Guest Post: The US Debt Crisis - How High Will It Go?
Authored by Chris Ferreira, originally posted at Economic Reason blog,
The implications of the US debt crisis are not well understood in most circles, and it is not widely spoken about in the media and during important political debates. The irony is that the US debt is so significant that it plays a monumental role in finance and modern political strategy. The debt poses great risks moving forward, and yet it is referred to in only the vaguest of terms.
Here is why the US debt must grow every year and why it is mathematically impossible for it to continue forever.
Before we can understand why the debt must grow every year, here is is a visual representation, to scale, of how much the current debt is standing at. Each tall uniform column in the background of the picture below refers to a pile of $100 bills stacked one on top of another. Each “tower of debt” consists of 10 x 10 fork-lift palettes that reach out into the sky and are higher than the old World Trade Center buildings. These towers of debt represent $US 16.394 trillion. However, by the time you wake up to read this, it will be larger than that. DemonOcracy does great work on visual representation of the US debt levels.
Why did the US debt grow to these proportions?
Short answer: the US government spends more than what it receives in revenue. In 2012, the US federal government expects to receive $2.5 trillion in revenue, while the total spending carried out by the federal government is $3.8 trillion. The difference ($1.3 trillion) is debt piled onto of the previous debt.
To put $1.3 trillion into context, it is approximately $3,56 billion a day. To make matters worse, the current debt does not take into consideration federal obligations such as social security, Medicare, pension, and retiree health promises. According to David Walker, former controller of the US, when these unfunded programs are added to the enormous debt, it stands at $70 trillion and growing–that is $10 million per minute!
Seventy trillion dollars is over four times the debt in the picture on your left, dwarfing the current US GDP; in fact, it is approximately the world’s annual GDP in 2011. For a current view of the US debt, see the debt clock here.
The government allows for the debt to continue to grow by adding new debt on top of old debt plus compounded interest. Instead of paying back the debt, the government just borrows more to cover previous interest. The interest payments on the debt is over $1 billion a day. When “Uncle Sam” takes out a loan, it is called a bond (I.O.U.). These bonds are purchased by investors, banks, and foreigners. These bonds are a promise to pay capital plus interest. What “Uncle Sam” does, essentially, is pay his investors with his credit card and create new loans to cover interest.
Talk about short-sighted finances with no discipline.
Compounded interest has allowed the debt to grow exponentially, and has reached, in my opinion, unsustainable levels where the debt is reaching at the vertical portion of the “hockey stick” formation.
Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.
- Albert Einstein
How does the US government allow the US debt to grow?
Doing the “right thing” is usually political suicide for politicians. Cutting expenditure to pay its bills to pay down the debt will make the economy implode. Instead, the government in power continues its daily activities and promotes new social programs to promote reelection. Almost half of the spending done by the US government goes to entitlements (Medicare, Medicaid, social security). If any cuts are carried out in this sector, you can expect riots on the street (approximately 28% of the US population are baby boomers and 80% of investments and laws are carried out by this powerful demographic.) Cuts to entitlements are highly unlikely!
The continuous debate on raising the debt ceiling is all about a government mismanaging its money and not being able to control it–much like a child with no discipline. Since debt is being mismanaged, it has caused many distortions in the markets, and yet the debt is allowed to grow because of the US Congress. The debt ceiling has been increased 10 times since 2001. If the debt ceiling were actually a ceiling, the market and debt distortions would have imploded the economy–an implosion necessary for the economy to restore its equilibrium and liquidate all inefficiencies.
“Too big too fail” is absolute nonsense.
Paying back investors, costly wars, entitlements and bailing out the “financial terrorists” (who caused the crisis) all add to the national debt and to the dysfunctional economy that continues to operate until its debt will cease to grow. The problem with this system is that it created significantly more credit (someone is the creditor to all the debt) than “cash” money (money in your wallet). Every time debt expands, the credit supply also expands. (Read Fractional Reserve Lending on how money is created.)
