U.S. debt: $30,000 per American
WASHINGTON (AP) — Like a ticking time bomb, the national debt is an explosion waiting to happen. It's expanding by about $1.4 billion a day — or nearly $1 million a minute.
What's that mean to you?
It means almost $30,000 in debt for each man, woman, child and infant in the United States.
SO HOW MUCH IS THAT?: National debt to the penny
Even if you've escaped the recent housing and credit crunches and are coping with rising fuel prices, you may still be headed for economic misery, along with the rest of the country. That's because the government is fast straining resources needed to meet interest payments on the national debt, which stands at a mind-numbing $9.13 trillion.
And like homeowners who took out adjustable-rate mortgages, the government faces the prospect of seeing this debt — now at relatively low interest rates — rolling over to higher rates, multiplying the financial pain.
So long as somebody is willing to keep loaning the U.S. government money, the debt is largely out of sight, out of mind.
But the interest payments keep compounding, and could in time squeeze out most other government spending — leading to sharply higher taxes or a cut in basic services like Social Security and other government benefit programs. Or all of the above.
A major economic slowdown, as some economists suggest may be looming, could hasten the day of reckoning.
The national debt — the total accumulation of annual budget deficits — is up from $5.7 trillion when President Bush took office in January 2001 and it will top $10 trillion sometime right before or right after he leaves in January 2009.
That's $10,000,000,000,000.00, or one digit more than an odometer-style "national debt clock" near New York's Times Square can handle. When the privately owned automated clock was activated in 1989, the national debt was $2.7 trillion.
It only gets worse.
Over the next 25 years, the number of Americans aged 65 and up is expected to almost double. The work population will shrink and more and more baby boomers will be drawing Social Security and Medicare benefits, putting new demands on the government's resources.
These guaranteed retirement and health benefit programs now make up the largest component of federal spending. Defense is next. And moving up fast in third place is interest on the national debt, which totaled $430 billion last year.
Aggravating the debt picture: the wars in Iraq and Afghanistan, which the non-partisan Congressional Budget Office estimates could cost $2.4 trillion over the next decade
Despite vows in both parties to restrain federal spending, the national debt as a percentage of the U.S. Gross Domestic Product has grown from about 35% in 1975 to around 65% today. By historical standards, it's not proportionately as high as during World War II — when it briefly rose to 120% of GDP, but it's a big chunk of liability.
"The problem is going forward," said David Wyss, chief economist at Standard and Poors, a major credit-rating agency.
"Our estimate is that the national debt will hit 350% of the GDP by 2050 under unchanged policy. Something has to change, because if you look at what's going to happen to expenditures for entitlement programs after us baby boomers start to retire, at the current tax rates, it doesn't work," Wyss said.
With national elections approaching, candidates of both parties are talking about fiscal discipline and reducing the deficit and accusing the other of irresponsible spending. But the national debt itself — a legacy of overspending dating back to the American Revolution — receives only occasional mention.
Who is loaning Washington all this money?
Ordinary investors who buy Treasury bills, notes and U.S. savings bonds, for one. Also it is banks, pension funds, mutual fund companies and state, local and increasingly foreign governments. This accounts for about $5.1 trillion of the total and is called the "publicly held" debt. The remaining $4 trillion is owed to Social Security and other government accounts, according to the Treasury Department, which keeps figures on the national debt down to the penny on its website.
Some economists liken the government's plight to consumers who spent like there was no tomorrow — only to find themselves maxed out on credit cards and having a hard time keeping up with rising interest payments.
"The government is in the same predicament as the average homeowner who took out an adjustable mortgage," said Stanley Collender, a former congressional budget analyst and now managing director at Qorvis Communications, a business consulting firm.
Much of the recent borrowing has been accomplished through the selling of shorter-term Treasury bills. If these loans roll over to higher rates, interest payments on the national debt could soar. Furthermore, the decline of the dollar against other major currencies is making Treasury securities less attractive to foreigners — even if they remain one of the world's safest investments.
