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Debt

Going Down The Toilet

Preaching/warning about the impossibility of honoring our obligations is getting tiring for me. I can only imagine how readers must feel. Obviously they would like to hear some good news, although that is not possible given where we are. Rather… Read More »Going Down The Toilet

Sovereign Debt Looking Shaky

Recognize that ratings agencies are subject to political and other pressures. Their performance in the sub-prime debt crisis was criminal. With that in mind, imagine the political pressure to keep sovereign ratings overstated. Nevertheless, this chart looks dismal in spite… Read More »Sovereign Debt Looking Shaky

The Government Is Bankrupt and Will Destroy The Economy

Most people don’t understand the unsolvable problem the US government has created for itself and its citizens. Sovereign default is beyond a likelihood; it is inevitable. When and which (possibly all) obligations are defaulted on are to be determined. Panicked political decisions, likely in the near future, will produce a complete financial and economic collapse. Hopefully that is the worst that will occur.

Official Government Debt

The official federal debt is $16 Trillion. This debt represents 100% of current GDP. Ken Rogoff and Carmen Reinhart studied countries with high levels of government debt. This Time Is Different: Eight Centuries of Financial Folly, their well-acclaimed book, contains their findings. The authors concluded:

In our study “Growth in a Time of Debt,” we found relatively little association between public liabilities and growth for debt levels of less than 90 percent of GDP. But burdens above 90 percent are associated with 1 percent lower median growth. Our results are based on a data set of public debt covering 44 countries for up to 200 years. The annual data set incorporates more than 3,700 observations spanning a wide range of political and historical circumstances, legal structures and monetary regimes.

Elsewhere, the authors state:

Our empirical research on the history of financial crises and the relationship between growth and public liabilities supports the view that current debt trajectories are a risk to long-term growth and stability, with many advanced economies already reaching or exceeding the important marker of 90 percent of GDP.

The US has passed their danger point and recent US GDP experience conforms to their findings. The economy is growing at subnormal rates, despite unprecedented stimulus efforts. A recent Rasmussen survey found that only 27% believe the economy is improving.

Actual Government Liabilities

Debt problems in the US are worse than stated, much worse. Three areas shed light on the problem:

  1. The Glide Path
  2. Treasury Obligations
  3. Unfunded Liabilities
Each is discussed below.
1. The Glide Path
The glide path of expected spending and revenues indicates thatRead More »The Government Is Bankrupt and Will Destroy The Economy

You Built That, Bozo

This graphic conveys all one needs to know about why this man should not (cannot) be re-elected. He has imposed debts on the country and its future generations that cannot be paid. This performance earned the US the first downgrading… Read More »You Built That, Bozo

The Debt Death Spiral

In the category of things to keep you up at night, consider the sovereign debt requirements in the next several years. According to Chris Puplava: Nearly 50% of the total outstanding debt of the world’s top 10 debtor nations needs… Read More »The Debt Death Spiral

The Futility of More Debt

Charles Hugh Smith discusses the debt problem and why more debt is not the answer: Why The Debt-Dependent Status Quo Is Doomed in One Chart  (June 29, 2012) The global economy is now addicted to debt. Once debt stops expanding,… Read More »The Futility of More Debt