According to the FED, the Total Credit Market Debt Owed (TCMDO) is approximately 53$ trillion and 2.4$ trillion in the true money supply (M1). In other words, cash money is approximately 4.5% of credit (TCMDO/M1).
The result to our economy is that “boom” periods are hardly driven by cash money, as cash money is insignificant in relation to credit. Credit is what drives the markets, and it is this same credit that “busts” the markets as well, in times of credit contraction. In order for debt to expand, someone must be lending the US this money. At the moment, the lenders are China, Japan, and the OPEC countries.
But why do they continue to buy this debt?
Because they have too.
The US Dollar is the reserve currency of the world. You need it to buy oil, a vital component of any economy. Since other countries like China cannot print US dollars at their leisure, they have to get it from somewhere. They get it from trade with the US. The US buys products in Asia and the rest of the world with US dollars, and in turn these same dollar surpluses are used to buy oil and US bonds, creating a much needed artificial demand for US dollars.
This is also how the enormous US 558$ billion trade deficit in 2011 was financed. The US has been in a trade deficit since the 1980′s and it continues the grow as jobs and manufacturing are being lost to more competitive nations. The trade deficit also accounts for the national debt. The financing of the debt creates artificial demand for US bonds which helps lower the interest rate and coincidentally helps to raise the debt levels even higher.
The table below shows the leading foreign holders of US debt, which are China and Japan, followed by the OPEC countries. These are the main financiers of the US trade deficit.
But here is the Achilles’s heel for the US debt scheme:
In order to maintain and continually expand the debt, the US dollar needs to remain the reserve currency. In order for there to be continuous demand for these dollars and debt instruments, the US dollar needs to maintain a hegemony over competing currencies. Any threat to the dollar needs to corrected immediately. or else confidence in the US dollar will be quickly eroded and the subsequent tsunami of US dollars abroad rushing into the US will cause hyperinflation as never seen before.
William R. Clark’s excellent book, Petrodollar Warfare, treats this issue precisely, going in depth into the Petrodollar collapse and how the US maintains its dollar supremacy with its current imperialistic foreign policy. This gem of a book is a definite read for anyone wanting to know how the US truly maintains its power on the world stage.
Undoubtedly, the extent of US debt would never have been possible had the US dollar not been the reserve currency and had there been less favourable global trade policies to provide a channel for the distribution of dollars. (You can also read more about the Petrodollar here.)
Why must the debt grow every year?
To keep the debt-servitude paradigm going. To increase economic activity in a country operating in this type of system, you need to increase the level of credit and thus debt grows in tandem. This is self serving: if debt is the “fuel” to increase economic activity, interest payments will become larger and larger, until eventually it reaches a point where debt can no longer be increased. This point is known as the Minsky moment–when there is no net benefit to extra debt.
Adding debt, both public and private, creates an environment of servitude among the population while the banks are generating extra profits. Through their lobbyist groups, the financial terrorists create favourable laws to keep people enslaved with debt.
Real estate, for instance, is a heavily subsidized investment; such subsidies entice people to purchase real estate and as a result, people are unwittingly working for the banks. In a real free market, people save money for a purchase.
The word “save” is becoming archaic in this debt servitude paradigm, a paradigm that was build on sand and cards and that can and will eventually collapse. The foundation, of course, is confidence in the US dollar.
So there we have it, in our “creditopia” world, if debt does not expand, the economy cannot grow and jobs cannot be created. In order to increase debt, foreigners have to continually finance the ever growing debt by purchasing government bonds and selling consumer products to the US. In turn, the US must increase the level of consumption, decrease savings, and eliminate the threat of any nation posing a risk to the US dollar hegemony. Is this a symbiotic or a parasitic relationship? Is is certainly a relationship that cannot grow forever. It poses an economic risk for ALL nations due to the interconnectedness of the global economy.
(38 votes)
- advertisements -
»
- 40239 reads
- Printer-friendly version
- Send to friend
How tall is Bondzilla?
And don't try to talk about a debt crisis to all the brainwashed economic PHDs out there, they will laugh to your face.
