The US is Bankrupt

NanoSour said:
I use Kotlikoff's software and it's been a great tool for my early retirement. However, in opposition to his point of view, here is what I believe to be true:

1) The US Government is the bank to the world. Similiar to the bank in a game of Monopoly, it is impossible for the bank to go bankrupt. As per the game instructions, if the bank runs out of the supplied money pieces, it can use any substitute as money, i.e. skittles, m&m's, playing cards, or make its own from paper. Either way, no matter what deals the players make, the bank can never not supply the funds for a transaction.

2) The debt will continue to grow in nominal value, and although politicians will use this fact to manipulate the population, it is built in to our current economic system of fiat money.

3) There will always be winners and losers in the economy during both expansions and recessions, but catastrophic failure of the system, I'm not holding my breath. Take the 2008 collapse for example, lots and lots of doom and gloom, but in the end the "bank" produced $700B out of thin air that it didn't have and voila', the system continued on. Same with funding war adventures such as Iraq 2003.

I may be naive and wrong on all this, but that's my story and I'm sticking to it. Been sleeping pretty well since I stopped buying in to all the doom and gloom associated with the economy and government debt.
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The $700B trick in 2008 only worked then because the CBs were panicked enough to look the other way while the conjuring took place. Once it becomes routine, it would be as effective as the debt "ceiling".

There was an article last week (I think) about the same premise of "the US fed can never run out of money". It only works as long as somebody else is willing to buy the paper printed. Spain and Portugal used to be the "bank to the world"... nothing lasts forever.

https://pics.me.me/why-are-we-forced-to-pay-taxes-dont-they-print-30847912.png
 
Itnetpro said:
I prefer to look at debit vs GDP https://tradingeconomics.com/united-states/government-debt-to-gdp

Yes we have tons of debit but our economy is huge. Japan is in much worst shape yet their standard of living is high. Add to this vast natural resources like oil, coal, natural gas, and vast amounts of wood. The debit is sustainable. People have been preaching doom and gloom since the 80s. Almost 40 years later we are still doing ok. Now I am not saying that we are not in decline. We clearly are like any world empire in history. China is rising and will pass us eventually becoming the most powerful world power.

But it will take a long time and a lot more debit for us to really be bankrupt and in trouble.

I doubt we will see it in our lifetime....

John
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I think you're missing how the rate of change is accelerating. While it took 4ish decades for the US economy to change from an agricultural to an industrial base, the transition from industrial to a service/consumer took maybe 2. The ship might take awhile to list over, but once she tips she goes quick.
 
I see he next big balloon hitting in a few years will be the education debt . I see kids every day that have quit school and have no hopes of paying back what they have borrowed . Could be another 2011
 
The debt is a house of cards waiting for a breeze.
 
PB4 - I think, like states, they are not allowed to incur debt. So, not a pot to piss in, or a window to throw it out of, but no debt. :confused:
 
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So as a result they got a fresh start (existing debt cancelled or severely discounted) and they just haven't dug themselves into another hole yet?
 
pb4uski said:
+1 Let's say that you have $20k of income and $20k of debt at 3.5% with a 15 year amortization... the annual payments would be $1.7k or 8.6% of your income... quite affordable given that most lenders would allow someone to have much more debt.

Now, just multiply each of those numbers above by $1 billion and you will have the GDP and debt of the U.S.
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This analogy states that Income = GDP. I do not think that is a valid comparison, income for US purposes is about 30% of GDP not 100% of GDP. So you would be at least tripling the % of income to service debt to 26.8% which while not unmanageable is problematic when you are floating interest rates.
 
GPP is production is it not?.... the value of what is produced. Assuming that all is sold and no inventory then that is income from an economic standpoint.

.... Gross Domestic Product measures the value of economic activity within a country. Strictly defined, GDP is the sum of the market values, or prices, of all final goods and services produced in an economy during a period of time. ....
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If your analogy of government income is correct then why do all the comparisons compare debt to GDP and none to income as you have?
 
pb4uski said:
GPP is production is it not?.... the value of what is produced. Assuming that all is sold and no inventory then that is income from an economic standpoint.



