Replies

The Financial Times reported that 2022 was the worst year for U.S. stocks and bonds since 1871. Bonds down 17%, stocks down 18%. Those are nominal numbers, and are not adjusted for inflation.

The Morgan Stanley Capital International (MSCI) World Index reported that $18 Trillion was lost globally by stocks and bonds in 2022. Again, nominal numbers, not adjusted for inflation.

Assuming that collective reporting by the governments of the world is even remotely accurate, the financial net worth of the world was $250 Trillion, global net wealth was $380 Trillion and the Gross World Product was $80 Trillion at the end of 2021.

So, in a single year, 27.5% of Gross World Product, 8.8% of the financial net worth of the world, and 5.8% of the world’s total wealth got annihilated.

Officially, the national debt of the United States is $31.5 Trillion with an additional $173.4 Trillion of unfunded liabilities, mostly for Medicare, Social Security, Medicaid, etc. State and local governments are carrying an additional $3.5 Trillion in debt. To put this in perspective, the total government liabilities of the United States are equal to 84% of global financial net worth.

The rest of the governments of the world are carrying more than $63 Trillion of “official” debt, and a much larger, but unknown, total of unfunded financial liabilities.

Globally, the governments of the world “officially” consume 17% of GDP, and run deficits of 10% of GDP. The United States “officially” spends 36.9% of its GDP on government and runs deficits of 6% of GDP. To date this has been made possible by historically low interest rates. However inflation is driving increases in those interest rates, which will make the financing of even “official” government debt unaffordable for many nations, including the United States.

Nationally and globally, government debt and unfunded liabilities far exceed global wealth, and are growing faster than global wealth. It addition, much of what is on the balance sheets of global wealth are relatively illiquid assets. In the hands of the their current owners, they are probably productive, but if forced to liquidate, they would likely realize a small portion of their book value.

Again, all of the above is in nominal values, inflation has not been factored in.

I do not know if there is an “Economic Bomb Cyclone” coming, but things are going to get a lot worse. The single best thing the United States could do to turn this around would be to cut in half the total size of government at all levels, Federal, State, and Local, so that government ended up at under 20% of GDP.

However, the political will to do that is lacking as people want their “free” stuff.

Ultimately, TANSTAAFL, and the rapidly approaching reckoning will make the Great Depression, Weimar Republic, Venezuela, Haiti, and Zimbabwe look like Teddy Bear Picnics.