/one of my friend is like that. He thinks I'm a kook, even facts don't matter to him, but eh, you wouldn't expect less from a Keynesian.
Don't just pick on the PhDs, everyone is brainwashed, the level of ignorance is breathtaking. Sometimes I feel like William Shatner in that Twilight Zone episode. I'm the only person I know that can see the monster on the wing of the plane.
That's correct, it was every single person who used high leverage Real Estate as a money making vehicle instead of saving first then investing, every person who continually allowed themselves to gain larger and larger Credit Card debt instead of saving first then investing, every person who took out a student loan instead of saving for most of it first then loaning the difference.
I'm surprised Tyler hasn't taken it up with Yves Smith on these pages...
The "house wisdom" at Naked Capitalism seems to be that the debt can and should be expanded without bound, and it is only greeedy conservatives who are trying to deny the poor and the disadvantaged their benefits, out of the innate meanness in their hearts.
Tyler is still listed as a contributor over there. Maybe some kind of alpha-blogger non-aggression pact...
I agree the debt should be expanded without bound. The US Treasury should send every household in America a $10,000 rebate check immediately. We need to kill the US dollar as world reserve currency as quickly as possible along with destroying the Federal Reserve Corporation completely, but that's going to happen anyway at this point. As far as the touchy feely emotional point of view, I could care less. People should address why there are no factory jobs for those poor individuals.
When you say foreigners are buying our debt, are you making reference to the foreign owned criminal cartel called the Federal Reserve ?
Surely, you can't be naive to think that any entity on this planet without a financial death wish would lend the U.S. government money for 30 years at 3% ?
EB5 visas stats (country, amount of investment (1 million to 500,000):
http://blog.lucidtext.com/category/eb-5-statistics/
http://www.uschinaindiaforum.org/speakers.html US/China/Asia forum - Promoting investments to outside investors.
http://eb5northerncalifornia.com/index.php?page=eb-5-investment-information
EB-5 Immigrant Investor Program
http://www.cmbeb5visa.com/news/20 Abandoned military bases (CMB closed military bases) are being sold - Adapting to the new development (or redevelopment) create jobs - for 10 people and voila - you are a permanent resident.
Fifth employment-based preference (EB-5) is one of the employment-based programs offered by the United States Citizenship and Immigration Services (USCIS). Fifth employment-based preference (EB-5) reserves 10,000 visas per year for immigrants seeking to enter the United States and invests at least $1 million in new commercial enterprises which will create at least ten full-time jobs for U.S. citizens, lawful permanent residents or other employment-authorized aliens. Immigrant Investor Pilot Program and Regional Centers Due to disappointing results to the initial launch of the EB-5 immigrant investor program which set aside 300 total immigrants visas per year, Congress enacted a revision to the program on October 1, 1993. It first increased the annual visa numbers from 300 to 3000 and created regional centers. The five-year pilot program has been extended several times. Currently, the President signed the Department of Homeland Security Appropriations Act of 2010, which extended the EB-5 regional center pilot program until September 30, 2012. The prevailing view is that the pilot program will be extended again.A Regional Center is defined as any economic unit, public or private, which is involved with the promotion of economic growth, improved regional productivity, job creation, and increased domestic capital investment. A Regional Center obtains its designation by submitting a detailed application to the U.S. Citizenship and Immigration Services (USCIS). When an immigrant invests through a Regional Center, the new commercial enterprise does not have to directly employ ten U.S. workers. Instead, it is sufficient to show that ten or more jobs will be created directly (i.e. through the use of independent contractors) or indirectly (i.e. using one of USCIS-approved forecasting models).
Furthermore, when the investment is located in the Targeted Employment Area, the minimum requirement is reduced to US$500,000 from US$1,000,000. EB5 Immigrants - Hire 10 employees and receive permanent resident status: The first major hurdle is the approval of the Form I-526 Petition. Once that is approved, the investor is scheduled for an interview and a visa, and a conditional Permanent Residency status is given to the investor and the investor’s immediate family.
