The US Debt Abyss By James Reed
I am terrified to write about debt, because I tend to think that debt can bring a nation unstuck, while economic experts from our side say: no Jimmy, debt is not a worry, go back to minding your chooks. Ok, I guess the conservatives are silly too worrying about US debt being 2,000 percent of GDP, or $ US 400 trillion. I suppose it does not matter:
“A new report has said that the real United States national debt could be well over what politicians tell us it is. At a whopping $400 trillion, the U.S. debt would be 2,000% of GDP (gross domestic product) according to new calculations that include the federal government, state, local, financial, and so-called entitlement debt. AB Bernstein, a global asset management firm based on Wall Street, came up with these figures by including in its analysis not only traditional levels of public debt, such as bonds but also financial debt as well as future obligations for entitlement programs, according to a report by CNBC. These include social security, Medicare and public pensions and are often left out of the discussion. They are unfunded liabilities, however, and should be included if we’re to get an appropriate understanding of the government’s mishandling of money. In its report, AB Bernstein took debt from a number of sources and compared it to GDP. Using this methodology, federal, state and local government debt combined amounted to 100 percent of GDP. Households and firms accounted for 150 percent, while debt held by financial firms came to 450 percent. Another 27 percent came from trusts for social insurance programs, 484 percent from promises under current social insurance programs, and 633 percent from obligations for social programs. The total debt, therefore, amounted to 1,832 percent. –RT
“US debt is large. And it’s growing. But if we want to think about debt problems (in any sector – sovereign, households, firms or financials), the conditions rather than the levels are more significant,” Philipp Carlsson-Szlezak, chief US economist at AB Bernstein, said in the report. “While the picture is dire, such numbers don’t prove we are doomed or that a debt crisis is inevitable,” he said. Changes can be made in accounting or in policy that could lower that number. But even then, there’s only so low it can actually go. Anyone with even a partial understanding of the national debt can see that it will never be paid back and those who are depending on future money (pensioners and social security recipients) will one day find themselves in a pretty bad situation. The total federal outstanding U.S. debt has recently jumped to $22.5 trillion, or about 106 percent of GDP, CNBC reported. Without the intergovernmental obligations, debt held by the public amounts to $16.7 trillion, or 78 percent of GDP. Carlsson-Szlezak noted in the report, however, that different debt carries different risks and its impact on individual parts of the economy would vary. “A default on US treasury bonds would be catastrophic to the global economy – whereas changes in policy (while painful for those whose future benefits were diminished) would barely register on the economic horizon,” he stated.”
We will see whether or not this leads to a Zimbabwe situation that will pull Australia down into the abyss too, or whether business will be as usual, with approaching infinity debt. It is a pity, because if economic disaster is coming, it would be nice to have a few tins of baked beans stashed away.