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 in numerous industries. His unique writing style, philanthropic undertakings and preservationist activities have been recognized by some of America's most respected authorities. With his friend and colleague Addison Wiggin, he co-founded The Daily Reckoning in 1999, and together they co-wrote the New York Times best-selling books Financial Reckoning Day and Empire of Debt. His other works include Mobs, Messiahs and Markets (with Lila Rajiva), Dice Have No Memory, and most recently, Hormegeddon: How Too Much of a Good Thing Leads to Disaster. His most recent project is The Bill Bonner Letter.

  • 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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