For now, large U.S. trade deficits with much of the rest of the world work in favor of continued foreign investment in Treasuries and dollar-denominated securities. After all, the vast sums Americans pay — in dollars — for imported goods has to go somewhere. But that dynamic could change.
"The first day the Chinese or the Japanese or the Saudis say, 'we've bought enough of your paper,' then the debt — whatever level it is at that point — becomes unmanageable," said Collender.
A recent comment by a Chinese lawmaker suggesting the country should buy more euros instead of dollars helped send the Dow Jones plunging more than 300 points.
The dollar is down about 35% since the end of 2001 against a basket of major currencies.
Foreign governments and investors now hold some $2.23 trillion — or about 44% — of all publicly held U.S. debt. That's up 9.5% from a year earlier.
Japan is first with $586 billion, followed by China ($400 billion) and Britain ($244 billion). Saudi Arabia and other oil-exporting countries account for $123 billion, according to the Treasury.
"Borrowing hundreds of billions of dollars from China and OPEC puts not only our future economy, but also our national security, at risk. It is critical that we ensure that countries that control our debt do not control our future," said Sen. George Voinovich of Ohio, a Republican budget hawk.
Of all federal budget categories, interest on the national debt is the one the president and Congress have the least control over. Cutting payments would amount to default, something Washington has never done.
Congress must from time to time raise the debt limit — sort of like a credit card maximum — or the government would be unable to borrow any further to keep it operating and to pay additional debt obligations.
The Democratic-led Congress recently did just that, raising the ceiling to $9.82 trillion as the former $8.97 trillion maximum was about to be exceeded. It was the fifth debt-ceiling increase since Bush became president in 2001.
Democrats are blaming the runup in deficit spending on Bush and his Republican allies who controlled Congress for the first six years of his presidency. They criticize him for resisting improvements in health care, education and other vital areas while seeking nearly $200 billion in new Iraq and Afghanistan war spending.
"We pay in interest four times more than we spend on education and four times what it will cost to cover 10 million children with health insurance for five years," said House Speaker Nancy Pelosi, D-Calif. "That's fiscal irresponsibility."
Republicans insist congressional Democrats are the irresponsible ones. Bush has reinforced his call for deficit reduction with vetoes and veto threats and cites a looming "train wreck" if entitlement programs are not reined in.
Yet his efforts two years ago to overhaul Social Security had little support, even among fellow Republicans.
The deficit only reflects the gap between government spending and tax revenues for one year. Not exactly how a family or a business keeps its books.
Even during the four most recent years when there was a budget surplus, 1998-2001, the national debt ranged between $5.5 trillion and $5.8 trillion.
As in trying to pay off a large credit-card balance by only making minimum payments, the overall debt might be next to impossible to chisel down appreciably, regardless of who is in the White House or which party controls Congress, without major spending cuts, tax increases or both.
"The basic facts are a matter of arithmetic, not ideology," said Robert L. Bixby, executive director of the Concord Coalition, a bipartisan group that advocates eliminating federal deficits.
There's little dispute that current fiscal policies are unsustainable, he said. "Yet too few of our elected leaders in Washington are willing to acknowledge the seriousness of the long-term fiscal problem and even fewer are willing to put it on the political agenda."
Polls show people don't like the idea of saddling future generations with debt, but proposing to pay down the national debt itself doesn't move the needle much.
"People have a tendency to put some of these longer term problems out of their minds because they're so pressed with more imminent worries, such as wages and jobs and income inequality," said pollster Andrew Kohut of the non-partisan Pew Research Center.
Texas billionaire Ross Perot made paying down the national debt a central element of his quixotic third-party presidential bid in 1992. The national debt then stood at $4 trillion and Perot displayed charts showing it would soar to $8 trillion by 2007 if left unchecked. He was about a trillion low.
Not long ago, it actually looked like the national debt could be paid off — in full. In the late 1990s, the bipartisan Congressional Budget Office projected a surplus of a $5.6 trillion over ten years — and calculated the debt would be paid off as early as 2006.
