A Hypothetical Math Question Relating To The National Debt

[ownyourfuture]

**I don't want this to become political. I'm not going to name a single politician. Hell, I'm not even going to mention either party**

I think over the past 20 or 30 years, we've all become desensitized to huge numbers. Company A is merging with Company in a deal totaling $20 trillion. AT&T & Comcast announcing an agreement to combine merge certain parts of there businesses in a transaction of $72 billion, Apple & Amazon racing to be the 1st trillion dollar company, etc

I’ve always enjoyed breaking down numbers. So I decided to try to present the numbers relating to the national debt, in such a way that we could all have a better understanding of how astronomical these numbers really are.


The debt itself:
There's all kinds of numbers thrown around, by all kinds of people concerning the national debt total.

Some claim an astounding 128 trillion (if you add social security & medicare liabilities *see link below*) Others dismiss it & say that even if it was say, 50 trillion, this would only be around 3.00% of GDP & therefore a nonissue.
http://www.washingtonpost.com/blogs...es-have-128-trillion-in-unfunded-liabilities/

Let's just say (hypothetically) the ‘real’ debt totals 73 trillion.

Let's also say that beginning on January 1, 2018 the United States agrees to address it.
They do the following: From that day forward, they will not issue any additional debt. They will only spend as much as they take in.

They will pay no interest on the existing loans/debt. They will set aside 1 million out of the revenues that come in & pay off the ‘existing debt’ at the rate of 1 million per day.

With a zero interest rate loan of 73 trillion dollars, & a payment schedule of one million per day, how many years would it take to pay it back ?

I come up with 200 thousand years.

Is this correct ?

 

[Ronstar]

I come up with 200 thousand years also.

And I agree - I don't want this to become political either.

 

[GrayHare]

Though I show the same 200,000 year result, it has no meaning really. Compared to $73 trillion, $1 million is a pittance, and the bond holders would never agree to such a debt restructuring without major concessions.

 

[Senator]

In the end, the money can/will be printed. No one has to pay, no one gets a cut.

Everyone wins.

 

[Red Badger]

The fallacy in 200K years (or any other number) is that, like the CBO scoring methodology, it is a static score. The US economy isn't static. Not saying we don't have an elephant in the room (we do). But am saying we have options that you wont hear in any political or media 60 second "gotcha" soundbite.

 

[38Chevy454]

Paying back 1 Million on 73 trillion: 1 x 10E6 / 73 10E12 = 1 / 73 x 10E6 = 1 / 73 million = negligible or insignificant. Even when the 1 Million is paid every day.

Think about that, 1 Trillion is 1,000,000,000,000; or 1 followed by 12 zeros.

To make any potential reduction the payback has to be more than essentially zero. I agree with Senator, actual payback is just taken care of by printing money. This is the inflation risk, as it ultimately causes some degradation in the value of the dollar.

The debt is a big deal, but as pointed out the scale of the numbers is so vast that most people just glaze over when actually thinking about it.

 

[dallas27]

We can just inflate away all the debt when the time comes. Sad but true. Also, much the american debt is owned by the fed, meaning we owe ourselves. Further, future liabilities like ss is not debt, its planned spending, nothing more.

Bottom line, money isn’t real, we can manipulate the hell out it.

 

[97guns]

Currency dilution, its really amazing that a loaf of bread isn’t costing us $10, if they really let inflation run there would be blood on the streets

 

[ERD50]

....

I come up with 200 thousand years.

Is this correct ?

No!

You forgot leap years (there are quite a few of them in the next 200,000 years.

So my first pass is 199,863.11 years, but I didn't account for the leap year every 400 years (not every 100 years). So that is:

73 ⋅ 10^12 / 1E6/365.2425 = ((73 ⋅ (10^12)) ∕ (1 ⋅ (10^6))) ∕ 365.2425
≈ 199,867.21

Don't be such a pessimist! It's not all that bad! It would all be paid off 132.79 years sooner than you doom-and-gloomers wail on about!

But more seriously, it can be looked at so many ways. Some claim it isn't sooooo very bad, as it doesn't account for all of the assets of the US (like we'd sell off the National Parks?). I think the number that's the easiest to get your head around, is how much of our taxes go to servicing the debt, or debt service per capita.

-ERD50

 

[mamadogmamacat]

Interesting thread. Does remind me of my thoughts about money from a young age, as in early adulthood, when I realized it is just a very useful means of exchange, something agreed to to organize a nation state. I suppose this rather disconcerting understanding was more clear in the time of high inflation that we had in the 70's when i was becoming an adult. Now, that I'm in ER and fast becoming less able to generate new resources if i ever wanted/needed to, now just managing what I have accumulated while working, I suppose the disconcerting nature of money is more of a "thing" for me again..........

