Here is excerpt from Ken Fischer of Fischer Investments on the national debt.
America’s massive debt will doom us. That’s common wisdom, but wrong.
In Manhattan, a giant clock displays not only the total – almost $23 trillion for now – but your share, ticking up every second. Pundits say it’s trouble. But U.S. debt fears have lurked forever, and those troubles are no closer now than decades ago. In some ways, they’re further off.
Here’s how to see that, using tools that show when debt truly becomes problematic.
The $23 trillion total seems jaw-dropping but says little about what really matters: How readily Uncle Sam can pay the piper.
Pundits cite our debt-to-GDP ratio as evidence of a debt addiction. With $21 trillion of GDP, that ratio is 103% — lower than Italy’s and Japan’s, but higher than Germany’s and Britain’s. Debt topping GDP sounds dire. But that’s misleading. The federal government itself owns more than a quarter of U.S. debt, money the government essentially owes itself. It’s an accounting entry. As an asset and a liability, it effectively cancels out. Otherwise, net outstanding public debt is $16.7 trillion— 76% of GDP. That’s still unimportant.
See: Ken Fisher, Will America’s Massive Debt Really Doom Us? Sept. 22, 2019
That’s just the Federal debt. Then add in all the State and Local Gov’t debt. Then add all the underfunded pensions and other liabilities almost impossible to get out of. (See, for example, public employee pensions in IL and KY, where State Supreme Courts have ruled no modifications can be made for existing pension holders.) Further consider the direction of most big states’ governments. Then add private debt.
Now, if everything else is going along hunky-dory, maybe even all the above, if it does not continue to get worse, can be sustained indefinitely. But, I think it weakens us badly, restricts growth in GDP (we should be and need to be at 5%, dang it!), and eventually will make some other crisis much more likely to take us down...
The debt held by the U.S. Federal Government largely consists of Treasury department bonds of various denominations and maturities held as an asset by the Social Security Administration. For decades, the SSA was taking in more money than it was spending. Now that has changed, but at the time it would purchase U.S. Treasury Bonds in great abundance as if to squirrel money away for the future. For the federal government to “zero out” the debt by the SSA would be to admit that all the the extra money it was taking in over the years from U.S. citizens in the form of Social Security payroll taxes was spent on other unrelated things and will never come back to those citizens in the form of future benefits. Meaning that SSA will go from being technically solvent to being demonstrably bankrupt (and in need of a huge influx of new money to pay existing and new beneficiaries) in one nanosecond. How sanguine are we to be about that prospect? Wouldn’t this constitute punch #2 the proverbial one-two punch, destroying what shreds may be left of the federal government’s credibility?
Exactly. And when the government needs more they just add on a few “virtual zeros”. I mean, who uses cash any more.
That’s a great article.
The debt alarmists have been moaning under a dark cloud for decades. If only they would try to find out why the end of the world keeps getting postponed.