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Guest Post: About That $20 Trillion In Public Debt...

Tyler Durden's picture


Submitted by Charles Hugh Smith of OfTwoMinds blog,

Massive Federal deficits require higher taxes; ever-expanding public debt and higher debt service sets up a death spiral once new investment is crowded out by Federal borrowing.

In only three more years you're talking $20 trillion in public debt for the USA and a GDP going nowhere fast. And what does that look like in terms of the S&P 500? Courtesy of frequent contributor Chartist Friend from Pittsburgh, here is the SPX charted against total public debt. You'll notice it's crashing:

What this chart reflects is another aspect of the death spiral I described yesterday in The One Chart That Says It All: when depreciation outstrips new investment, then productivity, income and profit all decline. As interest on skyrocketing debt rises, then more income must be diverted to service debt, leaving less for new investment. That sets up a positive feedback loop, i.e. death spiral.

Here's how rising Federal debt creates a death spiral in the economy. As Federal debt skyrockets, the cost of debt service rises, even at super-low rates of interest. That means taxes must rise, because no constituency will allow its share of the Federal budget to decline by more than a symbolic amount. Higher taxes means there will be less money available for new investment, and the enormous sums of Federal debt that have to be sold crowds out other investment.

Interest rates have been manipulated lower for a few years via the Fed buying Treasuries with freshly printed money and a perceived "flight to safety," but eventually the Treasury will have to compete for investors' cash, and rates will rise.

The Federal government already borrows more per year than most country's gross national product: about $1.5 trillion a year. You can look it up here: Public Debt of the U.S. That's roughly 10% of the U.S. GDP, added to public debt each and every year.

Public debt on March 21, 2008, four years ago, was $9.39 trillion. Today it is $15.57 trillion. The difference is $6.18 trillion. Divide by four and voila, $1.5 trillion has been added to the debt annually.

Ignoring the politicos' shuck and jive about "balancing the budget" as tiresome political theater, let's multiply 3 X $1.5 trillion = $4.5 trillion, and add that to $15.57 trillion: in three years, Public Debt will top $20 trillion, on the way to $30 trillion.

As I proved in Can We Please Stop Pretending the GDP Is "Growing"? (June 2, 2011), GDP in constant 2005 dollars is essentially unchanged since 2007.

In constant (2005) dollars:

GDP in 2007 (pre-recession): $13.23 trillion
GDP in 2008 (recession starts): $13.31 trillion
GDP in 2009 (recession officially ends in mid-2009): $12.88 trillion
GDP in 2010: 13.04 trillion

GDP in 2011: $13.3 trillion

In constant (2005) dollars, the economy actually shrank in the three year span of 2008-2010 and is back to 2007 levels. That's what we bought with $6.1 trillion in additional debt and Federal spending.

Just as a refresher:

Federal revenues

2007 $2.56 trillion
2010 $2.16 trillion

Federal spending

2007 $2.72 trillion
2010 $3.72 trillion

In three years, Federal spending jumped almost exactly $1 trillion, or 36.7%.

In 2011, the Federal deficit is 11% of the nation's GDP.

In 2011, the Federal government borrowed 42% of its expenditures.

As the recession ended in mid-2009, we're almost three years into a "recovery."

Over 40% of Federal spending is Social Security and Medicare/Medicaid. With Baby Boomers retiring en masse, 2 million new beneficiaries are added every year: Social Security system (Wikipedia). Add in Defense spending and roughly 2/3 of the Federal budget is politically untouchable. Then add in 11% debt payments. There is little room to move here politically, as every program of any size is a "sacred cow" or "third rail."

The Social Security Administration states that 157 million people pay into the system, and 56 million people are receiving benefits. This 3-to-1 ratio may seem sustainable, but we have to factor in that 38 Million Workers Made Less Than $10,000 in 2010— Equal to California's Population, while 24 million contributors make less that $5,000 annually.

A program that routinely pays $20,000 a year to higher-income recipients and collects $700-$1,000 a year in income from tens of millions of workers who are in line for benefits is not sustainable. If we factor in the low Social Security taxes being paid into the system by low-income workers, then the ratio drops to about 2 workers for every beneficiary.

The demographics are not encouraging.

Taxes of all sorts will have to rise. Cuts will be symbolic because the political pain will be unbearable. Most observers note that increased taxes lowers consumption and that will hurt the economy, but lower consumption is the least of our problems. The real problem is there is no end in sight to skyrocketing public debt and interest on that debt, and that double-whammy of higher taxes and competition for scarce investor cash will erode the capital available for productive new investment.

Without productive new investment, then debt service soon outstrips income growth and the economy enters a death spiral of declining productive investment, ever expanding debt and ever higher debt service costs.