If your analogy of government income is correct then why do all the comparisons compare debt to GDP and none to income as you have?
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GDP is NOT production for the government but for the country. Tax revenue of the government is analogous to personal income. Everyone uses GDP possibly to normalize the comparision across nations so as to account for varying tax rates.
 
Bankruptcy is a mismatch between income, assets and liabilities. If assets and projected income streams are sufficient to meet current + future obligations but current liabilities cannot be funded, a debt restructuring is required. Debt holders will be paid, probably not when originally expected, and possibly not the contracted interest rates. If assets and projected income is insufficient to meet liabilities, insolvency is declared, and debt holders lose. In the case of US public debt, neither of these situations appear to be the case.

Any discussion of bankruptcy must, by definition, consider assets. State and Federal government own vast, highly valuable assets. To name a few, land, mineral rights, buildings, and airports. Here’s a Wikipedia page that summarizes the US financial position as of 2016. It is eye-opening. https://en.wikipedia.org/wiki/Financial_position_of_the_United_States
[FONT=&quot]The [/FONT]financial position of the United States includes [FONT=&quot]assets[/FONT][FONT=&quot] of at least $269.6 [/FONT][FONT=&quot]trillion[/FONT][FONT=&quot] (1576% of [/FONT][FONT=&quot]GDP[/FONT][FONT=&quot]) and [/FONT][FONT=&quot]debts[/FONT][FONT=&quot] of $145.8 trillion (852% of GDP) to produce a [/FONT][FONT=&quot]net worth[/FONT][FONT=&quot] of at least $123.8 trillion (723% of GDP)[/FONT][FONT=&quot][a][/FONT][FONT=&quot] as of [/FONT][FONT=&quot]Q1[/FONT][FONT=&quot] 2014. [/FONT]
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[FONT=&quot]This is not to say our public debt is not a problem, nor does it mean our deficits are smart spending. It is, and they aren’t. It is indisputable, though, that we have all benefited, and continue to benefit, in many different ways.
[/FONT]
 
pb4uski said:
GPP is production is it not?.... the value of what is produced. Assuming that all is sold and no inventory then that is income from an economic standpoint.



If your analogy of government income is correct then why do all the comparisons compare debt to GDP and none to income as you have?
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I have no idea why, people like comparisons that have no basis in reality, but your analogy was comparing to household income. The United States Government does not have access, at least yet anyway, to 100% of the income of the United States. Otherwise for your analogy to make sense you would have to also add all corporate and personal debt as well, which would add another 20 trillion of debt and more than double the interest as a percent of income you claim, since much of that debt is paying a far higher rate.

In general I would agree that the United States is not in any immediate danger of default and is not close to being bankrupt, I think that is an absurd premise. It has lost a great deal of flexibility of how to handle future financial problems and seems to be actively promoting an inflation scenario to provide the additional flexibility to handling of debt ---- which is a tricky needle to thread.
 
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MichaelB said:
Bankruptcy is a mismatch between income, assets and liabilities. If assets and projected income streams are sufficient to meet current + future obligations but current liabilities cannot be funded, a debt restructuring is required. Debt holders will be paid, probably not when originally expected, and possibly not the contracted interest rates. If assets and projected income is insufficient to meet liabilities, insolvency is declared, and debt holders lose. In the case of US public debt, neither of these situations appear to be the case.

Any discussion of bankruptcy must, by definition, consider assets. State and Federal government own vast, highly valuable assets. To name a few, land, mineral rights, buildings, and airports. Here’s a Wikipedia page that summarizes the US financial position as of 2016. It is eye-opening. https://en.wikipedia.org/wiki/Financial_position_of_the_United_States
[FONT=&quot]This is not to say our public debt is not a problem, nor does it mean our deficits are smart spending. It is, and they aren’t. It is indisputable, though, that we have all benefited, and continue to benefit, in many different ways.
[/FONT]
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To consider the assets of Warren Buffet, Jeff Zuckerberg, Bill Gates and Jeff Bezos an asset of the United States government is quite a stretch on the definition of assets. As you can see from your chart the US government only has 3 trillion in non-financial assets and 17 trillion in debts, and has a net negative worth of 12 trillion dollars, which does not include the guarantees of the US government. But to think that by my increasing my net worth I make further US government debt borrowing possible is not financially sound.
 
