We won’t belabor the point. Greece can’t solve a problem of too much debt by taking on even more. We will note, however, that by some measures, the United States is even more deeply in hock than Greece.
Greece’s debt-to-GDP ratio is 143%. America’s is officially 97%. But the $14.3 trillion national debt, stacked up against a $14.7 trillion economy, doesn’t tell the whole story.
• $14.3 trillion: “Official” national debt• $5 trillion: Amount Uncle Sam is on the hook for Fannie Mae and Freddie Mac• $62 trillion: Total liabilities and unfunded obligations for Social Security and Medicare
And that doesn’t count the black box of bailouts.
We know how much the Federal Reserve doled out in emergency loans: $16.1 trillion between Dec. 1, 2007, and July 21, 2010. We know that because yesterday the Government Accountability Office completed its first-ever audit of the Fed, made possible largely through the persistence of Rep. Ron Paul making that audit, however incomplete, the law.
What we don’t know is how much of that has been paid back. “We have literally injected about $5.3 trillion,” said Dr. Paul last week during his questioning of Fed chief Ben Bernanke, “and I don’t think we got very much for it. The national debt went up $5.1 trillion.”
Bernanke did not challenge those figures.
“To get our overall fiscal gap under control,” writes Boston University professor Laurence Kotlikoff in Bloomberg, “the U.S. must cut spending or raise tax revenue by $20 trillion over the next decade, far more than either the president wants or the House Republicans seek.”
Yep: The latest number we see bruited in Washington this morning is $3 trillion. Whatever the final number — and there will be a last-minute deal; there always is — it will be substantially less than $20 trillion over 10 years. The can will be kicked… as it keeps getting kicked in Greece.
We note here that the total of outstanding credit default swaps on U.S. Treasuries crested $4.8 billion this week. Uncle Sam has now surpassed Greece in this category.
Measured in year-over-year change, America’s No. 1: Net notional CDS outstanding grew 109%. That means there’s double the bets out there on a U.S. default compared with a year ago.
“You may not know this, but the U.S. has actually defaulted a number of times already,” writes Chris Mayer this morning. He cites five instances:
• 1779: The government was unable to redeem the continental currency issued during the Revolutionary War• 1782: The Colonies defaulted on the debt they took out to pay for the war• 1862: During the Civil War, the Union failed to redeem dollars for gold at terms stated by the debt contracts• 1934: FDR defaults on the debt issued to finance World War I, refusing to redeem it in gold. The dollar is devalued 40% against gold• 1979: A bureaucratic snafu results in interest going unpaid on some small bills.
“With the exception of 1979,” Chris says, “which was mostly due to administrative confusion — the U.S. simply ran out of money each time. The end result was the dollar had to be devalued. Meaning it lost significant purchasing power.
“My guess is that the U.S. will default again. It may not technically be called that, but the only way for the U.S. to meet its financial obligations is to print a lot of money.”
What does that mean in practical terms?
In Greece, professor Savas Robolis at Panteion University in Athens reckons that by 2015, the average Greek employee and pensioner’s standard of living will have fallen 40% compared with 2008.
Even now, Americans are turning to their credit cards to pay for groceries and gas. According to First Data Corp., the volume of gasoline purchases put on credit cards jumped 39% over the last 12 months.
You don’t want to be the average American in a default scenario, whenever it arrives. Ray Dalio, the head of Bridgewater Associates, the world’s biggest hedge fund, puts that day in “late 2012 or early 2013.”
Addison Wiggin is the executive publisher of Agora Financial, LLC, a fiercely independent economic forecasting and financial research firm. He's the creator and editorial director of Agora Financial's daily 5 Min. Forecast and editorial director of The Daily Reckoning. Wiggin is the founder of Agora Entertainment, executive producer and co-writer of I.O.U.S.A., which was nominated for the Grand Jury Prize at the 2008 Sundance Film Festival, the 2009 Critics Choice Award for Best Documentary Feature, and was also shortlisted for a 2009 Academy Award. He is the author of the companion book of the film I.O.U.S.A.and his second edition of The Demise of the Dollar, and Why it's Even Better for Your Investments was just fully revised and updated. Wiggin is a three-time New York Times best-selling author whose work has been recognized by The New York Times Magazine, The Economist, Worth, The New York Times, The Washington Post as well as major network news programs. He also co-authored international bestsellers Financial Reckoning Day and Empire of Debt with Bill Bonner.
Default on the debt will happen…
No question about it…
“You don’t want to be the average American in a default scenario, whenever it arrives. Ray Dalio, the head of Bridgewater Associates, the world’s biggest hedge fund, puts that day in “late 2012 or early 2013.””
why then? any particular reason?
Aint debt capitalism fun.
big ships sinks faster
“You don’t want to be the average American in a default scenario, whenever it arrives.”
you could write and article on this!
Things are looking up for me.
I heard on the tube last night that the top 400 families in the USA own as much as the bottom 60% of families.
….and the top 10% own 90% of the country.
Buy whiskey and ammo if you can’t afford Au/Ag … then barter.
Oh yeah, don’t forget to grow our own…
“A problem is easily handled with dope, but with no dope, no hope” … somebody at UF in the 60’s.
Headline does not match article. Only reference is last sentence….
The economist Milton Friedman didn’t go far enough when he said, “Concentrated power is not rendered harmless by the good intentions of those who create it.” Oftentimes, that power is rendered more harmful -- to the point of Hormegeddon -- the better the intentions behind it. In today's essay, Bill Bonner highlights the conditions necessary for popular delusions and the disasters they lead to. Read on...
Right now, health care makes up about 25% of the federal budget. A scary statistic to be sure... But here's an even scarier one: health care's portion of the federal budget doubles roughly every 20 years. Yikes! Addison Wiggin explains why this is and what needs to change to prevent health care from taking up half the federal budget. Read on...
Is your government too big? Find out in today’s Laissez Faire Today with six “red flags” to look out for. Chris Campbell covers everything from one ObamaCare whistleblower to the strange case of our new Ebola czar. Read on…
McDonalds stock is getting crushed right now. Shares have been in a tailspin since June. But it’s not just Mickey Dee’s. Coca Cola shares are in freefall, too. Bad news for them. But if you want to rake in a pile of easy money, it could be great news for you. See, Americans just aren’t choking down this junk like they used to. The fast food burger, fries and a Coke are just down payments on an early coronary - and Type II diabetes. And everyone’s finally gotten the message. So how can you play the trend? Greg Guenthner explains…
Panopticon goggles? Severe market panic in 2018? Gold confiscation by 2020? Jim Rickards' shocking thought-piece in the spirit of A Brave New World or 1984. Click to see how markets, economics, your money, gold, privacy, wealth building and more look a decade from now in the year 2024...