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Fri, 03/23/2012 - 13:21 | 2284152 jcia
jcia's picture

Roses are red
Violets are blue
Come over here
So I can stick it in you


Fri, 03/23/2012 - 13:41 | 2284252 ndotken
ndotken's picture

just shut up and eat your ipad

Fri, 03/23/2012 - 13:46 | 2284268 qqqqtrader
Fri, 03/23/2012 - 14:14 | 2284397 HoofHearted
HoofHearted's picture

Shit, CHS has to harsh the weekend buzz with reality.

Lalalalala I can't hear you. It's all okay and hopey and changey and all the other damn dwarves running around here...

Fri, 03/23/2012 - 15:32 | 2284668 IrritableBowels
IrritableBowels's picture

Dude spits truth. Thanks for the contributions CHS.

Fri, 03/23/2012 - 15:56 | 2284733 franzpick
franzpick's picture

And, according to the gold/debt chart TD put up some months ago, AU goes to $2158.

Sat, 03/24/2012 - 06:50 | 2286254 The Alarmist
The Alarmist's picture

If you add the debt of the States and municipalities, you can only look wistfully back to the days when the US public debt was only $20T. The rubicon was passed long ago.

Sat, 03/24/2012 - 14:39 | 2286865 bigun
bigun's picture

i really enjoy ZH, but has tyler thought about the reverse causation?


perhaps its not high amount of debt that causes stagnant growth

but stagnant growth that causes a high amount of debt?



Fri, 03/23/2012 - 14:04 | 2284291 TruthInSunshine
TruthInSunshine's picture

Many of you know this and will agree with me. Some will want to refine what I say or amend certain parts. Some may not understand for whatever reason(s). Others will disagree for whatever reason(s), saying that I am incomplete or wrong in the analysis.

We reached a point during the Fed's print-a-thon whereby any additional unit of fiat (remember; The Bernank has a technology called the printing press, which allows him to print as much money as he wishes at essentially no cost) that is conjured from thin air and distributed as an electronic credit [mainly to institutional members of the fractional reserve banking system] to any entity not only fails to stimulate consumption or demand in the real economy, but actually thwarts such consumption and demand, and creates a secular cycle of deleveraging on the part of consumers and businesses [this is why even large businesses making nominal record profits are selling large batches of debt - aka hoarding cash - especially given the ultra low rates they can do this at compliments of ZIRP].

The global money base has doubled since 2007. Now, view that correlation in the context of considering the current amount of sovereign and private debt officially in existence at present.

U.S. banks and bank holding companies are now holding trillions in excess reserves, but their traditional model of profit making is either crippled or broken (i.e. lending large amounts of fiat and reaping the spread that lower cost Federal Reserve loans cost them), given the lackluster demand for debt (with the exception of credit card, unsecured debt, but there's a huge caveat there, also) from actors in the real economy.

Getting back to the thwarting of additional demand and consumption with each additional unit of fiat conjured and distributed:  The precise reason this is the case is because as the banking system's traditional profit generating model of loaning out larger batches of fiat and capturing the spread on interest it charges and that it pays to the Federal Reserve, banks now have either sit on the excess reserves provided so generously by The Fed, or find alternative methods to and avenues to place this cheap-cost fiat, to generate income. Some of this fiat is making its way into speculative buying of all asset classes, which is undeniably creating inflationary trends in commodities and other assets, which then acts as a tax on consumption by actors in the real economy (especially one whereby unemployment/underemployment is structurally high, and wages are falling behind the real rate of inflation).

Obviously, the other component in this broken market that Bernanke has fostered is that the reason why much of this cheap-money fractional reserve fiat loaned to the banking system is just sitting in excess reserves is because of the massive amount of liabilities on still-deteriorating loan portfolios these banks are holding, as Congress essentially gave a liberal license to engage in mark-to-unicorn valuation methodologies, and many of these banks (maybe 25% to 35%?) are, in reality, functionally insolvent, even if the regulators not only don't want to admit this, but are doing everything in their powers to deny it.

Hence, we're in a pure kick-the-can, extend & pretend, economic crisis, whereby Bernanke's best outcome can be a general, as slow-as-possible under the circumstances, sloped decline into the reality that will equal equilibrium, whereby living standards and consumption and production would take a far more panicked (and quick, volatile) path into equilibrium if more people were aware of the real value (i.e. far lower) of their artificially juiced assets that they are holding, which would result in a cascading crash as panic sets in.

Bernanke's printing is actually killing the economy, in large part, as it's sapping real consumption and loan demand, given economic fundamentals, and is meant as a palliative measure by someone who does not believe the patient can really be restored to any degree of true health.

Bernanke's dosing morphine, knowing that the morphine will lead to a worsening of the underlying condition, as he's powerless to heal the disease (a free market approach could remedy the situation, though - honestly), and just wants to prevent the frog from going into cardiac arrest.

Fri, 03/23/2012 - 14:33 | 2284477 Jason T
Fri, 03/23/2012 - 15:04 | 2284586 boogerbently
boogerbently's picture

Here's the plan....

