Who Understands Debt?

January 3, 2012 · Posted in General Economics · 1 Comment

I’ll be commenting on the following statements, posted by a writer on the New York Times in a blog post titled Nobody Understands Debt:

Deficit-worriers portray a future in which we’re impoverished by the need to pay back money we’ve been borrowing. They see America as being like a family that took out too large a mortgage, and will have a hard time making the monthly payments.

This is, however, a really bad analogy in at least two ways.

First, families have to pay back their debt. Governments don’t — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.

Second — and this is the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.

This was clearly true of the debt incurred to win World War II. Taxpayers were on the hook for a debt that was significantly bigger, as a percentage of G.D.P., than debt today; but that debt was also owned by taxpayers, such as all the people who bought savings bonds. So the debt didn’t make postwar America poorer. In particular, the debt didn’t prevent the postwar generation from experiencing the biggest rise in incomes and living standards in our nation’s history.

But isn’t this time different? Not as much as you think.

It’s true that foreigners now hold large claims on the United States, including a fair amount of government debt. But every dollar’s worth of foreign claims on America is matched by 89 cents’ worth of U.S. claims on foreigners. And because foreigners tend to put their U.S. investments into safe, low-yield assets, America actually earns more from its assets abroad than it pays to foreign investors. If your image is of a nation that’s already deep in hock to the Chinese, you’ve been misinformed. Nor are we heading rapidly in that direction.

Now, the fact that federal debt isn’t at all like a mortgage on America’s future doesn’t mean that the debt is harmless. Taxes must be levied to pay the interest, and you don’t have to be a right-wing ideologue to concede that taxes impose some cost on the economy, if nothing else by causing a diversion of resources away from productive activities into tax avoidance and evasion. But these costs are a lot less dramatic than the analogy with an overindebted family might suggest.

And that’s why nations with stable, responsible governments — that is, governments that are willing to impose modestly higher taxes when the situation warrants it — have historically been able to live with much higher levels of debt than today’s conventional wisdom would lead you to believe. Britain, in particular, has had debt exceeding 100 percent of G.D.P. for 81 of the last 170 years. When Keynes was writing about the need to spend your way out of a depression, Britain was deeper in debt than any advanced nation today, with the exception of Japan.

Of course, America, with its rabidly antitax conservative movement, may not have a government that is responsible in this sense. But in that case the fault lies not in our debt, but in ourselves.

So yes, debt matters. But right now, other things matter more. We need more, not less, government spending to get us out of our unemployment trap. And the wrongheaded, ill-informed obsession with debt is standing in the way.

But the government HAS been running deficits!

This just as a sidenote:

Actually the US government is, has been, and is planning to continue to be running record deficits above $1 trillion:

The total public debt has more than tripled since 2000!

So technically, according to this guy it should all be good, right?

Any serious scientist proposes a null hypothesis.

What’s his null hypothesis?

How much longer should the government follow his policy recommendations before he’ll stop and wonder if
maybe they are aggravating and prolonging the economic crisis in the US?

How much did all this debt help rid the US of unemployment? Didn’t unemployment rather rise alongside the debt? In spite of corroborating data like that, I’m not even claiming that there necessarily is a direct correlation. But the author above obviously claims that there is a correlation in the other direction. If he thinks so, wouldn’t it make sense to have a curious and open discussion about such contradicting data, if he were serious in his pursuit of the truth?

Is it not at least reasonable food for thought to propose the that the public debt doesn’t seem to be a cure against unemployment, that maybe the problem needs to be tackled elsewhere?

Anyway …

What are the problems with the public debt?

The author conveniently picks all the wrong amateur arguments against the public debt to shoot down, and ignores the accurate ones.

The problem with the public debt as I see it, is that, even if “we” were completely indebted to “ourselves” (note the grade A sophistry in such imprecise analyses), the working population is over time more and more on the hook to rich investors and politically connected bankers who just lean back and let the IRS collect for them.

While there may be some small retirees receiving interest payments (which is also unfair because those young people who will be funding their retirement never had any say in the matter), there is a significantly larger percentage of foreign and domestic big time investors who get to collect from people who never had a say in the debt they now need to pay off.

Just look at the Federal Reserve as one example. What do you think happens with all the revenue they earn from interest payments?

People like this author here will likely tell you “It’s all good because it’s all paid back to the Treasury”.

Well, that’s just pure and lazy sophistry!

