fix it(make it worse) if something does not work, they want to fix it(make it worse). Politicians are easily replaceable so they must be disposable, hopefully often, before they can do much damage.
    The best governance for the most people is one that governs people the least. After those that aspire to governance ruin things and are driven out, the workers repair the damage and restart society. Then the would be governors flock back in to make things better (worse) because common people can not possible govern themselves! WE DON”T NEED THEM! They need us!
    The Internet works around the world because of the people involved working together to make it work, without the direction of governors. Now politicians want to take control to fix things and save the people from the dangers of uncontrolled internet usage. WE DON”T NEED THEM! world governance is not needed. The only danger posed by the Internet is to “the want to be governors” WE DON”T NEED THEM”
    “The new age begins when a net covers the world” ………Hopi Indian prophecy
    The new age has begun WE DON”T NEED THEM” pg

  26. R. Shearer says:

    Just back the dollar with plutonium; perhaps, $10/nanogram, payable by one of two ways.

  27. John Robertson says:

    @R. Shearer, I like, can we use the hot payment for our Federal Reserve banks?
    And a tax on all do-gooders.

  28. Graeme No.3 says:

    EMS:
    at least we can look forward to getting rid of our stupid government in less than a year. Probably less than 6 months as they are due to bring down a budget next May, and there is no way they can meet their hype on this year’s targets, hence they will have to go earlier or even the dumbest voter will realise their bungling (which won’t stop said dumbos voting for them). Ignore the latest polls showing it is close, the “marginal” seats are former safe Labor ones where people are fed up with cost of living rises and endless incompetence.

    What I was trying to point out above was that Governments have been ‘printing money’ by issuing bonds for a long time. When the debt level gets serious it is almost inevitable that they inflate the currency and default on the debt (either by outright refusal to pay or by paying it in worthless paper). Often a new currency is introduced.

    Another example might have been the hyper-inflation in Germany (and Austria and Hungary) which wiped out their war debt. The “big end of town” i.e. industry/banks etc. also eliminated their debts at the expense of the middle classes (the savers). See also Argentina etc.

    We have had a fairly stable period of currencies, as all become worth less in unison. As an example, my mother’s cousin was left £30,000 + a share in an unsettled estate in 1947. The estate was eventually settled in 1977, and proved nearly worthless. So too the £30,000 which in 1947 would have bought 20 houses in Sydney, but by 1977 was barely enough for 2 houses. It had all been invested in 2% Australian Government Bonds (as required by legislation).

    The old rule of 72 says that if the various indebted Governments can maintain 10% inflation for 7 years then they will cut the value of their debt in half. After 21 years the debt will be worth one eighth of its face value.

    P.S. Don’t cry for cousin, she married a bookie and lived in a suburb where $30,000 was a deposit on a house!

  29. philjourdan says:

    @agimarc says: 6 December 2012 at 12:53 am
    Agimarc – it is not only stealing your savings, but it is also a tax on all private sector workers. A more onerous tax than anything congress can create. Those who are indexed (which is usually not private sector employees) are relatively immune (until hyper-inflation kicks in), but public sector wages are not tied to a Cost of Living index. Rather to bottom line profit, which basically evaporates when the cost of goods is constantly rising (business then is merely trying to stay even by selling more to pay for past inventory purchases).

  30. adolfogiurfa says:

    @R. Shearer: I buy it all! (Al Qaeda) :-)

  31. Peter Offenhartz says:

    I was hoping to open a discussion. I was hoping, in my last post, for him, “chiefio,” to do the arithmatic on federal interest payments per capita, And so, dear reader, assuming the so called chiefio allows this comment to be posted (I never know what he will do), you can calculate what is your share of the federal payments on the federal debt.

    Or not. Your choice, You can also choose ignorance.

    [Reply: It's really pretty simple. Things full of sniditude, snark, and insults "sit" until I have time to deal with them. That might be minutes, or months. Depends on what I have to do that's more important (which includes things like combing my hair or making cookies or even just pondering life...) So a first clue is just this: Loose the snark, sniditude, and insults and things go faster. So things like "You can also choose ignorance" serves no purpose but to insult and inflame. Not interested. It sits. "Someday" (like today) when I get the time to answer the "insult", I'll go fishing in whatever queue you ended up occupying, and if WordPress hasn't already dumped it, fish out bits. (FWIW, I think I found a way to get your stuff out of the SPAM queue. That will save me (and you) some time.)

