Sunday, February 26, 2017

When The National Debt Bubble Bursts Nothing Else Matters, Part 1

Americans are worried and upset about a lot of issues these days. Politicians, lousy job opportunities, stagnant household income growth, who is allowed in what bathrooms, terrorism, high taxes, bad schools, crumbling infrastructure, etc. But all of these issues, while seemingly important, are trivial vs. the only big issue that matters: a Federal government (and many local and state governments) that is hurtling towards fiscal disaster and insolvency. 

If and when the fiscal integrity of the United States crumbles, and that possibility grows larger and larger every day, no one is going to care what the local bathroom policy is, why little Johnny is not getting educated, etc. because it will be a matter of basic survival in a collapsed economy that is the only concern.

Given that the Obama administration and legacy has almost doubled the national Federal debt from about $10 TRILLION to almost $20 TRILLION, this is the current Federal debt burden in the United States:
  • Debt per household - just under $159,000
  • Debt per every man, woman and child - abut $62,500
  • In other words to wipe out just the Federal government debt, every household, on average, would have to write a check for about $159,000. 
  • Every person, including kids and infants, would have to pony up about $62,500 to wipe out just the Federal government debt. 
  • A family of four would have to write a check for about a quarter of a million dollars.
Given that we have previously written on studies that show over 40% of American households would have a hardship paying off an unexpected household expense of $400, it is obvious that American households and individuals cannot pay out $159,000 or $62,500 to help bail out the incredibly deep spending hole that Washington has dug.

Now, some liberal readers I know are thinking, tax the rich, let them pay off the debt. Let me give one example why that is such an ignorant thing to say. Bill Gates has a net worth of $86.4 billion as of February 24, 2017 according to Forbes. 

For this example, rather than just raise Mr. Gates taxes on his annual income, let’s confiscate everything he owns, liquidate his assets, and apply that $86.4 billion to the national debt. In this case, his entire fortune would pay off .4% of the current national debt. Not 4%, only .4%. Since we are not going to confiscate his entire fortune, just having a higher tax on his income, in reality not even this paltry .4% would ever be attained by "taxing the rich."

Let’s take this theoretical example one step further. Since the government spends about $10.4 billion a DAY, Bill Gates entire fortune would operate the Federal government for a little over eight days, just over a week, never mind paying off a $20 TRILLION national debt.

Hopefully these examples, numbers and realities give you an idea of how bad the debt and fiscal situation is in this country. But if you want to be scared even more, consider some debt realities in an article written by Peter Suderman in the April, 2017 issue of Reason magazine (and some simple population and household calculations we added):
  • Within 10 years, on the current spending and budget path of the Federal government, the Federal government debt will increase by about 64%.
  • Last year the interest on the debt was $241 billion or about $1,900 for every U.S. household.
  • This is $1,900 that cannot be spent on a new car, vacations, movie tickets, dinner out, and other healthy economic activities to help grow the economy.
  • This is $1,900 that cannot be spent on better schools, fixing crumbling infrastructure, or helping the less fortunate. 
  • Interest payments on the debt, under Federal government current spending paths, will grow 196% in the next ten years, the fastest growing component of the Federal budget.
  • This growth translates to an annual interest payments of $712 billion a year in ten years, up from $241 billion in 2016. 
  • This $712 billion translates to a debt burden of about $5,600 a year per household.
  • And this assumes that interest rates do not jump higher than expected since every percentage point above the current government projections would add another $1.5 TRILLION in debt.
A number of things to take away from all of these numbers:
  • The Federal government debt hole is gigantic and getting deeper every day by the out of control spending by the Washington political class.
  • Taxes diverted to pay for debt is wealth that cannot be spent by those that earned it or by government to fix what needs to be fixed in this country, it is a dead weight expense.
  • You cannot come close to paying off this debt by increasing everyone’s taxes since that amount of wealth that would need to be taxed to pay off the debt simply does not exist.
  • You cannot come close to paying for this debt by taxing the rich, only significant drops in government spending can help tame the debt burden.
  • And the situation could get worse if interest rates go higher than expected.
One more debt fact to scare you. A recent Businessweek blurb announced that the entire net worth of every company, in the the S&P 500 stock index, if added together would be just over $20 TRILLION. In other words, the Federal government national debt is now roughly equivalent to the TOTAL worth of the 500 companies listed in the index. If this does not say government is out of control, nothing does.

So as the political class divides us up and pits citizen against citizen on a whole slew of issues, they continue to spend like there is no debt crisis at all. But when the debt bubble bursts, when your savings and assets crash, when your Social Security and Medicare benefits are slashed or evaporate, and possibly the need to survive and eat is a day to day struggle (see current day Venezuela), who uses what bathroom, why is Johnny not getting educated and other issues will become unimportant and trivial. 

This whole mess reminds me of an old Peanuts Sunday comic from long ago. Snoopy goes out for a jog on a very cold morning and before you know it every part of his body is complaining. His knees hurt and complain, his feet hurt and complain, his ears are getting frost bite and complain, his stomach is hungry and complains when his brain questions why they are out jogging on a cold day when all of the body parts are complaining and do not want to be out. 

At which part the heart speaks up and says the reason they are out jogging on a cold morning is to keep the heart healthy because if the heart goes, everything else is secondary. When the ever inflating debt bursts, everything else is secondary.

Tomorrow, to add to the horror, we will discuss bad situation at the local and state government level.



Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at:


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Please visit the following sites for freedom:


http://www.reason.com
http://www.cato.org
http://www.bankruptingamerica.org

http://www.conventionofstates.com
http://www.youtube.com/watch?v=08j0sYUOb5w







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