Give Trillion$$$ to your benefactor/contributor/crony banker buddies, whose irresponsible greed CAUSED the recession.

They use the free money to buy govt. debt, and make the interest, instead of loaning it out, like they were supposed to.

Tell the public the banks have paid back these loans, yet, simultaneously, (somehow) that debt is added to the US deficit, which the public is responsible for.

Tell the public the best way to reduce this new debt is to reduce or withold the govt. mandated retirement savings that an entire generation of Americans has been contributing to for a lifetime.

Convince the younger taxpayers the same thing WON'T happen to them!

50 years ago:

"Yes, it's an added tax, but think of the "security" in knowing that $$$ will be there for you when you retire..."

50 years later:

"Don't count on that money being there when you retire" ????

Thereby eliminating the $3.5 TRILLION debt, the Treasury owes to Soc. Sec. fund......which made it appear insolvent in the FIRST place.


You know what, guys. Just keep electing these same "2 party" shysters, and we'll have these same great game plans forever.

Any wonder why "obamacare" isn't popular??

See Welfare, Disability (another drain on Soc. Sec.), foodstamps, farm and oil subsidies.....

The ONLY well designed govt. program was Soc. Sec.....and they had to flat out STEAL money to fund "other" programs to derail it.

Gotta go......real housewives/NJshore/AmericanIdol is on. LOL




Sat, 03/24/2012 - 01:05 | 2286032 natty light
natty light's picture

"Social Security benefits is not a contractual right."



It's just another tax.

Sat, 03/24/2012 - 10:00 | 2286408 davey
davey's picture

People have to understand that bank profits are paid by the taxpayers. All the banks do is buy treasures. The banks are just another fed vehicle of quantitative easing.

Fri, 03/23/2012 - 16:14 | 2284797 DCFusor
DCFusor's picture

+ right on.

You forgot the last line:

Since the reserves are reported, but the true value of mark to unicorn "assets" isn't - the reserves aren't real.

Sat, 03/24/2012 - 00:10 | 2285968 hangman
hangman's picture

excellent post...!  actually 'actual' implication of going down this slope is worse than the article is trying to convey.  As I said previously, our basic ideas, beliefs, culture, etc., the core fundation of our western civilization is coming undone at the seams. 

For that reason (our leaders know what's going on but they really don't have many good options at this point), in other words, we are crossing into 'point of no return." 

Simply put it, the western civilization almost collapsed (recent credit/financial crisis) and still face disintegration.  I am not saying we won't exists but certainly other countries will be more than ready (increasingly) and willing to fill the void, etc.

In the final analysis, if we stop borrowing, America as we know will collapse!



Sat, 03/24/2012 - 02:15 | 2286106 malek
malek's picture

In short we are going Japanese.

Japan has made it 20 years so far, I don't believe we are going to last that long.

Sat, 03/24/2012 - 05:03 | 2286214 TruthInSunshine
TruthInSunshine's picture

I have a long term trade that I will roll over that U.S. equity markets will follow the general path that the Nikkei has from 1989 onward,

Actually, that process began in 1999, and we're now 13 years into a secular bear market in U.S. equity markets, whether judged in nominal, or especially real, terms.

Some claim that there are too many fundamental differences between the U.S. and Japan as they relate to equity markets for this to be possible, let alone likely.

In reality, the U.S. is now demographically set up whereby a larger group of retirees and soon-to-be retirees will be withdrawing funds at a faster pace from U.S. equities (whether directly, by liquidation to raise cash, or indirectly, as a result of cashing out 401(k)s and other retirement funds tied to equities) than a smaller group of younger workers can replenish equity inflows, by a margin of about 3 to 1, and that doesn't adjust for the fact that the 1/3 the size group of younger workers are making less in real wages than the retirees or near-retirees, and are also not receiving the types of employer-based incentives to invest in equity funds, such as 401(k)s and matching retirement funding by employers (these benefits are actually more and more rare, whereas they used to be common).

Sat, 03/24/2012 - 11:00 | 2286508 Element
Element's picture

Just a friendly, "you're totally kidding yourself", here TIS.

Japan had a ravenous and eager global-consumer, powered by an epic and reckless global credit bubble, in two hemispheres, to pull them through to mere deflationary stagnation with full employment for 20 years.

What's been happening, and what's still coming, will be an accelerating global demand capsize, with the loss of all hands.


The prior inertia of complex entrenched production, trade and consuming patterns, is keeping it running-on (empty), for now.

Like credit and malinvestment effect, the winding-down of demand is going to be progressive.   Slow, then less slow, then all of a sudden.

The 25% collapse in global trade in late 2008, 'bounced', because of the inertia in the trade system.

Something with so much pent-up energy still takes time to wind-down outside of such transients.

The delivering cycle has barely begun, and most of it will occur via default, because demand is not going to be there to support a more progressive failure-mode.