    But to your point: So your measure of "prudent" is "able to make the interest payments". I suggest you don't go to buy a new car... ]>/b>

  32. Jim Radig says:

    The one thing that gives me some hope that the US will have a bumpy landing and not a crash is the natural resource wealth here that could be exploited. (In contrast to Greece.) Unfortunately, the politicians who are in control are doing their best to make sure no one can use it.

  33. Peter Offenhartz says:

    I was hoping someone would do the arithmetic but no one has stepped up to the plate. Interest of the federal debt is well under $1500 per capita, hardly an amount to cause panic.

    The flaw in the Chief’s argument in re balance sheets is that he completely underestimates the effective net value of the United States, which is far in excess of $100T. Does he think the US generates $15T annual GDP on under $100T of net worth? Not likely. The whole argument is deeply flawed, and is, as I said before, mere political posturing.

    [Reply: So you want me to be HAPPY at having ONLY $6,000.00 A YEAR stolen from my family for the purposes of the Chinese Credit Card? Really? That's your idea of prudent? Now what happens when the interest rate rises from 1.5% to 6% (still lower than Italy recently or Greece a while ago) and those charges turn into $24,000.00 / year. Compare that to the average income...

    Per the "net value of all of America": Well, that would include the net worth of the people (which is cited) plus corporations and governments. As Governments don't contribute income to paying debt, that's a bit bogus on the face of it. But yes, we could sell all the highways, airports, government buildings, naval bases, aircraft carriers, etc. etc. Then what? Not driving anywhere? The Corporations have a net net published every year. It's the profit and loss. At present, we're not doing particularly well. (Especially in California). Now government already sucks most of the life out of them. You want to start taking and selling their capital stock as well? (And make no mistake about it. Taking the "value" of a company as taxes (in excess of the present income, property, sales, fuel, excise, payroll, etc. etc. taxes) and spending it, too, is not the way to grow an economy and get LESS debt / GDP ratio. It moves debt higher and GDP lower. It is "exactly wrong". Then again, I'm used to that from The Loony Side Of Left.

    Besides, those corporations just move that cost onto the sales price (or leave the business) and it ends up back on We The People. So, in fact, the right place to look is to the balance sheet of the folks who WILL be stuck with the taxes in the end. Government won't be paying taxes to itself. Business moves it to the customer (or quits playing the game). The net profit of companies is already highly taxes (and then double taxed if issued as dividends to the owners) so not a lot to be had there. We The People are at about net zero. Corporations are not doing particularly well and already are highly taxed (and reducing / taking their capital stock to fund the government will not create more wealth, it will destroy wealth making). Governments are not going to be paying the taxes. It still comes down to "we are broke".

    BTW, I note in passing the implied "metric" of "When you are in it so deep that you MUST panic, that is the right amount." Since you say it's not enough to "panic" yet, the only reasonable conclusion is that you wish to continue spending until it IS time to panic. I'd rather avoid that... So I do a "look ahead". What I see is business NOT investing already. Small business especially (and it's the only engine of job growth we have left). What I see is debt on the hairy edge of the cliff and the ONLY thing keeping interest rates down is that Europe is in worse shape (so their money is coming here) while The Fed has made it's balance sheet so fat it makes a whale look like Twiggy. THAT can't keep happening. So it's very clear that 'interest on the debt' is not going to stay at "historically low levels" forever. Remember the last time we saw this movie? Back pre-Regan? Interest rates ran up to 18%. (I bought 'strips' at 12% on the downside and made a killing. Unfortunately, in the spousal retirement account, so I can't spend it ;-) Now what if our interest rate ONLY revisits what happened after the "Savings And Loan" crisis / stagflation? Hmmmm? Make that 'per capita' number $48,000 / year. PLUS whatever more debt gets ladled on at $1.5 - $2 Trillion / year... It's called "bankruptcy". But you go ahead and wait for then to "panic". I'll look for an exit here instead... (The easy thing is to encourage my kids to migrate to another country and take their 'create wealth' phase of life with them. Then I'll pick one with a low tax rate to take my Social Security Check with me in a few years. Leave the debt to the folks who stay... Don't think that kind of thing happens? Look at the 'retirement communities' springing up in other countries...) ]

  34. Tim Clark says:

    “pitchforks and tar”…

    I’m already there. Just need some help.

  35. adolfogiurfa says:

    @Tim: Gotto get some feathers too… :-)

  36. Tim Clark says:

    RE: land prices…

    http://www.farmersnational.com

    Iowa…… $3,000 to $10,000+
    Kansas….$1,500 to $6,000+
    Arkansas…..$2,000 (Ozark mountains) to $5,000+ (downstate farmland.)

