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US Will Hit 94% Debt to GDP Ratio Next Year, Surpassing the Level Where Debt Starts Reducing Economic Growth
Ambrose-Evans Pritchard notes:
Fitch
expects the combined state and federal debt to reach 94pc of GDP next
year, up from 57pc at the end of 2007. Federal interest costs will
reach 13pc of revenues, meaning that an eighth of all taxes will go to
service debt.
The figure of 94% is dramatic given that two top American economists - Carmen Reinhart and Kenneth Rogoff - wrote last month :
The
relationship between government debt and real GDP growth is weak for
debt/GDP ratios below a threshold of 90 percent of GDP. Above 90 percent,
median growth rates fall by one percent, and average growth falls
considerably more. We find that the threshold for public debt is
similar in advanced and emerging economies...
Indeed, as Forbes noted in December:
Add the unfunded portion of entitlement programs and we're at 840% of GDP.
Note
1: Reinhart and Rogoff also make it clear that the larger the ratio of
external to internal debt, the greater the drag on economic growth. The
U.S. had a high level of external debt, although the Fed is now covertly monetizing much of the U.S. debt. So I'm not sure what the ratio of external versus internal debt really is at the moment.
Note 2: Fitch's 94% figure includes state as well as Federal debt. I am not sure if this changes the above analysis.
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More solent green anybody?
I'm going long BID, someone will have to sell the Chinese all those crap paintings the hedgies bought over the last decade, not to mention the wine collections and sports memorabilia. Liquidation sale USA starts soon!
BONUSES UP 10% ON FRAUD STREET!
(I know, it's just "business" even if it is theft)
Wait a second, these numbers are way low:
$billlions (12-10-2009 Fed Z.1 Release)
U.S. Govt (table d.3) $7,566.5
State and Local (d.3) $3,309.1
GSE debt/GSE gteed MBS (L.4) $8,123.4
Total $18,999.0
3q GDP SAAR $14,242.0
debt to GDP = 133.4%
add: $7,944.3 debt of financial sector with implicit guarantee
$2,100.0 federal reserve obligations
= total of $29,043.3 or 203.9% of GDP
add unfunded liabilities of SS system (table IV.B6 2008 Annual Report of SS Trustees)
$13,600.0
=$42,643.3 or 299.4% of GDP
The U.S. is insolvent by all accepted measures.
thanks for the input.
i wonder when these numbers will start to appear in the mainstream media (CNBC excepted of course). I fully agree the US is bankrupt. I am deeply sorry for future generations (or probably even mine since I'm 45 !!).
With no estate tax this year, we could just euthanize all the boomers. Presto! Wealth transferred to younger generation, plenty of jobs available.
You just volunteered me to die. I in turn nominate the political class and all their associates
Don't laugh. That's how it works.
Collectivists justify "for the greater good" to do exactly that, killing millions to "solve problems for the greater good" in China (Mao Ze-Dong), USSR (Stalin), Germany (Hitler), Congo (Leopold II), Japan (Hideki Tojo), Turkey (Ismail Enver), Cambodia (Pol Pot), North Korea (Kim Il Sung), Ethiopia (Menghistu), etc.
We will see increasing societal focus on "the right to die" shifting into "the duty to die" shifting into "government euthanasia" shifting into "assisting those resistant to dying".
Governments all over the planet *need* many of their citizens to die. Governments benefit in *every way* if they could remove aging sections of their populace -- there is no benefit whatsoever (and many untenable disadvantages) to leaving those aging segments of the population alive.
It doesn't just "happen here", it happens "everywhere" collectivists decide to "help" for the "greater good".
that's what the alex jones crowd believes the FEMA camps are for ...
Totally correct! The govs around the world will desire the wealth the older folks have amassed as well as seek to get out from under their obligation to pay them bennies that they promised them. When people talk about "the greater good" they mean the greater good for them not you.
Better yet , i understand some banks are becoming the recipients of insurance settlements /death benefits that are bought for much less from original insured.
The burning of the hamptons" might some day be a movie as real as the one we are in.
