What Is the Biggest Economic Threat
Facing Our New President?
As we have all learned over the last many national election cycles, to the winner goes the spoils. However, when the new President gets sworn into office in January 2017 and the new Congress is seated next year, one has to ask…..why would anyone want such a job to begin with? Gone are the good old days when our government leaders could “….kick the proverbial can down the road,” so the next generation could solve the problems inherited from the previous poor decision makers. We are at a cross roads as a nation when it comes to our economic health. We can no longer continue to make promises and then write checks we have no intention of ever honoring. One thing is certain……the 44th Leader of the Free World, will be the first President inaugurated to oversee a $20 TRILLION Dollar National Debt.
Let’s first put the number $20 TRILLION in perspective. A U.S. one dollar bill measures .0043 inches thick. The height of a stack of 1,000,000,000,000 (one trillion) dollar bills measures 67,866 miles. This would reach more than one fourth of the way to the moon from the Earth. Twenty trillion one dollar bills would measure 1,357,320 miles! Consider the moon is only 252,088 miles from the Earth.
Put another way, the length of a U.S. one dollar bill is 6.14 inches. One trillion dollar bills laid end-to-end would measure 96,906,656 miles…..or roughly the distance from the Earth to the Sun. Still not impressed? Consider this calculation…… if you were to spend $20.00 per second, it would take you 1,585 YEARS to spend ONE TRILLION DOLLARS. To spend $20 TRILLION Dollars would take 317 CENTURIES!
Now that we properly understand just how big the number $20 TRILLION actually is, let’s consider a few other facts for a moment. How much currency, cash, bones, cheddar, clams, greenbacks, bread or cabbage is available (liquid) in the world at any given time? The simple answer is it depends on how you define “money?” The narrowest definition, or what is called “M0,” includes only physical money such as paper bills and metal coins. It is estimated that figure comes in around $5 TRILLION Dollars (U.S. equivalent). The next designation is “M1.” This includes all of the physical money, plus quickly accessed currency like that in checking accounts for an approximate total of $25 TRILLION. Remember, this is a worldwide assessment. “M2,” includes all of the funds included in M0 and M1 but also includes less liquid designations such as savings accounts and CD’s under $100,000. Hence, M0+M1+M2 = $60 TRILLION (approximately).
To remind you (again) the aforementioned valuations are worldwide assessments……as in all of the available money in the world at any given time. To be clear though, there is only around $25 TRILLION Dollars (U.S. equivalent) available (liquid) at one time. As we already know, our United States National Debt is approximately $20 TRILLION Dollars and climbing and yet there is only around $25 TRILLION Dollars available in the whole world in liquid “cash.” Is your blood pressure starting to rise yet?
What’s the Big Deal?
Our National Debt has a tremendous impact on a variety of issues. It is currently the largest national debt in the world for a single country. It is “tied,” with that of the European Union….which is of course an economic union of 28 countries. Nearly two-thirds is made up of “public debt.” This is debt owed to people, businesses and foreign governments who have purchased Treasury Bills, Notes and Bonds. The debt is nearly as much as the country produces (GDP) in a whole year. That ratio notifies investors that the country may have problems repaying their loans. That is a major worry for both the U.S. and its foreign note holders. To put that ratio into perspective, in the early 1990’s the debt was only half of America’s annual economic output. An interesting aside is that the debt ceiling is supposed to limit the debt. However, at the current Administration’s insistence, Congress suspended the debt ceiling ………until after the 2016 Presidential elections.
In the short term, the economy and voters actually may benefit from deficit spending. However, over the long-term, a growing Federal debt is like driving your vehicle with the emergency brake on, slowing the U.S. economy down even more. Added pressure increases when you consider that at any point, foreign debt holders could demand larger interest payments to compensate for what they perceive as an increasing risk the U.S. won’t be able to make good on its financial obligations. If this happens, the United States will have to pay exorbitant amounts just for the interest due on these Notes and Bonds held by investors.
Congress realizes it is facing a major debt crisis. In fact, over the next 20 years, the Social Security Trust Fund will not have enough funds to cover the retirement benefits promised to Baby Boomers. This will undoubtedly mean higher taxes to fund those obligations, since the high U.S. debt rules out further loans from other countries. Unfortunately, it’s most likely that benefits like these will be curtailed either to retirees under 70 years of age or to higher income retirees not as dependent on Social Security payments to fund their retirement.
The Political Rubik’s Cube
Everyone remembers the memory toy known as the Rubik’s Cube. (If you don’t remember the toy…..then you probably wouldn’t have done well with it anyway.) It had what appeared to be an almost limitless amount of permutations available to “solve,” the puzzle. When in reality there were very specific moves that needed to be made to bring the sides of the cube into the proper color sequence. This is very similar to how the US economy and its supportive markets must be managed as well. While it is no doubt important that we have a robust employment sector with good paying jobs supporting consumers……..it is equally important that our U.S. currency remain strong enough to keep the costs of good and services reasonable. Each puzzle piece must fit with the adjoining one.
While the various facets of the economy must all be working in concert with each other to ensure an overall healthy country, there are very specific points that cannot be ignored. Of all of the most important components that must be addressed for the long-term health of our country……..the national debt may be the most critical one. Our next President will have to address that issue going forward. However, the question facing our incoming leadership is a most puzzling one. Ready? Here it is……
“If U.S. Debt is around $20 Trillion Dollars and climbing, and
Current U.S. economic output is close to being eclipsed by the
Volume of said debt and the amount of readily available
Cash (worldwide) is also close to being eclipsed by an
Equivalent U.S. debt level…..how can the U.S. debt
Expect to be retired in the foreseeable future?”
That is the $64,000 question. For the U.S. economy and thus the U.S. citizens that live with it to be able to thrive over the next twenty years, the debt is going to have to be addressed. Even if we accept that it may never be completely paid down, which is a logical assumption…..we should focus on the reasonable goal of lowering it. What would be a reasonable debt target? Most economists believe that a sustainable debt level is one that is equal to half of our countries annual GDP, or economic output. Hence, much like the levels it remained at in the late 1980’s through the early 1990’s.
One thing you can count on though. If the U.S. electorate does not hold our elected officials collective “feet to the fire,” they will never make the tough decisions that will decide on what kind of economic country our children will live in. Let’s hope that the new President is tough enough to not shirk this responsibility. Let’s hope they were good at solving the Rubik’s Cube once upon a time!
PS: Anyone want to guess what the worldwide national (cumulative) debt level stands at?