Massive printing is only a facet of what would be necessary for stagnation.

Sat, 03/24/2012 - 14:07 | 2286819 JW n FL
JW n FL's picture



TruthInSunshine ,


I quoted Lizzy.. that is not what I said.. it is what she said.

Tyler himself said he was under threat of Law Suit from the JEWS!

Only Sourced and Sited Material is ALLOWED when discussing the JEWS! no personal opinions what so ever!

So what do you mean put up or shut up you coward?

P.S. I would really love to meet you face to face. So YOU! can put up or shut up!


Fri, 03/23/2012 - 15:34 | 2284674 Incubus
Incubus's picture

Ever seen a dragon fuck an addict eagle?



Fri, 03/23/2012 - 13:23 | 2284159 ZeroPoint
ZeroPoint's picture

Those that act proactively will always be more prepared on many levels.



Fri, 03/23/2012 - 14:31 | 2284466 NewAmericaNow
NewAmericaNow's picture

Nice Video

Fri, 03/23/2012 - 13:23 | 2284161 GenX Investor
GenX Investor's picture

Classic "cup-n-handle" move.  What does it look like when people go to a barter monetary system?

Fri, 03/23/2012 - 13:41 | 2284250 pods
pods's picture


Fri, 03/23/2012 - 14:50 | 2284539 johnQpublic
johnQpublic's picture

but who will rule bartertown?

Fri, 03/23/2012 - 22:46 | 2285864 AmericanFUPAcabra
AmericanFUPAcabra's picture

tina. with them shoulder ring things. mmmmm

Fri, 03/23/2012 - 13:27 | 2284163 SheepDog-One
SheepDog-One's picture

Yea so therefore in 3 years the 'DOW 24,000' will actually equal about 4,000 in real terms but as long as the numbers look high, 'all is well', right? Sure we'll have people starving and shot dead in the streets, but as long as we have a green stock market, its all good. 

Fri, 03/23/2012 - 13:24 | 2284165 carbonmutant
carbonmutant's picture

We're not going to make it to $20 trillion...

Fri, 03/23/2012 - 13:27 | 2284177 t_kAyk
t_kAyk's picture

we're going to need a bigger printer... 

Fri, 03/23/2012 - 13:41 | 2284248 mayhem_korner
mayhem_korner's picture




BTW, have they drawn straws to see whose face gets on the $1 Trillion bill?  I think it has to be a dead dood, so maybe Richard E. in honor of jettisoning the gold standard.

Fri, 03/23/2012 - 14:17 | 2284408 NotApplicable
NotApplicable's picture

FDR isn't on a bill yet, is he?

Fri, 03/23/2012 - 16:06 | 2284762 marathonman
marathonman's picture

Definately Tricky Dick!

Fri, 03/23/2012 - 15:13 | 2284610 tiwimon
tiwimon's picture

Nah, just more 1's and 0's


With one push of a button, money is created now behind the scenes - who really thinks its not happening? The unFED just creating entries to backdoor bail out everyone that matters (a clue here - it isn't you, I or any Joe 6 Pack)

/In Binary we Trust... 

Fri, 03/23/2012 - 14:41 | 2284509 Boston
Boston's picture

I keep thinking about Japan, and what analysts said when Japan's public debt to GDP first crossed 100%, then 150%, etc.

Yes they sell 95% of their debt to themselves, But we have the reserve currency and the military muscle to force everyone in the world to use it. 

So I'm afraid that this Ponzi could baffle everyone and keep growing larger (and for a longer time) than would otherwise make sense.


Fri, 03/23/2012 - 16:23 | 2284847 kito
kito's picture

we do not have the military muscle to force china and russia and india to use our currency. we dont have the military muscle to even force south american countries to use it anymore. these countries, little by little, are already letting go of the dollar.....what starts off a as a few drops quickly grows into an ocean....................

Fri, 03/23/2012 - 13:34 | 2284166 Outlaw Of The W...
Outlaw Of The Wasteland's picture

central planning FAIL

londonistan et dc delenda sunt


Fri, 03/23/2012 - 13:24 | 2284167 xtop23
xtop23's picture

Short answer - Get your money out of the system into real assets and have an escape plan -

Fri, 03/23/2012 - 13:25 | 2284168 Buzzworthy
Buzzworthy's picture

Three years to $20T?  We're there already.  The current federal debt as generally stated does not include $7T for Fannie and Freddie.  Add this to the current $15.5T and the FG is already underwater by $22.5T.  Of course this is dwarfed by the additional tens of trillions of dollars promised to future generations in SS and Medicare/Medicaid, but who's counting?

Fri, 03/23/2012 - 13:44 | 2284260 JustObserving
JustObserving's picture

Unfunded liabilities are $118 trillion and growing at $6.63 trillion a year.