Soylent Green would be an effective solution to the deficits in Social Security and Medicare.
http://www.forbes.com/2009/12/18/government-budget-deficit-personal-finance-financial-advisor-network-treasury-debt.html
Trillions Of Troubles Ahead
Bert Dohmen, 12.18.09, 05:50 PM EST
A crushing burden of debt threatens to sap America's growth for years to come.
Not too long ago, a billion dollars in a governmental budget was a lot of money. Then we got into hundreds of billions. People understood that this was a lot, just because of all the zeros. Now, unfortunately, the number has become small: the world "trillion," as in $1.2 trillion for health care reform, seems so tiny. But it has 12 zeroes behind it, which is so easy to forget.
If the government stays on the course it's been on for the past forty years without a radical change, the federal government will soon have a $10 trillion budget.
In other words, the federal budget deficit will be $1.4 trillion. Just to make the size more visible, that's $1,400 billion.
Our colleague Rob Arnott, who always does terrific research, wrote in his recent report that "at all levels, federal, state, local and GSEs, the total public debt is now at 141% of GDP. That puts the United States in some elite company--only Japan, Lebanon and Zimbabwe are higher. That's only the start. Add household debt (highest in the world at 99% of GDP) and corporate debt (highest in the world at 317% of GDP, not even counting off-balance-sheet swaps and derivatives) and our total debt is 557% of GDP. Less than three years ago our total indebtedness crossed 500% of GDP for the first time."
Add the unfunded portion of entitlement programs and we're at 840% of GDP.
+1000.
http://www.youtube.com/watch?v=XL1AJVZHTqo&feature=player_embedded
this happened in houston texas recently. hope you all like it. thug george bush is told what for. it is about that time folks. isn't it? isn't it about time? hmmm?
"Ambrose-Evans Pritchard notes:"
I stopped reading right there.
sounds like an opportune time to mention again marginal productivity of debt....we are there....hence as i have stated repeatedly there will be no recovery....sorry folks you are a complete tard if you think so....
Yeah but we MUST spend our way out of this. Krugman where are you?
I thought Willy Wonka was running the Fed.
the next trick the government will do to make that figure look smaller is to stall the tax refunds and to cash in taxes earlier. It gives them a few extra % and they can do this a few years before the trick renders itself useless unless they are able to repay the debt.
It's a proven tactic in the Eurozone and creates a lot of problems concerning credit
You might be right on what's next but this will soon follow if not happen concurrently. Just think of what you could do to the long rates if you force a large percentage of 401k assets into the 10 and 30 year.
http://jessescrossroadscafe.blogspot.com/2010/01/us-government-is-eyeing...
Sweet! With no way to turn the ship of state this is what it must be like to be on a boat that is going over the waterfall. We all know it's coming we just can't stop it. My only question is who dies first? Will it be the US or will it be the UK, or Japan, or some other larger nation?
Also we really can't inflate our way out. We can't because we would have to then run a government within tax revenues, and no way is that going to happen anytime soon. It's the same reason a general default will not work, we would not be able to get lenders. If we try to inflate and borrow we will find that there are no lenders and we must fully turn to the printing press, and enjoy the wild ride that other nations have had under insane money printing regimes.
At some point, people stop using dollars and
begin bartering. The idea that gold and silver
regain status as Constitutional Article X
money never worked long in practice. Exactly
when will Safeway or Tesco give change and
a loaf of bread for a gold eagle or sovereign?...
http://www.jubileeprosperity.com/
If you completely forget about money and start trading in silver you will be rich, productive and efficient.
And those that choose to trade in hard assets/real
money will be "The New Economy", i.e. jump off that
ship, get on a life raft and start surviving with
other smart metal traders. There is just no other way.
agree, but only be careful that Uncle sam will not confiscate your gold and silver as they did it in the thirties !
The US won't be first.
We already had Iceland, and we're about to see Venezuela and Argentina. Greece could go any time. Then the Eastern Block.
Europe is far more exposed to South America, and things are getting really exciting down there this week with Venezuela's currency devaluation and Argentina's constitutional fun with demanded central bank printing.