Former Fed chairman Alan Greenspan recently wrote that he was "stunned" and even troubled by such a prospect. Among other things, he worried about where the government would park its surplus if Treasury bonds went out of existence because they were no longer needed.
Not to worry. That surplus quickly evaporated.
Mark Zandi, chief economist at Moody's Economy.com, said he's more concerned that interest on the national debt will become unsustainable than he is that foreign countries will dump their dollar holdings — something that would undermine the value of their own vast holdings. "We're going to have to shell out a lot of resources to make those interest payments. There's a very strong argument as to why it's vital that we address our budget issues before they get measurably worse," Zandi said.
"Of course, that's not going to happen until after the next president is in the White House," he added.
Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
We are pretty screwed - the politicians in both parties will do whatever is needed to hold/grab power while at the same time shielding themselves from any exposure to an economic collapse. They set up separate retirement and health care for themselves so I would not count on them making any significant changes. They will bail out on their golden parachutes as the plane crashes into the ground and simply point fingers at the other party.
Pay off whatever debts you have and look for inflation resistant investments that are hard for the govt. to get their hands on.
ETA- Here is a related topic - skip over the replies where the tinfoil was too tight.
Half of the national debt is owned by the US government. It pays the interest to itself. The debt could be canceled with a waive of Congress' hand.
It is true that about half of the rest of the government debt (or 25% of the total US federal debt) is held by foreigners. Does anyone really think they are going to do anything that would make their tremendous investment worthless?
Our federal debt, relative to GDP, is about the same as Germany, Canada or France. It is about half of Japan's. Once you take out the accounting gimick of the government loaning money to itself, our debt ratio is actually very low. Probably the lowest of any majory developed economy.
The entitlements situation is troubling, but every other developed nation is in even worse straits. At least our population is still growing. The Germans, Japanese and others are going to be in an even worse fix, with even more generous publicly financed retirement schemes and no young people to pay for them.
Yep, that is kind of what I have always heard. Ours is the worst government in the world, except for all the rest!!
And yet is still doesn't mean it can't all come crashing down.
That was a very sobering article, BTW.
The signs are written on the wall, and the letters are getting bigger.
The article itself doesn't affect my plans, but the concept I adhere to which it supports does.
I try to minimize my dependency on things that I can't control. The value of the dollar is one of them. This is controlled by international perception of the US, its overall economy, and macro economic factors God controls and the world influences.
What I can control are the debt I get into, the beneficial assetts I own (small businesses, profitable assetts, etc).
So, I stay out of debt and spend money on things that generate wealth for me instead of living paycheck to paycheck and owning things that are easily controlled by someone else. After all, if someone can control your assett, you don't really own it.
the US is merely the healthiest patient in the cancer ward.
So my question is ---- When the collapse happens and the rich/Government/corporate CEO's pick up and leave the country for their villa in France, Germany, switzerland, ect. Will the people who have the money will just say see ya to the rest of us who don't have money?
What are we going to do about it?
Yes that is whats going to happen. Actually, it is one of the things recommended by a guy in Argentina that posts as FerFal. After that country took a shit, one of the lessons he passed on was if possible, be in a different place than where the is SHTF and to diversify your money into not only gold/silver but other countries currency too.
A lot to learn from him.
Well, there is a difference between ownership and possession.
The British, Spanish, and French nations claimed ownership of the New World, but didn't possess it. In time, they lost ownership. This is why the US Gov't gave land grants after the Louisianna purchase, etc. Gotta possess it.
I think the same would happen if the well-to-do left the country. They would struggle to possess the land, and over time, would lose control and thereby ownership of it.
Not saying that is right, just what would likely happen.
How would you enforce your ownership of something if you were out of the country, unable to get their government to enforce your rights, and couldn't finance control of it?
On a side note, this is what the Islamic radicals are doing in Europe. They are possessing parts of France and the Netherlands. Over time, they will control it if allowed to possess it, and eventually own it and run the show.
