News Articles: The United States' (and the World's) Debt Crisis
While government economists try to claim differently, the U.S. is struggling under its current level of debt. As the debt explodes in the coming years, it is only a matter of time before the real crash comes. During the 2008 crash, the average American family lost 40% of its wealth. The next correction will be even more severe. Retirement plans and home equity will be severely devalued. Any wealth held in Dollar-based investments will be devalued, while wealth held in precious metals will be protected. Once the crash comes, it will be too late to move your wealth into precious metals. Everyone will be trying to buy gold at once. Like an insurance policy, it is necessary to buy precious metals before the next crash happens.
While the official national debt is currently high (more than 100% of U.S. GDP), it is even higher when you include off-the-books debt and "unfunded liabilities." Also, the yearly U.S. deficit is set to explode in the coming years as the baby boomer generation retires and starts collecting Social Security, Medicare, and government pensions. Obamacare will also expand the U.S. deficit as it eventually goes into full effect.
First, Some Definitions
Talking about the U.S.'s "debt" (or "fiscal") situation refers to what the U.S. government spends versus the money the U.S. government takes in. Talking about the U.S.'s "monetary" situation refers to how the FED manages inflation and the strength of the Dollar. These are related but separate topics.
"U.S. debt" refers to how much money the U.S. government currently owes, while the "U.S. deficit" refers to how much additional debt the U.S. government takes on in a given year.
The "Official" Debtnational debt
The official U.S. debt does not include the debt held by the states, counties, and cities. Click here to see all the different types of official U.S. debt.
If you mention how US debt is now equal to more than 100% of GDP, then you might get the response that Japan's debt is over 230% of their GDP and their economy hasn't collapsed yet. This is a superficial response that ignores the total picture. Japanese citizens are not in debt like U.S. citizens are. Also, Japan is the world's largest creditor nation. Yes, the Japanese government has a high debt-to-GDP ratio, but it is also a massive holder of the debts of other nations. The United States, on the other hand, is the world's largest debtor nation.
Off-The-Books-Debt and Unfunded Liabilities
The U.S. government does not do accounting like any normal organization. If the U.S. government was a U.S. corporation, it would be in violation of accounting rules. The official U.S. debt does not include (2013 figures by econ professor James Hamilton):
Housing Related Commitments (approx $7.5 trillion) This includes the debt of government sponsored entities such as Fannie Mae and Freddie Mac, the mortgage buying entities the U.S. fully nationalized during the housing crisis. This also includes the national value of mortgages that the government-sponsored entities packaged and sold off to investors after "guaranteeing" them. This is money that the housing agencies agreed to pay investors if those mortgages go bad and the homeowners default.
Student and Other Loan Guarantees (approx $325 billion) An estimate of the amount the U.S. has committed to pay investors if student loan debt and debt from the Export-Import Bank of the United States goes bad.
Social Security (approx $26.5 trillion) The approximate amount of money the U.S. would need to have invested today to pay for all the Social Security benefits it will be obligated to pay later.
Medicare (approx $27.6 trillion) Again, this is a guess as to the present value -- how much would need to be invested now -- to pay for all the benefits participants will be entitled to in the future.
Other (approx $1.86 trillion) Trust funds such as the Civil Service Retirement and Disability Fund and the Military Retirement Fund.
Those estimates give a total of around $70 trillion, which is more than the GDP of the entire world. This would mean that U.S. debt is 400% U.S. GDP. Depending on what assumptions you make about how well the economy will perform, these estimates can vary widely. Amounts of $127 trillion and $238 trillion have been put forward.
It's Not the Debt Ceiling -- It's the Lending Ceiling
The U.S. could not currently handle even its current level of debt if it sold U.S. Treasuries at a market rate of interest. The only reason the U.S. is handling its debt is because the Treasury is selling debt at artificially suppressed interest rates and the central banks of the world are printing money to buy the debt. Rates of return are so low that few private parties are buying U.S. Treasury Bonds, and it is getting to the point where some countries, Such as China, are no longer buying either.
The real U.S. debt crisis is not the "debt ceiling" -- it's the "lending ceiling." At some point the countries of the world will no longer be willing to prop up the U.S. For decades other countries have been sending the U.S. goods, and in return the U.S. has been sending them debt. When these countries decide to start keeping these goods for themselves their own standards of living will improve and the standard of living in the U.S. will fall.
We Don't Know When, But The Crash is Inevitable.
At some point, faith in the system will collapse. It is a mathematical certainty. If every American understood the fiscal problems the U.S. faces, there would be a crash overnight. When the crash happens those people holding their wealth in Dollars will lose, and those people holding their wealth in assets like precious metals will preserve their wealth.