Similarly, Europe is more exposed to Greece, and is now threatening hard that Greece's "fraudulent accounting" is out-of-line (to get Greece to toe-the-line in servitude to the IMF for all eternity). Europe is more exposed to Dubai, which is just getting warmed up.
However, of the "big kids", I still think it's the UK or Japan first; Probably Japan. Their demographics are terrible, they have been in a true depression for a long time, and they have nothing but the Yen ... which they may now destroy through wild printing (we'll see).
The US will get its turn, but it won't be first. We can't get to a US Federal Default until after the Keystone Cops perform California and New York defaults (and we haven't even started seeing the extent of the bumbling that will happen there).
I disagree that Japan's demographics are "terrible" I think in the future world of peak oil, peak food, peak everthing else, that having fewer mouths to feed will be a good thing. The conventional wisdom that higher population growth rates = better economic conditions will be shown to be false in the very near future.
Alright and that's a sound argument, but how do you deal with the elderly? The pensions are largely in gov bonds over there if memory serves. Also the state is on the hook for a chunk. So the money to dole out to the old has to come form somewhere. So the options are to tax the young heavily to pay for the old or...?
Maybe a smaller population in the "long run" can be alright (still a painful transition), but we're looking at the "short-run": The population is aging, productivity is down, and they previously funded their debt with their citizens' savings. That's stopping now, and it will not be replaced with national productivity.
They cannot fund their bankrupt government, and will not be able to grow out of their depression (largely due to demographics and a decreasingly productive society). They will sovereign default before they see the "benefits" of a future smaller society that has relatively higher productivity.
Japan does not have "fewer mouths to feed", they have "way too many old people, not enough young people". Unless you are suggesting that they will start killing old people in Japan...
Run, Logan-san, Run!
I'm inclined to agree that the US will not be first. The reserve currency status will keep us floating for a while together with good old inertia.
For the little guys there are the periphery nations in the EU. I'm interested to see how the eastern Europe leg down will impact Austria and Sweden. I'm also still looking at Spain, one of the kings of the house boom/busts and of unemployment.
As to UK and Japan I'm not sure. Yes Japan faces epic problems and their demographics are just plain awful but the UK might really jam the idiocy into high gear. I mean look at them, Gordon Brown is in charge...the man who gave us Brown's bottom. Not sure he has ever been right about anything in his illustrious career. And who will replace him, David Cameron, not a man that fills me or the the world with confidence. Oh and the North Sea oil is drying up. So you might be right I know things are really grim in Japan with their new insane budget but I can't quite count the Brits out in the race to the bottom.
When are you going to post up a new article anyway? Looking forward to seeing more of them.
I made a list of some two dozen articles that would be fun to write, but I'm not sure they are helpful: I've concluded people mostly don't want to talk about many things that are "unthinkable", and I'm convinced we are walking into "unthinkable" times.
If you talk about things that are "unthinkable", then you are a "nut-job" to be dismissed. <sigh>
I don't actually think all this stuff is all bad, but my comments on the situation do start to relate more to sociology and the human condition (and mere politics) as opposed to economics, which is the main focus of ZeroHedge (as I understand it).
I traded email with Mish after my last article (whom I respect greatly, I love his Fed Uncertainty Principle), and he said he didn't understand my point, so I'm not sure my thoughts are entirely salient or relevant to "normal" third parties... ;-)
I would look forward to such essays. At this stage nothing will insult my senses any more than what is already happening.
The new life style....have less, Be more
the old life style... have more, be less.
In my mind sociology and the human condition IS economics. All human behavior is economic behavior. When you distill it down all human activity (or inactivity in the case of government workers) does impact the economic situation. We talk about demographics, that is something definitely in the scope of the human condition and yet we KNOW it will make a significant economic impact. After all even if Japan was in a much stronger economic position many would still be looking at their aging population when making an investment decision. Culture definitely has an impact as well. As culture will tell what is and what is not acceptable as well as what is and what is not acceptable products and services. We might be seeing more of that now with talk of marijuana legalization in Cali, a social change which will impact the economy. Hell look at cultural fads and the money made in them. IIRC some mechanical hamster made a killing this year, would have been great to predict that in advance. So even though we might not be talking about the next hot toy, what happens in the minds of the masses is useful for investing and economics.