Good article. Unfortunately, most Americans have no memory of the Great Depression (myself included). Barring that, only a select few of us will have the sense to do something to prepare for it. My goal is to live a debt free lifestyle - which I'm pretty close to. I have no credit cards and refuse to get one.
It factors in in several ways:
This current path and direction are unsustainable. I plan accordingly.
1) Pensions/social security: I make my plans assuming my SS and pension income will be zero. I am making provisions for full financial independence.
2) Health: The current system is also unsustainable. Again, I am not relying on the system. I am ensuring I have the financial ability to be self sufficient.
3) Finances overall: Its a looong and complex story but the end result is the same: Our dollar is trash. I expect the greenback to tank substantially. Therefore I am taking several steps. Invest overseas. Reduce reliance on imports (namely energy).
4) Weakened global influence. In 1600 spain ruled. Then it was the English. Our turn came during the 1950's and 60s'. Our era of influence is declining, not advancing. I expect weaker economic opportunities, reduced spending power, etc. I do expect our economy to suffer substantially: reduced job oportunities, reduced purchasing power, greater unrest, etc.
5) Self sufficiency: I am looking at 75-200 acre parcels. I want 10-20 acres pasture, a substantial woodlot. I will build an energy efficient small home, with secondary wood heat. When our dollar tanks, the price of oil will skyrocket on dollar devaluation alone. I can live without electricity. I cannot live here without heat. I will also start small scale farming to supplement by food. I'm looking very seriously at alternative energy (wind), with solar supplemental on a grid intertie system.
6) Americans are, by and large, completely ignorant of the pending mess. They are blindly trodding along with this bloated sense of entitlment. One need only look at the subprime mortage mess as evidence of this stupidity. We;ve borrowed heavily to finance this debacle. The debtors want payment. Someone always makes the arguement that we are too big, too powerful, too important, or in someways at least not as bad off as the other countries. That is bovine excrement. It is exactly the same sentiment some Roman claimed in 200 ad, some Aztec claimed in 1600, Spaniard claimed in 1700, and the English claimed in 1913. When the party is finally over and some uneducated moron with a dead-end job finally realizes that NO he cannot have an Escalade, or even ANY car for that matter, and NO he cannot borrow for a house, NOR can he put his groceries on credit, then I expect violence and unrest to build. I also expect many americans will look for some form of scapegoat. They surely won't recognize that THEY are the problem, so they'll blame immigrants. And the racial tension thing will get UGLY.
As fuel prices climb, raw materials climb, economic prospects become dimmer, more people cannot feed and cloth themselves (we spend all the money on Chinese electronics, bling, and gas) social unrest will climb. The politicians will do what they always do: Print more money and spend faster. This will hasten the decline, making it worse. Americans simply will not elect a politicians who makes it his platform to tell Americans "You cannot afford a home, I'm going to halve your benefits and double your taxes. And by the way, get off your ass and get to work". Therefore, we will not reverse this trend.
I hear comments to the effect that we are in better shape than other comparable countries. It's a nice dream but we are not. It's a happy little patriotic delusion that harkens back to our heyday in the 50's and 60's. Do some research and look up the numbers yourself. there are quite a few countries with higher per capita incomes, higher standards of living, lower debt, more modern infrastructure, better health systems, etc. Again, do the research. Find out for yourself.
6) so I have a back up plan. Dual citizenship. The Canadian border is 20 miles away and I legally hold two passports. The situation in Canada is much brighter than it is here. Its always an option. Their debt is 2/3's of ours (on a per person basis) and is FALLING, not rising.
I'd like to hear about all of these countries with higher per capita incomes, higher standards of living (), more modern infrastructure, better health systems. Seriously, what passes for middle class in Eurpoean countries would be downright poor here. Have you ever lived anywhere else?
Just to take one example of how far off base you are:
Per capita GDP:
1. Luxemburg $44,000
2. United STates $37,600
So Luxemburg qualifies as "quite a few countries with higher per capital incomes ..."
The US has higher incomes, and it is a lot cheaper to live here than in any other industrial economy. We simply live better.