Conditional Permanent Residency is a full residency status that expires in two years. CPR individuals have all the rights of U.S. citizens (i.e.: employment and legal rights) with the exception of voting in general elections.
In order to remove the two-year condition, the investor can submit a Form I-829 Petition before the expiration. Form I-829 Petition is a job-creation evaluation of the project that received the investment funds from the investor. Working together with Regional Center, an attorney will prepare a Form I-829 Petition that provides evidence that ten jobs were created. Once the Form I-829 is approved, the condition will be removed and the investor is granted Permanent Residency Status.
What she said.
I apologize for the long post. Also, for upsetting 8 people, it wasn't my intention.
Your idea of infinity, i got tired just scrolling past it. 8__*
I apologize for the long post.
Apology accepted.....just understand if you ever pull that again.....we WILL kill you.
Have a nice day.
Never apologise to these fuckers bunny.
If you want to ramble on about nuttin much then thats your business
However, i think your point is valid and i'll back you up on that, especally as i've had a belt of booze in me.
A link next time would be good:)
To some good porn...
Francis, ive seen some good links from you
this may be of interest
http://www.smh.com.au/world/republicans-warn-obama-on-pentagon-job-20130...
what a fuck up where a party can openly say they are in the pocket of a foreign power
This is the purposeful destruction of the America culture, bunny. It fits with the philosophy of Neo-Conservatives Julian Simon and Ben Wattenberg who have advocated very high levels of immigration from all parts of the world so that the U.S. will become the world’s first “Universal Nation.”
Don’t apologize for providing vital information because it’s “too long.” In fact, the length of your post is a wakeup alert to the Selling of America.
This program is just another cheap source of financing for America’s international elite, as is the on-going wave of low-wage illegal immigrants from the south as a cheap source of labor for the multinationals based on American shores.
Deal Book says it all: “[D]evelopers can raise money through the EB-5 program by offering returns of less than 4 percent. In contrast, the interest rates on debt starts at 6 percent, with some riskier forms of financing running at 10 percent or higher. Investors who take an equity stake in a hotel project aim for returns of 20 percent."
In return for investing a minimum from $500,000 for “targeted employment areas” (TEA) or at least $1 million in a new commercial enterprise employing at least 10 full-time U.S. workers, the foreign investors get permanent citizenship.
“Foreigners are buying visas and are much less concerned about the rate of return they earn on their investment,” said David Loeb, a senior analyst at Robert W. Baird.
Zhang & Attorneys, L.P., US Immigration Attorneys and Counselors says the Employment-Based Immigrant Program (EB-5) is “first time a category specifically facilitated the admission of immigrant investors as lawful permanent residents and currently remains the only such category to do so.
However, America’s producers must pick up the welfare bill to subsidize the corporatists’ demographic pressure.
This is why America’s middle class must “wake up to the full extent of its fiscal nightmare,” according to Professor Nouriel Roubini pontificating no doubt in some pagoda in China, and “recognize that maintaining a basic welfare state, which is right and necessary in our age of globalization…implies higher taxes for the middle class as well as for the rich ($200,000 and up).”
Never mind that the program was so riddled with fraud and corruption that it had to be suspended from 1998 to 2003. The government now assures us it has worked to clean up its program, requiring potential deadbeat investors to pay the full amount upfront.
http://www.hooyou.com/eb-5/index.htm
http://dealbook.nytimes.com/2012/09/06/visas-for-dollars-program-a-boon-to-hotel-developers/
+100 bunny.
Get a life, baby! U need to get laid!
...Death by a trillion copy-and-pastes!
More is not better, bunny. All those words you cut and pasted, and I'm still not sure what your point was.
I suggest you edit your post to make your point, and have links to the supporting documentation.
Yeah, they do, and it is not for interest or return of principal. It is to maintain their export economies. You see, they are kicking a different can down the road.
"who without a financial death wish would lend the U.S. government money for 30 years at 3% ?"
