U.S. Debt Clock Reveals Time Isn’t On Our Side

The U.S. Debt Clock currently has the National debt at approximately $11.72 trillion.  With a current U.S. population of just over 307 million, each persons share of the debt stands at around $38,200.

U.S. Citizen Can You Spare a Dime?

Will you do your part by sending $38,000+ to the government so they can pay their bills?  If everyone pays $38,000 we can get out of this mess we got ourselves into.  What’s that?  You don’t want to voluntarily pay your portion?  The government did give you a stimulus check last year right?  How about returning the favor?  The government has been working hard for you right?  They have your best interest at heart right?  What’s that you say?  The stimulus check was just a return of your own money paid in taxes?

But Things Aren’t Really All That Bad Are They?

The typical response to the U.S. debt issue is that the U.S. is still the engine to the world.  The current U.S. debt is 21.5% of the $54.62 trillion World Debt.  U.S. GDP stands at $14.29 trillion (purchasing power parity (PPP)), about 20.5% of World GDP that currently is $69.49 trillion (PPP).

While the U.S. still has GDP that is larger than any other country, the increasing debt has become an increasing burden with no end in sight.

Most everyone is aware that the U.S. debt is growing at an alarming rate while at the same time U.S. and World GDP have been declining.

Question:  Is There Any Fiscal Responsibility on the Part of the U.S. Government?

To answer this question, one must understand the current state of affairs a little bit better than just staring in awe as the digits fly by on the Debt Clock.  One must also understand whether there is any fiscal responsibility on the part of our leaders, from Congress to the Fed to the top, the President himself.

First, Get to Know the Lingo

In understanding the different debt data being thrown around by the media, one must know what each figure represents.  Is it national debt, public debt, Federal Debt, external debt?  What about the meaning of fiscal responsibility?  What do all these terms mean?

Needless to say, it can get a little confusing.  To diffuse the confusion, please refer to the “Definitions” section at the end of this article first and acquaint yourself with the meanings of each of these terms.

Now That You Have a Better Understanding of the Lingo, Let’s Look at the Data a Little Closer

Flashback 2003 and Accuracy of Government Projections

In 2003, the Congressional Budget Office, (CBO) long term budget outlook projected for 2009, a Debt-to-GDP ratio of 40%.  See Chart below.

GDP to Debt Ratios Show No Fiscal Responsibility

So how close did the CBO come in their projections?  They are off by about 50% as the current GDP-to-Debt ratio sits at 90.23%.  Interestingly enough, one of the criteria for admission to the European Union’s Euro currency is that country’s debt should not exceed 60% of that country’s GDP.  In other words, today, the U.S. would not be allowed to participate in the Euro.

So what do future projections of debt as a percentage of GDP show?  Answer:  Nothing but more government spending, which has already been adjusted higher by 2 trillion over the next 10 years.  But don’t you believe it!  The chart below compares 2009 vs 2014 projection with government spending in red.

The U.S. is the Debt Engine to the World

Take a look at the map of the world below.  It shows in purple the countries with the highest debt as a percentage of GDP. Interesting how most of the other countries in the world can manage their finances better than the U.S. can.  Could it be because these countries are actually producing something?

Further Proof the U.S. is in Decline

GDP growth on an annual basis adjusted for inflation

The U.S. ranks #181 in the world at 1.3%

This compared to countries we’ve gone to war with over the last 50 years:

Iraq #9
Afghanistan #24
Vietnam  #52

and other notables:

China #8
Argentina #30 (went through their own hyperinflation)
The World #115 (U.S. isn’t even average)
Germany #180
France #195
UK #196
Canada #198
Japan #205
Ireland #211
Iceland #215 (The U.S. had worse economic numbers at the end of 2007 than Iceland before Iceland’s collapse in 2008)
Zimbabwe #217

At the rate the debt clock is spinning, time definitely is not on our side.

Also keep in mind that none of this analysis includes consumer debt, State debts or social security shortfalls which will be covered in future articles.  It also doesn’t include the potential of any future natural disasters, health plans or wars, declared or undeclared.  Lastly it doesn’t include solutions, but they are forthcoming in my book “We the Serfs!”