Not much more I can do. I have no debt except a mortgage which will flip right side up in a few payments. I own my cars. I have plenty tucked away in various instruments and well diversified. I am the perfect consumer. Good income, little debt, high spending potential.
I won't get into a pissing match. Been there, done that. I'll post some information, since you asked me to justify my position. Here goes. Take it for what its worth, or ignore it:
According to world bank statistics (devdata.worldbank.org 4a) the US is not even in the top FIFTEEN countries with a current account surplus. Those with a surplus are countries like Japan, Singapore, China, Germany, even the Russian Federation. We run a deficit. This is the basis for this entire thread: We are up to our ass in debt, and sinking fast.
As for per capita income the IMF publishes the stats. The US is eighth (after Luxemborg, Norway, Iceland, sweden, denmark and others). Now there is a real problem with the stats. Its obvious with a country like Saudi Arabia (not above the US btw). (IMF World outlook database, sept 2006). Very very few very very wealthy individuals act as statisitcal outliers and pull the mean up significantly. This effect is also pronounced in the US.
Standard of Living:
The UN issues a human development index. It includes income, but also other factors sushc as health care, social benefits, work life, etc. The US is 12th (behind Iceland, Norway, Australia, Canada, Ireland, Sweden and others). Since 1980 (the start of the data I believe) Canada has ranked first 10 times, Norway 6, Japan 2 and Iceland and Switzerland 1 each. Not all a country's characterisitcs can be quantified in dollars...
If you wish to look at the human poverty index (which will give us some idea of a country'wealth as it applies to the masses (and not just the Kennedy's and Bill Gates) the US is 16th. (UN Humand Poverty Index for 2006). The US ranks below most ofthe others mentioned as well as canada, netherlands, germany, france, spain, australia and the UK. Apparently we (the USA) are rich, but most of that money isn't in the hands of the little people like you and I.
I would argue that there are statistics which strongly suggest we are not at the top of the heap as we once were. Other countries are making progress and we slide, much to my dismay....
I am happy you are so happy here in the US. I too enjoy it. However, there are individuals who live in other industrialized countries (like a half dozen or so of those mentioned above, and other somewhat below our income but damned close) who share similar incomes but do so with full health care, shorter work weeks, longer vacations, and other 'non-monetary benefits' we simply do not have... They have longe life expectancy, more education, etc. I would argue that the do have a higher standard of living.
FWIW I am a real American. I am American by choice, not accident of birth. I had an opportunity to think long and hard about this country, what it stands for and what it aspires to be. I love the country and the ideal. I chose to be American and didn;t just fall into it. Unfortunately this country is being run into the ground. Standing on the moral highground(unsupported at that) and waving the flag of patriotism may feel good but it doesn;t change the situation we are in. If my words upset you, call your congressman and senator and tell him/her to get her head out of her ass and fix things.
To turn your question over, yes. I have lived in another country. For 26 years. I think I can compare countries and the longer i am here, the more subtle differences I see. I'm not here for the money. I am here for political freedom (second amendment) as well as others.
If you think everything is hunky dory and we are at the top of the heap, then by all means prepare (or don't) accordingly. The thread asked how I prepared. I answered it.
I have a rough time accepting anything from the UN as it pertains to the US. They are politically opposed to the US, and it is in their interest to show what an awful, poverty-inducing, rich vs poor class warfare nation we are to fit their agenda.
If we collapse the whole world has a problem. Its true. They hate us and want us to fall but if we do they all will be praying five times a day. Riots all around the world and here too.
Hell, leaders like Chavez, Amadinajad and others want to topple us but what will happen then?
Debt, I have none myself, my wife has school loans but who will come to collect?
What would they do?
Federal deficits versus increases in the federal debt Fiscal
year Reported surplus/deficit Debt increase Debt at start of year Debt at year's end
$236.2 billion surplus
$128.2 billion surplus
$157.8 billion deficit
$377.6 billion deficit
$412.7 billion deficit
$318.3 billion deficit
$248.2 billion deficit
$162.8 billion deficit