 

[Sunset]

It would be a lot faster to do like some other countries have done in the past. Default on the debt.

All debt gone in an instance...

Who is going to remember in 20 years ?

 

[Texas Proud]

First thing is there are a few errors in your stmts....

There have been zero mergers of companies totaling even $1 trillion, so none totaling $20 trillion....

Aramco is estimated to be close to $2 trillion valuation... if they float shares like they say they are it will be the first at $1 trillion...

Your math is wrong on % of debt to economy... economy is around $19 trillion... so $50 trillion is not 3% of that... more like 2.5X....


The more interesting number is debt per person... using your number it is over $228,000 per person... when are you going to pay your share


U.S. National Debt Clock : Real Time

 

[atmsmshr]

The national debt to GDP ratio and trade deficit both have bothered me for ages. A long pondering followed by a short a (im)mature conclusion.

Had lunch at church with a guy claiming to be an international banker. Since I don't know dilly-dilly about world markets, took the opportunity to ask his perspectives. He said if the USA government issues Treasuries, the Chinese will buy the 'paper'. If USA households buy an excess of goods produced, uncollateralized loans are 'securitized' and sold to - wait for it - the Chinese. Well how do the Chinese buy these instruments of debt I asked naïvely? Because he was one (of many) who helped finance the movement of factories from the USA to China. (Yes he made a bundle of money making people unemployed). Won't this end badly was the next question. The answer - No. Since the dollar is the primary reserve currency for the world, the Treasury just prints more money and paper that the Chinese hold is then worth only half as much. Won't this produce inflation? Well yes, that's the point of printing money - to screw the bondholders. Horrified, I realized what he said contained some truths, and knew that he was the spawn of Lucifer.

Look on the debt clock link and note that the M2 money supply is 'inflating' faster than the national debt clock.

http://www.usdebtclock.org/

When these trends equalize or invert, I am stocking up on ammo and canned tuna. (All of us had our toes on the edge of the this particular abyss in 2008 when credit markets locked up.). Here is a description of M2 - read about the adventures of Laura and how she single handidly changes the world supply of dollars.

https://en.wikipedia.org/wiki/Money_supply

Several years ago, the Fed stopped posting the value of money supply measured by M3. Best I can tell - its either a conspiracy to keep us peasants in the dark about the confidence game of macro economics, or they did not know what the frick they were doing. (probably the latter)

So....... my theory (which is all mine) is that the USA national debt is a world burden. Take the debt value and divide by 2 or 3 billion. Until the price of oil is redenominated from dollars - party like we are living in the Roman empire.

Atom

 

[CaptTom]

So....... my theory (which is all mine) is that the USA national debt is a world burden. Take the debt value and divide by 2 or 3 billion. Until the price of oil is redenominated from dollars - party like we are living in the Roman empire.

My guess is you're pretty close to the mark. But I'm no expert, I just enjoy hearing about this stuff from people who know far more than I.

Interesting point about everything hinging on oil being priced in dollars. Looking at long-term trends, I see more wind and solar development, and stagnation and eventual decline in the use of oil.

Once oil is no longer the significant economic driver for the world that it is today, the party ends.

Now back to solar and wind. Who makes most of the world's solar panels? China. Where is wind being most actively developed? Europe? I'm not sure, but I'm positive it's not the US. And of course, to make these power sources effective you need storage. Lots of storage. Who makes batteries? China.

I don't really see how the US is going to compete long-term on the world stage.

 

[Gumby]

I am reminded of an old saw I learned many, many moons ago as a young bankruptcy lawyer -- If you owe the bank $70,000 and can't pay, you have a problem. If you owe the bank $70 million and can't pay, the bank has a problem.

 

[Totoro]

One way I try to handle "meaningless big number" issues is by converting it back to a smaller per unit item.

In this case, e.g. the US population: 323 million. 73 trillion = 73,000,000 million / 323 million USD = ~226,000 USD.

That still sounds like lots of dollars and it is, but a persons lifetime earnings on average is above $1 million USD.

 

[Alan]

I really have no idea what the National Debt signifies either in $ or as a % of GDP. The other day on the radio one of the interviewees made a comment that the times have changed. When the UK debt was at 50% of GDP in 1976 the government went to the IMF for a bailout. Today it sits at 90%.