What’s paid back to the Treasury is the Fed’s PROFIT, which is a more or less negligible sum after all the Fed’s board members, employees, contractors, partners in holding companies held by the Fed, and shareholders have been paid off.

Guess who the Fed’s shareholders are? It’s the big national banks, receiving a handsome preferred dividend every year.

And yes, they can rollover debt for as long as interest rates are low. I may note that I have consistently and correctly predicted record low Treasury rates for years to come. (Just by the by: I don’t know that the author above has ever made such a prediction, except when rates were already way low which doesn’t make it a prediction since it’s already happened. In fact he actually predicted sky rocketing rates and complete fiscal doom back in 2003 with the public debt at a third of today’s level, but then … it’s not like I ever expect consistency and sound methodology from biased academics on either side of the political aisle.)

All these low rates will do is allow the debt to get even more bloated. And interest rates won’t remain low forever, as you can see in Greece and similar situations. Did people like the above author see any of those sovereign debt crises coming?

What about Japan? Their debt is the most crushing of all industrialized nations, and I’m predicting that their time of low rates will be drawing to an end any day now, with their debt and pension crisis having entered its final stage. Then what?

They have been running deficits for two decades, people like this author ought to love what they did. Now what? … All you’ll hear is chirping crickets.

And then for someone like that to go on public record and say “Nobody understands debt.” – It’s embarrassing!

It’s the same old tired Keynesian paradigm: Debts don’t matter … until they do. And then it’ll most likely be too late.

Of course people like the above author may say: “But it’s just the rich who’re supposed to get taxed to pay off the debts.”

Yeah right, the rich people who bribe all the politicians in charge will let that happen, that’s the way of the world in the hazy deluded minds of state tenured academics … get real people!

For a more detailed analysis, read my post What’s the Problem With Government Budget Deficits?, I’ll just post its conclusion here:

As I explained, the ultimate damage caused by public budget deficits occurs at that point in time when taxpayers are forced to restrict their consumption and unjustly bear the cost of malinvestments from the past.

Ironically, when you look at the political stage, all you will hear in regards to “solutions” to deficits in the end, will for the most part be tax hikes. These are not solutions. They are the ultimate manifestation of the very problem at hand. They are, in fact, the precise opposite of a solution. Keep this in mind whenever you hear politicians talk about deficit solutions. Raising taxes to reduce deficits is absolutely and 100% an admission that one has completely failed to solve this deficit problem, and in fact laid the final brick that was missing in the very process of the public’s depredation via deficit spending.

A real solution would of course be to make investors suffer the consequences of their unproductive investments, default on the public debt, stop stealing money from people, and allow for voluntaryism to take the place of interventionism.

Tags: krugman, paul krugman, public debt, public debts

US Taxes, Spending & Debts – Historical Charts

September 4, 2011 · Posted in Government · Comment

During recent months, a lot of people have been talking about solutions/causes/issues related to government spending, taxation, and the public debt.

In following all such debates there are but a few simple historical stats that one should be aware of in my opinion, so as to make an assessment whether or not the proposed solutions to existing problems are actually new and untried solutions, or if they are just a dull repetition of past patterns:

Taxation in the US

Over the past century, government revenue in the US has increased from 7% in 1902 to just over 30% today:

US Government Revenue 1902 - 2015

In absolute terms, adjusted for inflation in constant 2005 Dollars, US government revenue has grown from $32.91 billion in 1902 to now around $4,481.27 billion, a 13,516% increase:

The share of income taxes paid by the top 1% income earners has increased from 25% in 1986 to 40% in 2007:

Income taxes paid by the top 1 percent income earners

By the way, total income earned by the top 1% was around $1.6 trillion in 2010.

Government Spending in the US

In that same period, the ratio of government spending to GDP has increased from 3% in 1900 of GDP to now just above 42%:

Governmtn spending to GDP from 1900 through 2016

In terms of absolute numbers, adjusted for inflation in constant 2005 dollars, government spending has grown from $12.9 billion in 1900 to now $5848.77 billion.