Fri, 03/23/2012 - 15:36 | 2284681 IrritableBowels
IrritableBowels's picture

+ GSE's

Fri, 03/23/2012 - 13:26 | 2284174 InconvenientCou...
InconvenientCounterParty's picture

It's not my fault, we must default.

Please join me in wiping out collectivism in all it's forms.

-Ron Paul

Fri, 03/23/2012 - 13:44 | 2284259 azzhatter
azzhatter's picture

in the immortal words of johnny cochrane- If the debts too big just take a swig.  Bennies got a plan, it's called shit hits the fan

Fri, 03/23/2012 - 14:20 | 2284426 NotApplicable
NotApplicable's picture

If the debt don't fit,

take another hit!

Fri, 03/23/2012 - 15:19 | 2284627 Caggge
Caggge's picture

For the US to not massively fail,

Corzine must go to jail!

Fri, 03/23/2012 - 13:26 | 2284175 francis_sawyer
francis_sawyer's picture

All we have going for us is a printing press...

Fri, 03/23/2012 - 13:28 | 2284188 SheepDog-One
SheepDog-One's picture

And everyone is real tired of that already.

Fri, 03/23/2012 - 15:46 | 2284704 viahj
viahj's picture

Carl Spackler: So we finish the eighteenth and he's gonna stiff me. And I say, "Hey, Lama, hey, how about a little something, you know, for the effort, you know." And he says, "Oh, uh, there won't be any money, but when you die, on your deathbed, you will receive total consciousness." So I got that goin' for me, which is nice.

Fri, 03/23/2012 - 13:39 | 2284178 q99x2
q99x2's picture

Bring out the terrible towel. We've got Pittsburgh in the house.

This sounds great. Finally a solution. The Federal Government is Bankrupt. Bring them in under State Bankruptcy Laws. They are a corporation and they no longer meet State Law. Arrest the Bernank if he so much as steps one foot outside of DC.

Fri, 03/23/2012 - 13:49 | 2284277 Sophist Economicus
Sophist Economicus's picture

Don't forget to bring an extra set of cuffs for Timmy

Hell, let's just bring in a cattle car and load all of congress and the Big O in there and be done with it.

Fri, 03/23/2012 - 13:28 | 2284186 TWSceptic
TWSceptic's picture

If Einstein would still be alive, I think he would repeat his famous words about insanity right about now.

Fri, 03/23/2012 - 14:54 | 2284554 johnQpublic
johnQpublic's picture

carl sagan would have trouble describing this level of debt



substitute printer for sun in the beginning of this vid

and dollars for stars

Fri, 03/23/2012 - 13:28 | 2284187 EmileLargo
EmileLargo's picture

May you live in interesting times

- Chinese proverb

Fri, 03/23/2012 - 13:28 | 2284189 Confundido
Confundido's picture

Gold up 1% and fucking Bberg TV brings every bearish analyst out there to tell us that there is no physical demand and that it will wane from India. Not only that: they call us who still hold it..."sticky". 

I feel like a Ron Paul follower: They tell you that he is in no demand and that if you follow him, you are just passionate!

Fucking banksters....

Fri, 03/23/2012 - 13:30 | 2284199 EmileLargo
EmileLargo's picture

Why complain when you can buy more on the cheap? Gold at these prices will be a pipedream in a few years.

Fri, 03/23/2012 - 13:39 | 2284243 Confundido
Confundido's picture

I did. I did buy yesterday and early today. But it makes me mad to see these guys after me!

Fri, 03/23/2012 - 18:57 | 2285424 pasttense
pasttense's picture

How can we buy more gold on the cheap--since we already spent all our excess cash on gold and silver when it was higher?  And, no we are not going to borrow; some of us don't believe in going into debt for any reason.

Fri, 03/23/2012 - 13:30 | 2284195 Hal n back
Hal n back's picture

Bring back Clinton:

no, really, why did teh economy and market start crapping out at the  end of the Clinton Adm?


Perhaps there was so much printing in the 90's that was cut off near the end of the Clinton Adm?





Fri, 03/23/2012 - 13:57 | 2284308 docj
docj's picture

Were you around during 2000? I only ask because it's as if you've never heard of the Dot.Com bubble.

Fri, 03/23/2012 - 15:10 | 2284336 blunderdog
blunderdog's picture

The bubble at the end of the '90s was fake, largely paid for by the huge productivity gains from the early-mid '90s (when digital switching was implemented large-scale) and the arbitrage on labor costs as we significantly outsourced our production to China and lots of customer services to India.

It wasn't printing back then--it was the issue of using the bricks from your foundation to add a new top floor to the structure.

EDIT: Wow.  I'd really like to hear from whoever junked me.  I'm baffled.   (Unless it's just one of my fans giving me the finger.)

