print$120 Trillion: That’s a reoccurring figure in my writings on the economy. It’s, plus/minus, the sum total of the American government’s debt, including unfunded obligations and promises. According to Princeton’s Garry Becker and Richard Posner of the University of Chicago Law School, “evaluating a nation’s economic condition” involves comparing not the “public debt (government bonds) to Gross Domestic Product,” but comparing “assets and liabilities.”
“The major asset of any government is its taxing power, which of course cannot be equated to the entire GDP, or the entire value of the nation’s human and physical capital; for both economic and political reasons, the taxing power is limited to a percentage of GDP well below 100 percent. And, realistically, the liability side of the national ledger includes not only government bonds but also other contractual obligations, entitlements, and at least strongly anchored expectations concerning government services (we’re not about to eliminate our armed forces). In addition … the national balance sheet must be reckoned in dynamic terms, with due regard for likely increases both in GDP and in liabilities, especially increases in entitlement spending that are likely to result from the continued ageing (sic) of the population.”
“Because American tax rates are low by international standards and resistance to increasing them is fierce, … the ratio of current U.S. public debt to realistically realizable tax revenues is 3.58 to 1, which is the highest by a large margin of the countries in the report’s list.”
If you’re looking for the usual pacifier—European countries are way worse off than us in terms of profligacy—DON’T. Only Greece comes close to the Us’s “ratio of current public debt to realistically realizable tax revenues. … because of the uncertainty of the future), America’s net worth is negative, and this negative net worth is eight times larger than our GDP. This means that the net present value of the government’s liabilities, minus assets, is approximately $120 trillion.”
Another theme on these websites of mine: The political resistance from the oink sectors is too intense to effect change (were it not already too late).
The Becker-Posner blog reckons that “the bondholders and holders of other contractual rights against the government have to start worrying about the prospects for outright default or default through inflation. These are possibilities in our future, just as in the future of Greece.”
But if you were reading this space (including the regular posters in the Comments Section), you already knew that.
There is much to be concerned about. This isn’t because our current authoritarian pseudo-fascist statist system deserves to survive intact but because it is likely to be replaced by something even worse. Also, debt and malinvestment is never healthy.
I was talking to some Ph.D. economists about the previous bubbles (dot-coms and housing) and how the government is one big bubble. I mentioned that while I did not see a gold standard as a panacea, it at least has more basis in reality than the present debt-addicted credit/printing-press. When I said that the government and the overall economy were merely floating on a sea of bullsh–t, they essentially agreed but said it has always been this way. That may even be so but the malinvestment is likely to cause us to choke on our own excrement. Examples:
1. Agribusiness / ethanol subsidies
2. Added hyperregulations on small business in the guise of loophole enforcement
3. Wasteful nation building with no return on the money lost
4. Small class sizes in dumbed-down schools for pseudo-illiterates
5. Extra inefficient medication (and paperwork) for terminally ill care recipients
6. A million imprisoned from the War on Drugs
Although Europe’s economic outlook may be troubling, I admire their sniveling from afar approach to national defense.
The American pathological busy-body approach would indicate that it’s maybe not all bad in Europe.
I don’t have a comment so much as a question for the economists among the readership.
What happens when the bubble bursts?
I mean what happens to the world economy the day the Fed announces a full or partial default, or decides to start paying off the debt with highly inflated currency? (And are there alternatives I’ve missed?)
It seems to me were’re set up for an economic collapse of unprecedented magnitude. The world system just has’t seen anything like this before so we’re kind of whistling in the dark. All we know is, it can’t be good…
It’s the last overdose that kills a drug addict.
And so it will be with this debt binge.
At some point it will be repudiated.
Does their comparison of assets and liabilities also include intangible assets? I would imagine sharing a border with Canada would tend to increase the intangible asset ‘Goodwill’ while sharing one with Mexico would tend to decrease it.
Myron Pauli sounds like me only with a better education. Well said Ilana and well said Myron.