If its somebody else's money why not? Get a free income stream until...cross that bridge if u come to it.
Fixed that for you. Your original statement, as literally written, made no sense.
"Couldn't care less" means that you could not care less than you do right now --- literally, you do not care at all. "Could care less" implies that you DO care, because you COULD care less than you do right now.
After assessing my current level of caring, I determined that I COULD care less due to the fact that I was careless about the way I measured how much I actually did care. This has been corrected to the point that I couldn't care less now. I thank you and that is the mattering thing.
Just trying to do my share to avoid linguistic blobbing-up and US 'american' citizenismistic grammatical monolizing of the speeching means!
Forward Motion With Masses and Long Life To The People's Endeavor!
Masses when double lucky prevailing fortune assail up with burst in expeditious wising.
It is to pinpoint them out to point out a train that is pointed to by the whole of 'americans' trying to push someone else under the train for your own crustier bits alas alas.
Alas, alas, pi to the fourth power alas.
Indo-European-Antarctican-Lemurian Easter Island Chinese 'american' shitizenism is as roadside crapmongery does.
Just have to bear with it.
"PETRODOLLAR WARFARE" PDF FOR MY ZEROHEDGE CRAZY BUDDIES
http://home.aubg.bg/faculty/kpetrov/Other/Textbook%20Downloads/Clark%20-...
Thanks, HAB, I was about to buy it on Kindle.
And while, as always, the state can kiss my ass, please know that I'd be happy to kiss your avatar's.
Thank You!
Well ~ as for me... I could care less... But instead ~ I choose to care MORE... [Just trying to exercise my last bit of freedom before being hauled away to a re-education camp]...
Thanks. My grammar checker is on th fritz. I do admire your mastery and use of the language akak.
Add two zeroes to that number and make it payable to every man, woman and child. Then I would be ecstatic to pay a 56.67% tax on that and voila! No more debt!
What? Oh, yeah...
Who cares? Immagunna buy a boat with mine.
Government is a high time-preference entity. It needs the support of high time-preference individuals.
Therefore, it acts to create them.
BB,
Superb and classic Twilight Zone episode (the film version with John Lithgow was great as well).
DavidC
Agreed. PhDs like Krugman and Stiglitz simply mouth what the politicians and greedy Americans want to hear. But debt has risen by 136% since 2007 and is accelerating with out of control spending. http://confoundedinterest.wordpress.com/2013/01/06/pennies-40-ton-trilli...
The next debt ceiling level is to be set at $17.85 trillion.
There are bankster arrests still going on around the globe, Remember the David Wilcock and Drake interview? https://www.youtube.com/watch?v=e0BaAYt6vSQ
Check out these sites for more info;
http://removingtheshackles.blogspot.ca/
http://americankabuki.blogspot.com/
These legal documents are check mate to the banksters. If they ever challenge it, they are admitting to their participation in the fraud.
Along the way they got involved with other groups who had big pieces of the picture but not a clear understanding of the structure by which the banks ran their (giant) "operation," nor did they have the legal structure themselves in place to do much about it. They discovered that the bankers operated under the guise of a democracy government by setting up everything (individuals, countries, companies, etc.) as corporations and then everything was controlled and run through the Uniform Commerce Code and it was all a complete fraud.
The researchers (now Trustees) have met on numerous occasions with all the big players, good and bad. The (highly legalistic) documents which basically foreclose on all of these corporate entities were filed in August through October 2012 and there has been NO LEGAL REBUTTAL. Which means the documents which basically return everything to the people including the ownership of the UCC (it was privately owned before these documents were filed) are in full force and effect. The Trustees say that it will be impossible to rebutt because it leads to the discovery of fraud.
http://www.dailypaul.com/268715/important-stunning-document-released?page=1
Sadly... In practice... Sounds like a pyrrhic victory to me... [Though someday it'll all end for sure]... IOW ~ The odds are slim indeed that anything like this will ever be resolved in a courtroom... BLOOD will be required before it's all over...