Fri, 03/23/2012 - 15:10 | 2284600 GeezerGeek
GeezerGeek's picture

No one ever connected the dotcom crash with the Republican-controlled Congress balancing the Federal budget (more or less). Maybe that's why they (the Republicans) started spending like Democrats a few years later, once Bush was in office. According to the numbers in the main article, the situation deteriorated massively from 2007, the last Republican budget, to 2010, after the Pelosi-Reid Democratic Congress had taken control.

Joe Sixpack just can't win, and it doesn't matter which party is in control.

Fri, 03/23/2012 - 20:07 | 2285612 Curt W
Curt W's picture

Clinton did keep spending low compared to other presidents but he also presided over a period of great tech advances.

When he took office I had a pager, when he left office I had a Cell phone.

When he took office the internet was for government, geeks, and scientists, when Windows 95 came out everybody had to have a computer.

The tech bubble raised billions in tax revenues that evaporated after it popped.

Clinton was the only Democrat president I ever voted for but he was riding a sweet zone of tech advances.

Sat, 03/24/2012 - 02:16 | 2286108 malek
malek's picture

The trolls are out in force at this time of day.

Fri, 03/23/2012 - 13:30 | 2284203 nobusiness
nobusiness's picture

What's your guess for the levitation of stock prices into the 1st quarter end?  5% from here?

Fri, 03/23/2012 - 13:31 | 2284208 Silveramada
Silveramada's picture


Fri, 03/23/2012 - 13:32 | 2284211 LongSoupLine
LongSoupLine's picture



Hmmm, 2015 = 0.00000 according to the flow.

Looks about right to me.

Fri, 03/23/2012 - 13:32 | 2284214 lolmao500
lolmao500's picture

Taxes of all sorts will have to rise. : Not really. You can cut government by 50% and you'll be fine. Of course then you'll have a 15% GDP contraction at least... but it's what needs to be done.

Fri, 03/23/2012 - 13:36 | 2284231 mayhem_korner
mayhem_korner's picture



Death spiral by a different name, no?

One of the structural problems is that a big part of the government spending is people's income (Social Security, etc.) on which the real economy depends.  So cutting 50% - or anything beyond the "discretionary" budget - starts to cannabalize the tax base. 

Fri, 03/23/2012 - 13:50 | 2284287 TMT
TMT's picture

That's why it was designed that way. Balance the budget and we implode. Stay the course and we implode. Looks like we are fucked either way. Happy Friday.

Fri, 03/23/2012 - 13:32 | 2284216 mayhem_korner
mayhem_korner's picture

Taxes of all sorts will have to rise.


One attribute of a mythical viable economy is a rate of taxation that:

a) is sufficient to fund whatever centralized services are deemed necessary; and

b) does not hinder real investment and sustained growth.

At present, a) and b) are in different galaxies...and the gap is widening by the $2.8 million-in-new-debt minute.

Sat, 03/24/2012 - 04:25 | 2286194 StychoKiller
StychoKiller's picture

"If Congress can employ money indefinitely to the general welfare, and are the sole and supreme judges of the general welfare, they may take the care of religion into their own hands; they may appoint teachers in every State, county and parish and pay them out of their public treasury; they may take into their own hands the education of children, establishing in like manner schools throughout the Union; they may assume the provision of the poor; they may undertake the regulation of all roads other than post-roads; in short, every thing, from the highest object of state legislation down to the most minute object of police, would be thrown under the power of Congress... Were the power of Congress to be established in the latitude contended for, it would subvert the very foundations, and transmute the very nature of the limited Government established by the people of America." - James Madison


Time to toss those Progressive/Socialist notions into the dustbin of History!

Fri, 03/23/2012 - 13:33 | 2284219 evolutionx
evolutionx's picture


We now live in a world where governments print worthless pieces of paper to buy other worthless pieces of paper that combined with worthless derivatives, finance assets whose values are totally dependent on all these worthless debt instruments.  Thus most of these assets are also worth-less.


Fri, 03/23/2012 - 13:50 | 2284281 Whalley World
Whalley World's picture

In Currency Wars, Jim Rickards asserts that much like it only takes one snowflake to start an avalanche, it will only take one dollar of excess debt that sets of a cascading waterfall in the value of the USD.

I am suprised it has held up this long but when the population realizes that debt money bad, real money (gold, silver) good, then we will see the slide commence.

Fri, 03/23/2012 - 14:49 | 2284533 newworldorder
newworldorder's picture

Not to argue with you - You are right in the long term. (What constitutes  short/long term however is another question.)

Three facts that one needs to always consider relative to the United States economic situation.

1.) Our Reserve currency status. Unless this is revoked or rejected by other world economies, we can do as we please with our borrowing. Not forever but for a long time to come- maybe for another 20+ years.

2.) Our military guarantees to world stability. Everyone benefits. You may not like us, but food, oil and general commerce flows, courtesy of the US Military.