Total US Government Spending, Constant 2005 Dollars, 1900-2016

US government spending on education, for example, has grown from less than 0.01% of GDP in 1900 to now 6.3% of GDP:

US government spending on education 1900 to 2016

US Government Debt

Total government debt in the US has grown from 10% of GDP in 1900 to now 120% of GDP:

Total US public debt 1900 - 2016

In absolute terms, inflation adjusted in constant 2005 Dollars, the public debt has grown from $43.86 billion to now $16,898 billion:

Total US public debt 1900 - 2016

Conclusions

Here are some theories that I’ve been voicing or working with that seem to be supported by the facts presented above:

In the long run, raising taxes does not seem to be a valid solution to battle deficits and the ensuing debts as can be evidenced by the correlation between a rising ratio of tax collections to GDP on the one hand, and a virtually permanent and accelerated increase in the absolute inflation adjusted level of the public debt.
“Taxing the rich” does not seem to be a valid solution in battling deficits and debts as can be evidenced in the fact that from 1986 through 2007 the share of taxes paid by the rich doubled while the absolute inflation adjusted level of the public debt even more than doubled, and the debt to GDP ratio increased from 60% to 80%
In fact, increasing the tax revenue seems to supply the state with additional collateral to use to borrow against future incomes. This could explain the long term correlation between tax revenue and public debt.
Raising taxes is not a solution to the problems with government budget deficits, but rather the very admission of failure to attack the problems associated with those deficits.

Tags: government spending, public debt, tax revenues, taxation

Bonds Don’t Lie; Thoughts on Sovereign Debt Investments; And Who’s To Blame for the Financial Crisis

June 10, 2011 · Posted in General Economics · Comment

A refreshingly interesting and open conversation on CNBC.

I happen to agree that bond markets are the best predictor of where markets in general are headed. As I noted before, treasuries have been rallying pretty much since February of this year, portending a slowdown that may be the second leg down for the double dip recession that is to come. It’s likely that gold, the Dollar, and Treasurys will to continue to do well …

Tags: bond market, debt, public debt, slowdown, sovereign debt, treasury rally

US Public Debt Limit Reached

May 16, 2011 · Posted in Government · Comment

The AP reports Debt limit reached, US halts 2 pension investments:

Treasury Secretary Timothy Geithner said Monday that he will immediately halt investments in two big government pension plans so the government can continue to borrow money.

Geithner informed Congress of his decision in a letter stating that the government had officially reached its $14.3 trillion borrowing limit. He repeated a warning that if lawmakers do not increase the borrowing limit by August 2, the government is at risk of an unprecedented default on its debt.

The debt limit is the amount of money the government can borrow to help finance its operations. The nation has reached its debt limit because the federal government has grown accustomed to borrowing massive amounts of money. The latest estimate is that it borrows 40 cents for every dollar it spends.

Republicans have said they will not vote to raise the borrowing limit until Congress and the White House agree on a plan to reduce the deficit through spending cuts. House Speaker John Boehner last week those cuts should be larger than any increase in the debt ceiling.

The deficit is the difference between what the government spends and what it takes in through taxes and other revenue. The Congressional Budget Office projects that this year’s deficit will total $1.4 trillion. That’s would nearly match 2009’s record imbalance and mark the third straight year in which the federal deficit has exceeded $1 trillion.

Vice President Joe Biden is holding negotiations with lawmakers over the types of deficit-cutting measures that need to be approved to win congressional approval of a higher debt limit.

Even though the government has reached its official borrowing limit, Geithner said unexpected revenue and bookkeeping maneuvers will allow the Treasury to continue auctioning debt for another 11 weeks.

Geithner has suspended pension payments in the past when Congress has held off raising the debt limit. The money that the two pension funds will lose will be replaced when Congress votes to raise the borrowing limit.

I’ve mentioned this before, but I still love that great logic behind threatening to vote not to raise the debt limit unless “significant cuts” are agreed upon. If significant cuts were to take place, there would be no need to raise the debt ceiling in the first place! :)

Another nice example for good old political hypocrisy is on this matter is of course Obama vs Obama on Raising the Debt ceiling.

All the threats about the US potentially defaulting in its national debt are rather unimpressive to me and the bond market is once again shrugging it off today with a drop of another 3 BP to currently 3.15 percent as these lines are written.

The US government is not going to default on its public debt, at least not before defaulting on virtually everything else as I outlined in The Government’s Insolvency.

The pension plans that payments have been suspended into (Service Retirement and Disability Fund) might give you a nice little snapshot as to who’s a low on the totem pole in terms of the seniority order I mentioned in that post.

