Monday, February 01, 2010

Deficit shrinks to a mere $1.6 Trillion

We will be DOUBLING the national debt in the next five years, and tripling it within the next ten.

You want to see a scary sight? Boo!

Pay close attention to the “US Unfunded Liabilities” spot, near the bottom center. Over $107 Trillion dollars promised to be paid for various ongoing programs, such as Social Security, Prescription Drug plans, Medicare, etc., yet without so much as a penny of actual worth set aside to fund those expenses.

That would be like a man who only makes $100,000 per year (yeah… “only” $100K) budgeting out $200,000 in spending (having to borrow the other $100K from his neighbor), and still managing to issue IOUs to his family members in the amount of $750,000 besides.

Where is this money going to come from? The government, having issued the debt, has only three ways to get rid of it.

1. Raise taxes to garner the revenue necessary to pay off the debt.
2. Print enough money of increasingly lesser value to at least pretend to pay off the debt.
3. Simply declare the debt void.

Raising enough taxes is simply out of the question. There isn’t enough money in the entire global economy at any given instant to even make a serious dent in a debt of that size. If every single penny spent buying and selling things, paying off every employee, and every penny of value added to raw materials produced within the United States went to fund those mandates, instead of actually supporting the economy, it would still take more than seven years to pay it off, and the economy would have gone to pieces within a week anyway.

Printing enough currency to pay off the debt would lead to Weimar Republic-style hyperinflation, as the available money supply increases from a few trillion dollars (either the M1, at $1.4 trillion, or M2, at $7.7 billion) to roughly $120 trillion (enough to cover the unfunded liabilities and still maintain a currency flow). How would you like that $100 bill tucked away in your mattress to be insufficient to buy a Big Mac meal? How about not enough to buy a loaf of bread? Not enough to buy a newspaper? You might be able to buy a candy bar, but I wouldn’t count on it.

The third option would sooner or later devolve into a global shooting war as possession of physical assets (such as coal, oil, arable land and fresh water) becomes the basic currency, and the race to beat plowshares into swords begins.

Start learning useful skills…

UPDATE: More fun facts - we spend more than $600 million per day on interest payments on our currently outstanding debts. That’s roughly 2/3 of a billion dollars EVERY DAY. On interest. That does absolutely nothing at all to the principal of the debt, just ongoing interest payments.