3.  The FED - As world lender of last resort or as the rich uncle from Mars with an unlimited checkbook it provides all the liquidity needed to sovereigns, central banks and the 1% Financial elite. Governments need this funding if for no other reason than to keep all their social programs flowing to the general population. Cut this off and you have instant worlwide social and political reset. The powers that be, will never willingly choose "instant reset."

Our current world wide debt ponzi will continue for a long time. Don't believe this? - Then listen to the words of our estimed Treasury Secretary in his testimony to Congress this week.

Fri, 03/23/2012 - 20:32 | 2285652 silverdragon
silverdragon's picture

Many countrires that trade with China (the worlds largest exporter) are using Renminbi not dollars this trend will continue.  Even, Japan and Australia have jumped on the bandwagon.

The cost of the military/welfare is what is bankrupting the US, it can be argued the military is creating more instability than stability. 

Printing money will debase the US currency to the point where by it can't pay for imports, as the US makes fuck all anymore this will be promlematic.

The ponzi is almost over as the markets have been exposed as being a con. Smart money will continue to pour into PM's

Fri, 03/23/2012 - 13:33 | 2284220 Judge Arrow
Judge Arrow's picture

Add inflation and tyranny will go from soft to hard and if you are not part of the tyranny, you are part of the problem. Civil war or default is inevitable.

Fri, 03/23/2012 - 13:35 | 2284227 Yen Cross
Yen Cross's picture

 O/T I'm amazed that " BTFD" is on, going into the weekend. If anything, I like to be flat or T/P on Fridays.

  "Dip Shit Kim", or some other whacko could take a "Royal Flush" in your cheezy poofs over the W/E. Maybe we see a selloff into the close.

Fri, 03/23/2012 - 13:38 | 2284240 RoadKill
RoadKill's picture

This would be an interesting article IF we had any intention of paying back that debt

If you thought of the US as having an enterprise value based on GDP, and the more debt we ran up, the less value that is left over for equity holders.  So if GDP growth is limited, then enterprise value is constant - and thus as debt becomes larger the equity value gors down.

BUT their isn't a transmission mechanisim between the government, public companies and tax payers.  The people who are lending Commrade O $ are doing so on an UNSECURED basis.  They have no claim on AAPL or on my assets as a tax payer.  Its simple, this debt is Obama's, Pelosi's, Frank's and Dodd's.  I'm paying my taxes for now because I've been able to keep my tax rate fairly low.  I pay 15% on realized capital gains, and nothing on principal.  But if we ever realistically tried to pay off the debt we'd have to raise taxes on all income and capital gains to >50% for people like me - and I'd simply refuse to pay.

BTW - that artical on ex-patriation was so simple as to be dangerous.  I think its great that people are thinking about their options - but if you are really planning to 4 flag - its a tricky process.  You will need a lawyer that specializes in this stuff.  You need to get started 2-3 years before ytou want your new citizenship to take effect, and you should plan on the total costs to run ion the neighborhood of $500k.  It only really worth it if you have around $10mm in assets.  Im not quite there yet, and frankly until the Bush tax cuts expire - its probably not worth it to me.

Fri, 03/23/2012 - 13:42 | 2284255 TMT
TMT's picture

How about we face the realization that the American experiment has failed. Let's split the baby - split the country in two. Ben and his statist ilk can have one half. Those of us who believe in self determination, free markets and limited government can have the other half.

Fri, 03/23/2012 - 13:44 | 2284262 marcusfenix
marcusfenix's picture

I refuse to live next door to those assholes.

Fri, 03/23/2012 - 13:47 | 2284274 TMT
TMT's picture

No worries. They get Hawaii.

Fri, 03/23/2012 - 13:55 | 2284303 marcusfenix
marcusfenix's picture

damn. can't we just give them a few of those garbage barges floating in the Hudson? or how about that island in NY, you know that one they used to do all the virus and communicable disease testing on animals...I forgot the name of it, but it would seem fitting.   

Fri, 03/23/2012 - 14:05 | 2284349 blunderdog
blunderdog's picture

Pretty sure that stuff's still all going on in Staten Island.

Fri, 03/23/2012 - 15:18 | 2284624 GeezerGeek
GeezerGeek's picture

As an alternative, how about building a wall around DC and having the states divorce themselves from DC. DC gets to keep the debt, the states start afresh.

The wall, of course, would be built using imported Chinese labor. There's a story going around that they're good at building walls - and dams too - using massive labor forces.

If that's insufficient, we can let La Raza have southern Califormia to start their own nation.

Fri, 03/23/2012 - 13:45 | 2284263 BlackholeDivestment
BlackholeDivestment's picture ''ironic, what a ripe time for the Iran Event and ensuing sealing of the prophetic global mark of the beast peace plan.

Fri, 03/23/2012 - 13:59 | 2284321 docj
docj's picture

Cuts will be symbolic because the political pain will be unbearable.