Government Accounting Office, January 17, 2013:
"The comprehensive long-term fiscal projections presented in the [report] show that -- absent policy changes -- the federal government continues to face an unsustainable fiscal path."
Ben Bernanke, Former Fed Chairman, February, 2011:
"By definition, the unsustainable trajectories of deficits and debt that the CBO outlines cannot actually happen, because creditors would never be willing to lend to a government with debt, relative to national income, that is rising without limit. One way or the other, fiscal adjustments sufficient to stabilize the federal budget must occur at some point. The question is whether these adjustments will take place through a careful and deliberative process that weighs priorities and gives people adequate time to adjust to changes in government programs or tax policies, or whether the needed fiscal adjustments will come as a rapid and painful response to a looming or actual fiscal crisis"
When we look at the two options Ben Bernanke gives us, it's pretty clear that there is no will in the US government to balance the budget. We will not see the "careful and deliberative process" that "gives people adequate time to adjust to changes." Politicians will continue to borrow and spend until the country sees what Bernanke describes as "a rapid and painful response to a looming or actual fiscal crisis."
Mike Mullen, Chairman of the Joint Chiefs of Staff, Navy Admiral, Sep 22, 2011:
"I've said many times that I believe the single, biggest threat to our national security is our debt, so I also believe we have every responsibility to help eliminate that threat."
Alan Greenspan, Former Fed Chairman, Dec 6, 2012:
The presumption that we're going to have a painless solution to [the U.S. Debt] is, I think, is fantasy. There are a lot of risks out there but the one thing I can be reasonably certain of is we won't get through this whole issue without some pain."
The following movie came out in 2008, so its figures don't completely capture how bad U.S. debt has become. Even so, it gives a good overview.
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- Foreign Governments Dump U.S. Debt at Record Rate (17 Mar 2016)
- Federal Debt hits $19 Trillion (1 Feb 2016)
- 'Bond Predators' on Puerto Rican Debt Want Their Bailout (1 Jan 2016)
- Debt Distress Level at Highest Since Recession (28 Dec 2015)
- Actually, The U.S. is in a Much Worse Debt Position Than Japan (23 Nov 2015)
- Germany Sells Debt at Record-Low Negative Yields (18 Nov 2015)
- What Janet Yellen Knows (7 Nov 2015)
- The U.S. is Having Problems Finding Buyers For Its Debt (11 Oct 2015)
- Fed Quietly Revises Total US Debt From 330% To 350% Of GDP, After "Discovering" Another $2.7 Trillion In Debt (11 Oct 2015)
- China Boosts Gold Reserves 1% in August (29 Sep 2015)
- China Dumps A Record $94 Billion In US Treasurys In One Month (7 Sep 2015)
- We're Probably Screwed With The National Debt (3 Sep 2015)
- Illinois Pays Lottery Winners In IOUs (30 Aug 2015)
- Pennsylvania Schools Start New Year Broke With "Minus $1 Billion" In Funding (28 Aug 2015)
- U.S. Economy Leveraged at Record Level (28 Aug 2015)
- $60 Trillion of World Debt in One Visualization (6 Aug 2015)
- U.S. Could Force Retirement Plans to Hold U.S. Debt (3 Aug 2015)
- First Default By U.S. Commonwealth In History: Puerto Rico Fails To Make Required Debt Payment (3 Aug 2015)
- NYT: Mellinials Won't Get Their Full Retirement (31 Jul 2015)
- Greek Economy Faces Total Collapse As Doctors Flee, Retail Sales Plunge 70% (14 Jul 2015)
- Beware, The Disappearing Retirement Fund (27 Jul 2015)
- China Dumps Half a Trillion Dollars: "Something is Very, Very Wrong" (23 Jul 2015)
- The U.S. is Facing a $1 Trillion Pension Shortfall (14 Jul 2015)
- 14 Countries are Spiraling Towards Government Debt Crises (11 Jul 2015)
- Greek Banks Considering 30% Haircut On Deposits Over 8,000 Euro (14 Jul 2015)
- 5 Things You Need to Know About the Situation in Greece (29 Jun 2015)
- Puerto Rico's Governor Says Island's Debts Are 'Not Payable' (28 Jun 2015)
- Cities, States Shun Moody's For Blowing The Whistle On Pension Liabilities (19 Jun 2015)
- The World is Drowning in Debt, Warns Goldman Sachs (26 May 2015)
- Federal Debt Will Explode over Next 10 years, CBO Says (26 Jan 2015)
- China Announces it Will no Longer Support the Dollar (21 Nov 2013)