Bill Bonner

“The US is insolvent,” says a report from a hedge fund. As of the third quarter of last year, the federal government had assets of $2.67 trillion and total liabilities of $14.12 trillion.

That leaves a net negative position of more than $11 trillion. By the way, this is projected to get a lot worse, fast. The feds are expected to increase their debts by about $3 trillion more over the next 2 years. Federal spending is out of control…the feds have lost control of their own budget, let alone the economy.

Typically lenders look for what they call ‘debt coverage’ – debt compared to revenue. If you take the US revenue as a whole, you find federal debt currently equal to a bit more than 80% of GDP. But that number is going up quickly. It will be over one hundred percent in just 2 or 3 years.

Well, so what? As long as you have the income to support it, you don’t worry, right? Well, let’s look at it from that angle.

Hmmm… Doesn’t look so good from that perspective either. The income tax only generates 43% of the budget. The feds get a little more from corporate and other taxes, but the deficit is enormous…from a third to a half of all expenditures.

This is not looking good. Most of the deficits do not come as emergency reactions to a financial crisis. Most of red ink is ‘structural’ – the result of programs already in place before the crisis hit. They are hard to curtail, since it requires major acts of political will to undo them. So, they tend to continue.

Which means, the US needs to borrow huge amounts of money just to continue drifting along in the style to which it has become accustomed. There is no end in sight to the deficits…no practical way to reduce them…and no way out of the debt whirlpool. Which means, financing them has got to be a losing proposition for the lenders.

Nothing new in that…

Still, we drift…we wander…we float from one bank to the other…and wonder when we will finally sink.

Regards,

Bill Bonner
for The Daily Reckoning

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily ReckoningDice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010. 

  • jason

    The US debt is unstoppable–like running down a hill–you go faster and faster until finally you tumble forward. But it’s really not a big worry. The USA can borrow indefinitely, and the debt never really has to be paid back. Everyone except dreamers knows that such an enormous sum won’t be paid back ever.

  • CommonCents

    Then we might as well kick back and just listen to Otis:

    http://www.youtube.com/watch?v=UCmUhYSr-e4

  • Timmay

    Only 30,000 people lost their jobs!!! The recovery is here!!!!

  • Lost & Found

    The whole mess is whole mess is a whole mess.

  • Ron

    I could have written that article,so whats the cure?My neighborhood is 40% empty houses,the area has many empty commercial buildings,even my illegal alien neighbors are moving back to mexico!If were so broke how come the president keeps spending more money?Obama is trying to break the USA.destroy then rebuild in his godlike image and superior intelligence.(much laughing)

  • har har

    dont tell obama

  • Christian Tigges

    Could you provide the name of or link to the report you cite in the first paragraph?

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