Between 1950 and 2016 it has been as high as 248%.

https://www.ukpublicspending.co.uk/..._09c1li001mcn_G0t_UK_National_Debt_As_Pct_GDP

 

[HFWR]

“A billion here, a billion there, pretty soon it adds up to real money.”

Sen. Everett Dirkson

 

[ERD50]

“A billion here, a billion there, pretty soon it adds up to real money.”

Sen. Everett Dirkson

Senator Everett McKinley Dirksen is also known for "Wild Thing, I think I love you"

Wild Thing by The Troggs Songfacts

The B-side was a send-up of the popular Senator from Illinois, Everett Dirkson

-ERD50

 

[GrayHare]

Who makes most of the world's solar panels? China. Where is wind being most actively developed? Europe? I'm not sure, but I'm positive it's not the US. And of course, to make these power sources effective you need storage. Lots of storage. Who makes batteries? China.

I don't really see how the US is going to compete long-term on the world stage.

One can view that as a conspiracy or as the free market at work, or some combination of the two. When non-US cheap resources and labor are exhausted, the US will fill the gap for wind and batteries and other products, at higher prices.

Similar has already transpired with Hubert's "peak oil" which was forecasted to happen in 1970. Since 1970 the world increasingly consumed relatively cheap mideast oil, until its price went up, at which point US production rose back to near 1970 level.

 

[ERD50]

... Had lunch at church with a guy claiming to be an international banker. ... Because he was one (of many) who helped finance the movement of factories from the USA to China. (Yes he made a bundle of money making people unemployed). ...

Atom

How do you figure? I would expect just the opposite, that his actions resulted in more people being employed.

My Mega-Corp was doing a lot of outsourcing. I worked with the engineers and managers in China, and they used far less automation than we did, because labor was cheap. They focused on keeping capital costs down, and people could usually be retrained to do a job on a product faster than you could build new automation for it. So they ended up employing more people on a production line than we used.

And I'd also figure that the poor Chinese worker was helped more by that factory job than the American worker was. Being poor in the US is probably not nearly so rough as being poor in China.

-ERD50

 

[NW-Bound]

...Your math is wrong on % of debt to economy... economy is around $19 trillion... so $50 trillion is not 3% of that... more like 2.5X....

The more interesting number is debt per person... using your number it is over $228,000 per person... when are you going to pay your share

U.S. National Debt Clock : Real Time

That very same Web site says the National Debt (Federal?) is $20.5 trillion, or $63,000 per citizen, or $170,000 per tax payer.

Then, there's state debts. I looked at my state, and it says $7,000 per citizen.

No problem. Just stop paying out SS for a few years, and we have enough money to pay off the debt.

Can't do that? People will starve? Let's start with the fat cats who have beaucoup money in 401k and IRA. They won't starve. We know who those are, and where their money is stashed.

 

[Jerry1]

I have been concerned about the debt for as long as I can remember. At 56, in my lifetime, all I can recall is that it has increased. Yes, there was that short theoretical time at the end of Bill's second term when they said the budget was balanced, but I don't recall that ever materializing. No matter how large the number or how it compares to GDP, I just don't see how practically everyone on this board understands that one has to live within their means (or below) and our government never has to live within it's means? Let alone live debt free? There's a train wreck waiting to happen. Just a matter of when and what it will look like. My bet is printing money and significant inflation.

 

[CRLLS]

How do you figure? I would expect just the opposite, that his actions resulted in more people being employed.

My Mega-Corp was doing a lot of outsourcing. I worked with the engineers and managers in China, and they used far less automation than we did, because labor was cheap. They focused on keeping capital costs down, and people could usually be retrained to do a job on a product faster than you could build new automation for it. So they ended up employing more people on a production line than we used.

And I'd also figure that the poor Chinese worker was helped more by that factory job than the American worker was. Being poor in the US is probably not nearly so rough as being poor in China.

-ERD50

That was true years ago. I currently work with several Chinese manufacturer's. Labor costs continue to rise much faster there than they do here. These mfgrs in China now have a fraction of the workers that they had several years ago due to the automation. And their automated content continues to rise. If they are not automating in China, they are losing market share.

For low skilled/higher labor content products, even China has a problem competing in the world market with lower cost labor countries like Viet Nam and the Philippines taking business away from them.

As for the worker, I have seen much personal wealth grow over the last 15 years. It is almost unbelievable to witness. There are still very poor places but the main electronic manufacturing areas I am familiar with,such as Shanghai and Shenzhen, are doing well and the wage gap is closing rapidly.

 

[ownyourfuture]

In the end, the money can/will be printed. No one has to pay, no one gets a cut.

Everyone wins.

Love the underlying sarcasm