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When you look at the deficit (or surplus) which each nation has in all of its business with other nations, i.e. its “current account deficit”, China up at the top, with a massive annual surplus of almost $300 billion per year, and the U.S. is last in 190th position with a staggering deficit of over $350 billion. So much for the U.S. being a “wealthy” nation! In fact, the U.S. is hopelessly insolvent! Words: 935
So said Jeff Nielson’s (www.BullionBullsCanada.com) in an original 7000 word presentation* at the “World Money Show” investors’ conference in Vancouver which Lorimer Wilson, editor of www.munKNEE.com (It’s all about Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. Nielson goes on to say:
The U.S. National Debt is Staggering!
Even using the “official” number for the U.S. national debt, the United States (with only 5% of the world’s population) owes nearly as much as the rest of the world, combined!
U.S. Unfunded Liabilities are Staggering!
The debt problems of the U.S. look far, far worse, however, when we look at the total debts for the entire U.S. economy. The United States is currently carrying more than $60 trillion in total public and private debt. However, even that horrifying number does not include one penny of the U.S.’s $70 trillion in “unfunded liabilities” necessary to fund upcoming social programs.
Because the above are such huge numbers, let me put them into context: both numbers are equal or greater in size than global GDP. The U.S.’s current debts exceed global GDP and its future liabilities exceed global GDP, meaning it would take two Planet Earths to service the U.S.’s current debts and future obligations.
The U.S. “Balance Sheet” is Astoundingly Negative!
We’ve seen the debts and liabilities of the United States, but what about its assets? In 2004, the total value of all U.S. “household wealth” was just under $50 trillion. Since that number also includes the (U.S.-owned) shares of all corporations (i.e. their market capitalization), this is a good proxy for “total U.S. assets”.
In 2004, the U.S. “housing bubble” was already underway, which was the largest asset-bubble in history (at that time). Since all that added “wealth” was illusory, this likely overstates total U.S. assets. This leads to the following equation:
U.S. total assets ($50 Trillion) – U.S. total debts ($60 Trillion) – U.S. unfunded liabilities ($70 Trillion) = Balance (-$80 Trillion)
Admittedly this is a simplification of the “balance sheet” of the United States. However, when we factor-in the compounding of debt; and the “unfunded liabilities” of state and local governments, and other public and private entities (which were not included in the previous total) the bottom-line is (if anything) an understatement of current U.S. debts and liabilities.
U.S. Debt-to-GDP is Staggering
Another way of characterizing the debt (and debt-problem) of any nation is by looking at the “debt to GDP” ratio. So let’s look at the U.S. debt problem using this alternate “measuring stick”.
While the U.S. economy looks very bad several other economies look even worse. However, when we add the missing $4.2 trillion that the Republicans and Democrats alike have ‘borrowed’ from government “trust funds” (that were supposed to pay for upcoming social programs and are still listed as an “asset” in the government’s books as an “IOU” with no funds set aside in any future government projections to repay these “IOU’s” despite the fact that those future liabilities are turning into current expenses) suddenly the U.S. debt-to-GDP ratio becomes worse than that of any other major economy, except Japan. Yet even this comparison is an over-simplification.
When economists measure the solvency of economies, they tend to focus myopically on only these debt-to-GDP ratios. There are two reasons why this is extremely simplistic.
1. It takes no account of (for example) the $70 trillion of “unfunded liabilities” of the United States, which account for over 80% of total U.S. debts and liabilities (a rather large omission).
2. It is a “static measurement” – meaning it takes no account of the rate at which debt is increasing (i.e. the size of the annual deficit). For example, while Japan has a larger debt-to-GDP ratio, in 2009 the U.S. attempted to borrow six times as much as Japan. Indeed, the U.S. (which comprises only about 1/5th of global GDP) borrowed more than all the rest of the world combined!
Arguably, a nation with a very large debt (i.e. a high debt-to-GDP ratio) but small deficits is in a better position than a nation with a smaller debt – but huge deficits: the nation with the small deficit can easily move to a surplus, and start repaying (and reducing) its debt, while the nation with the huge deficit is going to see its own debt explode exponentially – unless radical measures are taken to reduce spending and/or increase taxation.
The U.S. Debt Situation is Hopeless!
The reason the U.S. situation is hopeless is that it has:
1. existing debts which are far larger than any other nation
2. annual deficits which are much worse than any other nation
3. future obligations that dwarf its terrible debt/deficit problems.
In summary, the U.S. owes the most; it is borrowing the most; and its borrowing needs in the future will increase exponentially.
This leads to only one possible conclusion. The United States is hopelessly insolvent.
*http://www.bullionbullscanada.com/index.php?option=com_content&view=article&id=11900:debt-denial-and-default&catid=64:presentations&Itemid=141
Editor’s Note:
– The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
– Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2.