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….
Warren Buffett is a great investor. Perhaps the greatest investor in history. But the most impressive thing about Warren Buffett isn't his portfolio... It's convincing mom and pop investors he's just like them. Chris Mayer explains why this couldn't be further from the truth, and offers a warning to those who are vulnerable to The Oracle's folksy charm...
Cancer research has come a long way in a very short amount of time. But it still has a long way to go. Today, Ray Blanco explains why cancer research could make leaps and bounds in the coming years, and how early investors could make a fortune because of it. Read on...
The government's influence on the life of an average American citizen is simply staggering. At every turn there is a different "department" or "agency" with a different rule for how you must live your life. Today, John Pugsley offers 15 unique and peaceful ways to legally combat the government's influence on your daily life. Read on...
Thanks to a surge in development, new energy-efficient technologies are constantly changing the way people power their homes. And that's put the tried and true utility sector on the defensive. But while there are plenty of different alternative-energy sources that are pushing this trend forward, one clearly stands ahead of the rest. Greg Guenthner explains...
Thanks to the tireless efforts of the Federal Reserve, currency in circulation is up $72.5 billion in the last year - which equates to $234 for every man, woman and child in America. And after rifling through his wife's purse yielded fruitless results, The Mogambo Guru has launched an all-out investigation to find his share. Read on...