    Guns, ammo, tar and pitchforks………Priceless

  37. Tim Clark says:

    About 5 Trillion is held directly by foreign governments and by “other non-residents”.

    http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt

    Also, another Trillion or so is held by “other”. The rest is “internal”, unless foreigners own some of the mutual funds %.

    But, of the countries with foreign ownership, only two are not in greater debt than what they loaned us.

    https://www.cia.gov/library/publications/the-world-factbook/rankorder/2186rank.html?countryName=Japan&countryCode=ja&regionCode=eas&rank=2#ja

    So, where does the money they borrow to invest in our debt come from????
    Somethng doesn’t jive.

  38. P.G. Sharrow says:

    It has been discovered that government agencies that are unable to use all the funds allotted to them in a fiscal year, park the funds in loans to other agencies or banks so as to not return it to the treasury and have their next year appropriations reduced, They also spend forward and stockpile stuff. Back in the Clinton era the CIA was caught with $6 billion, that was not supposed to exist, stashed in banks, and had built and paid for the largest office building ever built. Larger then the Pentagon! and it did not exist on record. The GAO was very surprised when the contractor of the job delivered the keys to their office and informed them that the job was completed and paid for. California Parks was discovered to have $40million stashed while they were complaining that they needed more money or they would have to close parks.
    In 2010 the Obama Administration was asked where all the stimulus money went and they said that $48billion of it had just disappeared. That “they could not say where it went”. Could not or would not! Huge amounts have been allotted and just disappeared, and they demand MORE. The real economy does not demonstrate the projected multiplier that this level of spending should cause. Only the Wall Street bankers and Government bureaucrats are rolling in dough and making money. Main street withers and the largest tax increase in history takes place in 25 days! All through history when the government tries to take more then 40% of the wealth created they get LESS as production goes down. Hiring more tax collectors and enforcers just costs more for less actual collection. People that produce just go “Galt” by any means and everyone starves. If I can not profit from my labors, to hell with feeding them. After the government starves to death we will create a new one, just like we did the last time. We really need to create a way to enforce Limited Government, honor does not work to control Greedy Evil Bastards! pg

  39. Mark Miller says:

    It’s been striking how much in denial people are about the debt problem, but learning more about people’s actual knowledge of it has informed me somewhat, and so I’m less shocked by it. A lot of people get it that we have a debt problem. The problem is most who are aware have no idea what’s causing it. They blame what are actually small items in the budget, not where it’s really coming from. The problem with that is when anyone tries to do something realistic to address it, these same people who are alarmed about the debt say, “Don’t solve the problem on the backs of the middle class,” and immediately shut down any serious effort. “Raise taxes on the wealthy,” they say. The arithmetic has been done on that. Raising taxes on the wealthy back up to the Clinton rates will run the gov’t for about 8 days out of each fiscal year. That solves six-hundredths of the problem (the fed. gov. currently borrows 40% of outlays: 40% of the year is 146 days. 8 out of 146 = …). Congratulations! That’ll stick it to the rich, who after all got us into this mess, produce economic growth, like under Clinton, and solve our problem!… Seriously. I’ve seen lots of people buy this. Another, put out by the Center for American Progress, is, “We had more job growth when the top marginal rate was 70-90%+ than we did after it was lowered below 70%.” The obvious implication they made is if we raise the rates back up to where they were then, we’ll get more jobs.

    If you look at the employment statistics, as I have, and you correlate it with the top marginal rate, their statement is correct. However, I am very skeptical that the job growth could be attributed to this one variable. We’re back to the same chicken and egg problem as with AGW. Were the tax rates causal in the job growth, or were they jacked up because the gov’t could get away with it politically because of WW II, and luckily for us, most of the developed world was a basket case afterwards? Were the rates reduced as a response to changing global economic conditions, or were they causal in job losses? The left has been putting out the idea that the rates are causal. Ever since Obama was elected, the progressives have been pining for FDR, how “he saved us in the Depression,” “WW II got us out of it,” and they reminisce about how the economy was so good during the ’50s and ’60s, when the tax rates were so high.