Right, because it's always easier to screw more cash out of the productive than to take some free candy away from the not.

Fri, 03/23/2012 - 14:03 | 2284339 eatthebanksters
eatthebanksters's picture

What wil be the engine of the future that drives future growth in this country and the world?  Everyone talks about manufacturing...our wage levels are way to high for manufacturing ever to create the growth we need unless our technology advances our levels of productivity at an exponential level.  But if that happens, then jobs disappear and we're back where we started.  Why do you think Obummer wants to raise oil prices and force new expensive (and currently useless) technology on us? Because he wants clean air? Do you thnk the carbon emission equivalent of building a new VOLT is less than a gas powered car?  Do you think the damage to the evironment from worn out batteries will be any less than greenhouse emissions?  Don't kid yourself.

The guys at the top know that the world economy is fucked and there won't be any growth (other than from natural resource utilization) unless a disruptive technology is invented.  The country that comes up with the biggest and best one first wins the prize. That's what O is trying to do...if he would let the markets do their thing, it would all sort itself out!

Fri, 03/23/2012 - 14:10 | 2284377 tmosley
tmosley's picture

Interesting, the only period of real growth is when the internet was introduced on a large scale and the PC revolution hit full saturation.

I wonder what that chart would look like if we were all still stuck with 2400 baud modems.

Fri, 03/23/2012 - 14:59 | 2284570 GeezerGeek
GeezerGeek's picture

And I wonder what ZH would look like if we were all still stuck with 2400 baud modems.

Fri, 03/23/2012 - 14:15 | 2284399 NEOSERF
NEOSERF's picture

As discussed in the past...simply create a $20T coin...put it in the vault and start over...overly simplistic but some variation of this is what will occur because the alternatives kinda mean the Mayans were right...

Fri, 03/23/2012 - 14:37 | 2284493 penexpers
penexpers's picture

"Whenever destroyers appear among men, they start by destroying money, for money is men’s protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked: "Account Overdrawn." - Ayn Rand

But, yea, Ayn Rand was an idiot.

Fri, 03/23/2012 - 19:54 | 2285588 silverdragon
silverdragon's picture

The dollar is dead, long live silver.

Fri, 03/23/2012 - 14:46 | 2284528 RaymondKHessel
RaymondKHessel's picture

The real question becomes where is the opportunity in this mess? I say buy a huge home with huge mortgage based in "fiat" dollars and put all your present value cash in gold.

Fri, 03/23/2012 - 18:51 | 2285413 pasttense
pasttense's picture

And what do you do when real estate taxes sky-rocket because of the fiscal problems of local government?

Fri, 03/23/2012 - 14:52 | 2284545 monopoly
monopoly's picture

And then, hide it.

Fri, 03/23/2012 - 15:03 | 2284579 Havana White
Havana White's picture

It may be smart for the corporations sitting on big piles of depreciating cash to begin putting some of it in physical gold.  There should be little doubt that over a medium to long time horizon this investment will gain against its dollar counterpart, and help shore up a company's defenses against any number of troubling future economic scenarios.

Fri, 03/23/2012 - 17:13 | 2285060 Curt W
Curt W's picture

There is a finite amount of gold available.  People who own gold on paper without taking physical delivery probably own 3 times more gold than has ever been found

Fri, 03/23/2012 - 15:26 | 2284652 BanjoDoug
BanjoDoug's picture

Enough of the comments about public debt (even if it technically is public debt).... with the expectation that the public will have to "pay" this back.

We will never pay this back (with equivalent dollars),  it is designed by TPTB for destroy the currency, and bring about a massive change....  maybe even more enslavement.



Fri, 03/23/2012 - 17:09 | 2285051 Curt W
Curt W's picture

Every working American should fill out a new W-4 monday morning and claim 10 dependents.

Your Federal with holding tax will drop to zero or near zero. 

 Within a month the government will start sweating as their revenue stream dries up.

Fri, 03/23/2012 - 17:26 | 2285100 blunderdog
blunderdog's picture

Damn, man, I've been saying this for 10 years.  The Feds can not be influenced from the ballot box, and they have no reason to pay attention to mass-protest.

Only one thing left...

Fri, 03/23/2012 - 17:44 | 2285152 Curt W
Curt W's picture

My comment above is the best way too get their attention.

Kick them where it hurts the most.

Fri, 03/23/2012 - 18:16 | 2285301 Outlaw Of The W...
Outlaw Of The Wasteland's picture

go after the children and spouses of CONgress, the media and the jews.

Fri, 03/23/2012 - 19:19 | 2285488 ivana
ivana's picture

try SPX / oil

Sat, 03/24/2012 - 10:25 | 2286436 Element
Element's picture

Fantastic post Charles ... where the rubber hits the road.

Of course they will monetise the debt-servicing rise and the deficit's revenue-gap, as the consumer-economy, come service-economy, withers and dies on the vine.

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