As high profile arrests take place and makes MSM news headlines, the general public will start to get it. So much work was already done by people like Jordan Maxwell and others. The shadow government operates with no authority, and if they try to defend their territory, they expose themselves. I believe the old Illuminati guard are so old and addled with Alzheimer's and dimensia, they are collectively powerless at this time. That's why we go in for the kill now.
Jordan Maxwell - The Illuminati Exposed
https://www.youtube.com/watch?v=NgwMr_gdiv8
"As high profile arrests take place and makes MSM news headlines, the general public will start to get it"
~~~
So is that going to be on BEFORE or AFTER the "Honey Boo Boo & Snooki compete on Dancing With the Stars" special?...
Honey Boo Boo's mom has her own Mini Me.
Idiot.
No court on this planet will take on the bankers.
Filed and not rebutted by bankers simply means filed and ignored by bankers.
Which means the documents which basically return everything to the people including the ownership of the UCC (it was privately owned before these documents were filed) are in full force and effect.
Filed documents without adjudication by a court are meaningless and worthless. No filing is a judgment merely by being filed, and there's no default judgment because no judge will rule against bankers.
Anyone in 1st year law can see the nonsense in all this UCC crap.
"highly legalistic"...emphasis on highly.
Legality is just an extension of social convention. This may be technically legally correct, but the social convention now is that financial corporations are not prosecuted, and never lose based on mistakes or bad decisions.
so whats william clarks conclusion? anyone read that book?
The bad news?
The debt will climb to 20 trillion.
The good news?
The DOW will break 30,000.
So what's a boy to do?
http://www.angrysinner.blogspot.kr/2013/01/saturday.html
You guys are alarmists. The US debt is in dollars for now so it can easily be printed to pay off. SHTF when there is a new reserve currency and the dollar is devalued limiting the ability to pay interest on the debt.
So for now the party goes on, that is why Dick Cheney says debt is IRERELEvant!!!
If an alarmist is one who attempts to warn others of certain facts, then, yes, call me alarmist. No prob there.
But you say, "The US debt is in dollars for now so it can easily be printed to pay off".
1) US debt since 1971 is always in fiat, FRN dollars, what else could it be in?
2) to print more currency IS easy; to have that newly printed currency maintain its value is the crux of much debate.
And then you say: "SHTF when there is a new reserve currency and the dollar is devalued limiting the ability to pay interest on the debt".
1) Dollar is being devalued with every new one created.
2) Paying interest on the debt with less-valuable dollars seems to be the very goal of our central banksters because it's easier to pay with cheapend dollars. (Easier than harvesting more tax dollars out of taxpayers depleted pockets or - the old way - giving up Gold from the treasury.)
And Dick Cheney never said debt is irrelevant. What he said was, "Reagan proved deficits don't matter" I wish he hadn't said that. He may wish he'd never said that. But the cat's out of the bag on that one and I won't try to defend it on the basis of Reagan's deficits relative to GDP relative to restoring a robust defense posture. But I could.
The fact is, deficits DO matter especially in FedGov budgeting context because deficits add up each and every year to the $16 trillion plus DEBT we ALL suffer from now.
I find this alarming.
No, we're not alarmist,...you're fucking retarded.
While your fatal conceits are quite easily contrived, you'll find they do you very little good in the real world of scarce non-renewable resources that are fundamental to the productive capacity of your economy.
We could just as easily say that we don't plan on paying the debt (you know: pull an Argentina), but that might have some consequences both with respect to our ability to continue borrowing (which we must, to continue rolling this fecal pile along) and in the real world, where the price of commodities like oil (as priced in the currency you've advocated devaluing sharply) skyrocket...collapsing your economy by billions of GDP with every $1 rise per gallon.
If you think we're on the brink now, try looking at how much money goes to interest if rates go above 5% because your "easily printed" machinations have destroyed confidence in the dollar (you THINK people don't recognize inflation as a tax, but they do). What happens to the revenue side of the equation when the economy contracts from price-inflated inputs?
Wake the fuck up, Sparky.