    I’ve joked with them (it’s macabre) that perhaps one variable is insufficient. How about two? Repeal the Civil Rights Act for 14 years. It didn’t come into effect until 1964. How about three? Maybe we should repeal Medicare for 15 years. It didn’t come into effect until 1965. How about four? What say we start another arms race with present-day Russia? How about another war with Vietnam in 10 years. I mean, hey, if we’re all about re-creating the environment of the ’50s and ’60s… And progressives always say conservatives want to “turn back the clock.”… They remind me of a South Park episode called “Super Best Friends,” where the Lincoln statue in Wash., D.C. somehow magically comes to life and terrorizes the city. Nothing conventional stops him, so the kids call in the “super best friends” (think Justice League from the ’70s…) who magically bring back John Wilkes Booth to assassinate him again…

    This is the reason libertarians are ready to throw up their hands and tell the liberals to go for it. “Try it. It’s gonna fail, but we see you have to be convinced by actually experiencing it. So go for it. Be our guest.”

    This is where we are. I think many are aware of the problem. We just don’t know shit about how to solve it, and we’re too easily misguided by charlatans who want to keep the game going.

    I finally came to the conclusion a while back that there is a flaw in our Constitution, and the debt is illustrative of it. There is no natural constituency for reducing the debt, spending less. So the only way out of this problem is for the people who support the overspending to experience economic/financial pain, which they’ll be bringing on themselves. When it hurts too much, maybe then they’ll have to be confronted with some hard choices. The one thing I’ve counted on in all of this is that people are not suicidal to their own interests, and there’s some hope from that that they’ll start demanding actions that are, in effect, rational, even if they don’t fully comprehend the problem, because they will finally get the sense that they have no choice. It’s either do that, or watch their society crumble around them. Sure, there are some who are crazy enough to go for the latter, but I think most people don’t want that.

  40. E.M.Smith says:

    I think I’ve thought up a way to provide that debt reducing ‘constituency’. I need to ponder it a bit more, then it will be a posting…

    But yes, at present, things are pretty darned bleak. I can only hope that I’m not squashed like a windshield bug in the process of the ones on fat government paychecks doing their Learning Process…

  41. Mark Miller says:

    Had some more thoughts to add on this…

    My impression from talking to liberals is they seem to have little issue with the idea of confiscating property from the wealthy. None have told me that directly, but just the way they see wealth as a public resource has that implication.

    As to what Peter says, what he neglects re. the “value of the U.S.” is that value is contingent on how much people want it and *why* they want it. If we turn into a society where property can be nationalized to cover the debt, watch how quickly the “value of the U.S.” drops significantly.

    I agree with him in principle that the main thing we need to watch is the interest on the federal debt. As long as we’re able to keep paying the interest, there’s little reason to fear a fiscal crisis.

    He’s unrealistic in saying that a per-capita interest load of $1,500 is no big deal. If you’re making $25,000/yr., which I’m guessing is about poverty level now, $1,500 is almost a month’s pay. That’s not small change to someone who’s trying to pay rent and put food on the table. There’s no getting around the fact that as the debt increases, the fed. gov. will have no choice but to expand the tax base, meaning taxing the middle class, and even the poor. Even if they succeed in confiscating wealth from the rich, it’ll only bail out the gov’t for one fiscal year. What about the next one coming up?…

    The thing is I doubt bond investors are so stupid as to not look at the “carrying capacity” of our tax base as a metric they need to watch. If they see that we’re reaching a point soon where we will no longer be able to pay the interest, then we enter a very dangerous situation, because the gov’t only has two choices when debt matures. Either pay off maturing treasuries with cash, or try to renew them at a higher interest rate. If you pay them off with cash, that’s money you can’t use to cover your spending. If we pay the higher interest, that’s still leaves less money to cover outlays, but it may delay the day of reckoning just a little. Eventually you run out of wiggle room if you keep that up. You either have to somehow stiff bondholders, or stiff beneficiaries of outlays.

    If we stiff bondholders, there are a couple ways we can go about it. You know what they are. The only thing that might save us in terms of keeping our reserve currency status–for a while, still–is if we’re “the most attractive horse in the glue factory” (I love that phrase :) )–if the other developed countries are still doing worse than we are. If that’s not the case, we’re in for deep trouble. What if another long-term war erupts sometime in our future? Do the progressives think it can’t happen?… Long story short, keep it up long enough, and you can forget about our reserve currency status, and then prices on everything from fuel to food goes to shit.

    If we stiff beneficiaries, more grandparents have to move in with their kids, and more poor people have to try to make it on their own. Personally I think the latter is preferable to the former in terms of maintaining a functioning society. If we go into hyper-inflation, nothing works.

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