In line with previous threads about David Walker, another group called the Institute for Truth in Accounting claims that every single American owes $194,000 in debt. (Link has further link to .pdf of report.)
What with pension funds hit hard by the stock market (here libertarians also add one of their favorite bogeymen, the promise of future universal health care), some argue that this means that, not only will the economy get much MUCH worse, no real economic recovery is possible, given current political realities.
The number vary depending on what assumptions you make, but I don’t think any knowledgeable person denies that the federal government’s commitments are huge. The government has promised to pay too much money to too many people. There simply isn’t any possibility of paying off all these debts while maintaining the economic conditions that we’ve gotten used to.
So what’s going to happen. In the long term, the government has three options: (1) default on its debts and cut back on benefits. (2) Raise taxes. (3) Let the dollar inflate. Of course they can choose some combination of the three, but history suggests that they’ll probably choose (3) for the most part.
So my prediction is that the United States will end of running through another period like the 70’s, with double-digit inflation, sky-high interest rates, economic stagnation, and high unemployment. I don’t pretend to know when it’s going to happen, how long it will last, or exactly how severe it will be. The basic logic, however, looks inevitable to me. It’s the result of the American people’s decision to demand both massive tax cuts and massive spending increases, and to not insist on sound financial policy.
Interesting figure. That’s a good middling number for the outstanding balance on a lot of first time homeowners mortages as well from what I see at work on a daily basis and knowing my own mortgage. Given that for the most part most of us promise to pay that kind of money back over 30 years, there aren’t enough prime working years in the average American’s financially viable years to ever put it back.
That being said, if I could manage it I’d like the ability to option out.
Well, you know we’re not going to do option one. AFAIK, the U.S. has never defaulted on its debts except the ones run up by the Confederacy, and it would certainly do more harm than good. I don’t really see the question of this thread, though. Yes, that *is *the national debt divided by 300 million. That doesn’t necessarily foretell economic doom, however. The U.S. only ever paid off its national debt once (for twenty minutes) in 1835.
yah i guess i let a few hours pass before this double post, but you know, it feels like i owe somebody $194,000. i can feel it man! thats why i’ve been working so much harder than is really necessary, thanks government, (sarcastic though the library was kick-ass, please, while handling all the money that should be spent on food and milk for my 12 children, do not decide to regulate the internet, k thanks, bye).
I think this analysis is correct but that in the long run there will be a combination of all those used in a number of different variations.
“Defaulting” (which many say could never happen because it has never happened before :rolleyes: ) can be done in many ways, not just plain out saying “I’m not giving you your money back”. Any breach of the original terms is a “partial default”. Even paying with highly inflated dollars would be a default of sorts. Saying “we will not give you back your dollars as we promised but rather we will pay you with new treasury securities” would be a default of sorts. If it ever comes to that the same people who today are saying that the US government cannot and will not default on its obligations will be justifying that and explaining why that is not a default but a “necessary measure”.
Another way of defaulting in a way is changing the conditions required in order to get benefits.
As you say inflation is the most attractive option for politicians because it is more impersonal. You do not have to “vote for inflation” like you would vote to raise taxes. And yet inflation is even more unfair because it punishes those who did the right thing and saved while it rewards those who were living beyond their means and borrowed.
We’ve experienced inflation at the 20% range. It’s not a good thing for those trying to borrow but those with money can stay ahead of the game. Meanwhile, it chews up and spits out the debt.
If the current crisis can be stabilized and then a we were to allow inflation at something like a 10% rate for a few years we may be able to find our way out of the current mess. In any event, we can’t go on borrowing at this rate forever. It’s time for discipline but we have to find out if any of the “powers that be” have the stomach for it.
Returning to the OP’s cite. Their “report” assigns numbers to various gov’t programs, but doesn’t really say where those numbers are coming from, instead filling most of the page with a bunch of large point, multicolor text with a bunch of scare words. I tried poking around their site, but they don’t put there source for their numbers in any obvious place. It looks like they just totaled up all future liabilities of those programs, in which case I’d say that its pretty much BS. Actual debt is something like 50 % of GDP (around 10 trillion), large, but hardly unmanageable (we’re apparently 27th in the world).
What about (4): sell all the land the US government owns in Utah and pay the debt. Or (5): Even though the Chinese only have 4% of our debt, let’s say we offer them a 50 year lease on our National Parks as payment. Let them run them as a commercial enterprise with ticket sales, concessions, etc… I am sure that our parks could make more revenue than the various amusement parks in the U.S. Or (6), threaten the debt holders with some kind of military or economic consequences if they don’t forgive half of it. Or (7), start charging reasonable amounts for grazing and mineral rights. Or (8),…
There are lot’s of options for paying it down without defaulting (even if some of the examples are stupid), and more importantly, it is not as bad as it sounds. What Simplicio said is very relevant (though I believe the debt is more like 70% of GDP), as is this Wikipedia page. Note that at the end of world war 2, the federal debt was almost double what it is today it terms of our GDP.
While not disagreeing with the basic point you’re making, I have to say that your option (6) is pretty much the same as defaulting on the debt. Who would ever lend money to the US again?
This includes future obligations for SS and Medicare, that aren’t exactly debt. They are more like statutory promises. However, at any point we can legislate these programs out of existence without catastrophic problems. We can’t do that with US Bonds, which is what is commonly referred to debt.
Basically, an analogy to personal finances would be to include all future expenses in addition to debt. If you have a 200k mortgage and a 10k auto loan, you would say that you have 210k in debt. According to this method, your debt would be 200k mortgage + 10k car loan + 30k in future food purchases + 20k in future clothing + 30k in future entertainment etc. You can cut most of these purchases without repercussion if your income goes down, however, so they are different from debt, which you have to pay.
thats why i’ve been working so much harder than is really necessary, thanks government, (sarcastic though the library was kick-ass, please, while handling all the money that should be spent on food and milk for my 12 children, do not decide to regulate the internet, k thanks, bye).