Definitions

The following are the definitions of various types of debt and terms that all Americans should be familiar with, especially in having conversations with your local congressmen and women.

Fiscal Responsibility

Fiscal Responsibility – The body of growth-oriented federal laws and policies that sustain the nation’s debt-to-GDP ratio at 60% plus-or-minus 20%. Source: Skeptical Optimist I like his definition as under current the monetary system there has to be some debt to make things work.  How much debt is the optimal amount is the only question.  The Skeptical Optimists puts this number at between 40% to 80% debt-to-GDP ratio.  As of this writing, 8/26/2009, it’s at 90.22%.

Debt-to-GDP Ratio

A measure of a country’s federal debt in relation to its gross domestic product (GDP). By comparing what a country owes and what it produces,
the debt-to-GDP ratio indicates the country’s ability to pay back its
debt. The ratio is a coverage ratio on a national level.

This measure gives an idea of the ability of a country to make future
payments on its debt. If a country were unable to pay its debt, it
would default, which could cause a panic in the domestic and
international markets. The higher the debt-to-GDP ratio, the less
likely the country will pay its debt back, and the higher its risk of
default.  Source: Investopedia

National Debt

The sum of all previously incurred annual federal deficits. Since the deficits are financed by government borrowing, national debt is equal to all government debt outstanding.  Source Investorwords

Gross National Debt

The total amount of outstanding public and private debt in a country.  Source: Investorwords

National Debt, Federal Debt, Public Debt are sometimes used interchangeably to mean different things.  Just know that public debt is separate from “External Debt”

Public Debt

“This entry records the cumulative total of all government borrowings less repayments that are denominated in a country’s home currency. Public debt should not be confused with external debt, which reflects the foreign currency liabilities of both the private and public sector and must be financed out of foreign exchange earnings.”

It does not include any debts in the name of individuals, corporations and state or municipal governments. Source: CIA Factbook and Investopedia.

External Debt

The portion of a country’s debt that was borrowed from foreign lenders including commercial banks, governments or international financial institutions.  Source: Investopedia

National Debt

What the Debt Clock site calls “National Debt” consists of public and private or “intragovernmental debt and is described in detail next.

Who Owns the U.S. Federal Debt?

Answer: Debt Held by the Public and Intragovernment

The following is data as of 8/26/09

Debt Held by the Public $7,385,932,492,348.44

All federal debt held by individuals, corporations, state or local governments, foreign governments, and other entities outside the United States Government less Federal Financing Bank securities. Types of securities held by the public include, but are not limited to, Treasury Bills, Notes, Bonds, TIPS, United States Savings Bonds, and State and Local Government Series securities. Source: Treasury

Intragovernmental Debt $4,333,128,433,517.42

So what is this “Intragovernmental Debt?”  It’s all those things that make up the left column in the chart below.

Total Debt: $11,719,060,925,865.86

Total Public Debt Subject to Limit

Public Debt Subject to Limit is the maximum amount of money the Government is allowed to borrow under authority granted by Congress.  Source: Treasury

Note: “The authority to borrow on the full faith and credit of the United States is vested in the Congress by the Constitution. Article I, Section 8, Paragraph 2, states “[The Congress shall have power]…to borrow money on the credit of the United States.” In 1917, Congress, pursuant to the Second Liberty Bond Act, delegated authority to the Treasury Department to borrow, subject to a limit. This action mitigated the need to seek congressional authority on each issuance, providing operational convenience. The debt limit essentially achieved its modern form in the early 1940s.”

Budget Deficit

The amount by which a government spending exceeds its income over a particular period of time. also called deficit or deficit spending. opposite of budget surplus.  Source: Investorwords

Federal Deficit

The amount by which a government’s expenditures exceed its tax revenues. The difference is made up for by borrowing from the public through the issuance of debt. also called Federal Debt.  Source: Investorwords

Balanced Budget

Something the Government will never be able to do unless they are held accountable.  Source: History of Government Since the Beginning of Time