As to the "unthinkable" we must talk about it to see if it is unthinkable because it is impossible and outlandish or it is simply too terrifying to contemplate. I will argue that many of the "unthinkable" scenarios that have been discussed, at least here, fall into the category or "too terrifying". And perhaps those things will not happen, but what if they do? If for the sake of argument there was only a 1 in 100 chance of the US devaluing or defaulting in the next decade that is still enough of a chance to discuss, after all we could be talking about trillions of dollars.
However there will be people who are willing to talk about them, at least anonymously. I would prefer to see more on those topics because they are not discussed. Without intelligent discourse in these topics we are left alone with only our own judgment on them. Lets face it these are not the sort of topics you usually sit down and discuss with your co-workers.
history also tells us that major shocks as wars can "solve" these extreme situations (WW2).
A boat ride, you say?
http://www.youtube.com/watch?v=2Zail7Gdqro&feature=related
It's actually much much more than 94% of GDP, if you add all the bailouts, the guarantees to banks,the unemployment money extension etc.
The situation is out of control, Fed knows it, that's why we move to a big inflation, the only way to reduce debt.
Moreover Debt to GDP is nonsense to me, shouldnt it be Debt to INCOME?
When debt service snuffs out earnings income
and debt defaults drive asset balance sheets
down to zero hedge hell, exactly how is this
inflationary?
Many people assume the Fed, governments and
Treasury will keep multiplier integrity and
monetary velocity by appointing academics and
tax dodgers to keep the bubble machine going
indefinitely on wash, rinse and spin.
Not bloody likely...There is an invisible hand.
The Fed may have made a lot of cash flow usury
profits last year buying government guarantees,
mortgages and Treasuries put to them.
Who will buy or service them the next 30 years
as taxpayer revenues continue to fall and baby
boomers retire?
eg Japan's two lost decades on steroids.
If we read one more time on ZH that inflation
will reduce the debt, we may puke. Inflation
drives up costs and makes debt harder to service.
Not one man in a million understands deflation,
partly because the last one was four generations
ago and most people did not learn from history...
http://www.jubileeprosperity.com/
"If we read one more time on ZH that inflation
will reduce the debt, we may puke. Inflation
drives up costs and makes debt harder to service".
Sorry but that's completely wrong !
Example: your debt is 100 and inflation is 1%
Year after: inflation is 100%.
What happens: the debt you own is still 100, but due to inflation, the "real" debt is only 1.
BTW, you can read that in any serious economic book, that inflation reduces the debt.
You cant inflate away the 2 biggest US liabilities(SS and Medicare). If SS payouts are indexed to inflation, then if you inflate, then those liablilities just get
bigger and obviously Medicare costs will skyrocket too if they inflate. I understand how inflating helps reduce a debtload like our public debt, but it
probably makes things worse when it comes to SS/Medicare unfunded liablities
Those 2 will just get bigger..and they dwarf our public debt..same thing with state pensions.
Yes, that is good, let us leave all the Medicare, SS liabilities out of this for now.
Xamax: I agree: "It's actually much much more than 94% of GDP, if you add all the bailouts, the guarantees to banks,the unemployment money extension etc."
Can any of the smart people at ZH take a stab at the real ratio?
George:
Compared to you and TD, I'm certainly not smart, but I will try to do the math: if you include Medicare and SS Liabilities, one guy recently gave out the number of 75 trillion $ (could be david rosenberg but i'm not sure). So if you take a more conservative number of 50 trillion$, it still would be about 400% of US GDP (which stands around 14 trillion$). So if would be the even the brightest Fed Chairman or Treasury Secretary and assuming a healthy economy (which are both lightyears from that now), there is in my view simply no way out.
Bottom line: Inflation if not hyperinflation will come sooner than later. in my view, the world will look much different in 5-10 years. How I don't know but surely not for the better. Thanks for your regular postings on ZH.
Somewhere I think I saw north of 110%, depending on how you factor NPV of the entitlement spend.