Running_Man said:
To consider the assets of Warren Buffet, Jeff Zuckerberg, Bill Gates and Jeff Bezos an asset of the United States government is quite a stretch on the definition of assets. As you can see from your chart the US government only has 3 trillion in non-financial assets and 17 trillion in debts, and has a net negative worth of 12 trillion dollars, which does not include the guarantees of the US government. But to think that by my increasing my net worth I make further US government debt borrowing possible is not financially sound.
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No one is conflating Mr. Buffets assets with the US Gov’t. The thread title and topic is “The US is bankrupt”. This is clearly not the case. In addition, it is (IMO) a mistake to present UG gov”t liabilities without including assets. To take it even further, it is misleading to contrast current assets with future liabilities.

The public debt, that which we call gov’t debt, is not some separate financial account. The public is “us”, and the gov’t is also “us”. The debt is an obligation that each of us has incurred indirectly. So, yes, Mr Gates’ wealth and future income, along with yours and mine, are very much on the block for this, and the wealth we have all earned and accrued - Gates, Buffet, and the rest of us, was in part enabled by some of that public debt.

No one is suggesting that more debt is financially sound or a good idea.
 
Conversations I've had with my dad over the years:

Can you believe the national debt is at $1 trillion? This can't last
Can you believe the national debt is at $2 trillion? This can't last
Can you believe the national debt is at $5 trillion? This can't last
Can you believe the national debt is at $10 trillion? This can't last
Can you believe the national debt is at $15 trillion? This can't last
Can you believe the national debt is at $20 trillion? This can't last

I guess that probably spans from the mid 80s.

I wouldn't spend much time thinking about it. Focus on things completely within your scope of control.
 
bloom2708 said:
Conversations I've had with my dad over the years:

Can you believe the national debt is at $1 trillion? This can't last
Can you believe the national debt is at $2 trillion? This can't last
Can you believe the national debt is at $5 trillion? This can't last
Can you believe the national debt is at $10 trillion? This can't last
Can you believe the national debt is at $15 trillion? This can't last
Can you believe the national debt is at $20 trillion? This can't last

I guess that probably spans from the mid 80s.

I wouldn't spend much time thinking about it. Focus on things completely within your scope of control.
Click to expand...

Debt never matters until the day it does. The main difference that has occurred throughout conversations with your dad was a steadily declining interest rate which made funding debt not much of an issue, throughout the entire period of which you were speaking. Were interest rates what they were in the mid 1980's, there would not be talk of adding debt.

US government is clearly looking to increase inflation to absorb the debt payments, this will eventually affect interest rates. Japan can add infinite debt because their interest rate is zero or nearly so, and their economy is in deflation mode, so the debt is irrelevant. The idea that government debt does not matter when it is the fluid that has made the stock market flow smoothly during this time period is ignoring a main driver of financial performance and a main investment costing element.
 
Speaking realistically, all the US obligations will likely not be satisfied at face. First, as we see nothing will be done if there is not a crisis, and then it will be too late. 2nd the time when there was a politically palatable solution appears to have passed.

Having said that, some wise governance could delay that day significantly.

hmm, just wonder where on earth that will be found. Right now the only party that pretends to care is the party out of power. Once in power, priorities change.

If voters demand reforns, they will happen. but not intil.
 
bloom2708 said:
Conversations I've had with my dad over the years:

Can you believe the national debt is at $1 trillion? This can't last
Can you believe the national debt is at $2 trillion? This can't last
Can you believe the national debt is at $5 trillion? This can't last
Can you believe the national debt is at $10 trillion? This can't last
Can you believe the national debt is at $15 trillion? This can't last
Can you believe the national debt is at $20 trillion? This can't last

I guess that probably spans from the mid 80s.

I wouldn't spend much time thinking about it. Focus on things completely within your scope of control.
Click to expand...
2021 projected at $25 trillion, so it seems it can last :)

National Debt by Year Compared to GDP and Major Events
 
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