Tags: debt ceiling, public debt, public debt limit

Disaster Upon Disaster – Japan’s Inevitable Plight

March 13, 2011 · Posted in General Economics · Comment

While Japan’s quake is a disaster of enormous proportions, it pales in comparison to its impending fiscal tsunami. Bloomberg writes …

Prime Minister Naoto Kan is also preparing a fiscal response, deploying about 200 billion yen left over from the budget for the fiscal year ending March 31 and planning a supplementary budget. Finance Minister Yoshihiko Noda said it would take beyond the end of this month to compile the additional package.

Opposition leader Sadakazu Tanigaki told reporters in Tokyo yesterday he proposed to Kan a temporary tax to help fund the relief effort, and Chief Cabinet Secretary Yukio Edano said later that such a step cannot be ruled out.

The central bank set up a task force after the temblor, and pledged in a statement March 11 to ensure financial stability and said it will do everything it can to provide ample liquidity. The BOJ extended 55 billion yen to lenders over the past two days to ensure cash was on hand for withdrawals by survivors.

…

[Finance Minister] Noda said the nation’s growing debt load would not impede its rescue effort. Standard and Poor’s downgraded Japan’s credit rating to AA- in January and Moody’s Investors Service lowered its outlook on the nation’s Aa2 grade to negative from stable last month.

“We are going to do everything we can” Noda told reporters in Tokyo on March 11 after the quake. “The fiscal situation can’t be a constraint to addressing this natural disaster.”

The idea of creating paper and computer entries in checking accounts out of nowhere is a damn lazy non-answer. It’s all the more tragic in light of the magnitude of the underlying disaster.

That this event would be used as an excuse to pile on to Japan’s staggering national debt is such a predictable pattern that it warrants no further comment.

For sure the quake could become a welcome scapegoat to blame for Japan’s debt crisis which is now coming full cycle, akin to Germany’s high public debts being blamed on its reunification or the US financial crisis being blamed on the collapse of Lehman …

Tags: earthquake, japan, public debt, quake

Mountains of Debt – The Keynesian Legacy

February 1, 2011 · Posted in Government · Comment

To follow up on Keynesianism’s Depredations and Futility in Action.

Not too long ago it was reported that Japan’s debt rating is cut as deficits pile up:

In another reminder of the worsening debt loads of developed nations, Standard & Poor’s on Thursday cut Japan’s credit rating one notch, citing the country’s continuing large budget deficits and the burden of an aging population.

Japan’s rating was trimmed to AA-minus from the AA rating it had held since 2007. The country lost its top AAA rating from S&P in 2001 after more than a decade of economic malaise.

Japan’s total public debt is about 200% of gross domestic product, the highest of any developed country and more than double the U.S. ratio.

S&P said the downgrade reflected its concern that Japan’s debt ratio would continue to rise as annual budget deficits piled up. It forecasts a deficit of 9.1% of GDP in the current fiscal year, and expects that to decline “only modestly” to 8% in fiscal 2013.

This is what’s in store for the western world thanks to the “cures” proscribed by Keynesian clowns around the globe. Their inevitable legacy will be mountains of debt, deficits, broken promises, and ongoing instabilities and depressions.

Tags: keynesian, public debt

Keynesianism’s Depredations and Futility in Action

January 7, 2011 · Posted in General Economics · Comment

Japan’s Prime Minister sounds the alarm bells:

Japan’s top government spokesman said the country’s fiscal situation is “approaching the edge of a cliff,” underscoring Prime Minister Naoto Kan’s call for a national debate on raising the 5 percent sales tax.

Kan is “expressing his deep sense of crisis and resolution about the sustainability of social security as the aging population increases under a low birth rate,” Chief Cabinet Secretary Yoshito Sengoku told reporters today in Tokyo. “The supporting fiscal conditions don’t allow for any delays, it’s finally approaching the edge of a cliff.”

Politicians don’t blow the whistle until it’s way too late. So this pretty much sounds like an open and official admission that Japan’s retirement avalanche has begun and is in full swing.

Here’s what I wrote about this a while back:

From 1989 on, the Japanese government has launched one stimulus after another to no avail, leaving Japanese taxpayers with the largest public debt per capita of all industrialized nations.

A burden that the US government seems to be more than willing to have its taxpayers shoulder over the years to come unless someone picks up a history book and tries not to feverishly repeat mistakes others made in the past.

Thus the long term outlook for the US economy is the fate Japan took: A long lasting correction supercycle with one failing “stimulus” program after another, and with on and off periods where the economy slips out of and back into recessions from time to time.

This whole mess in Japan started over 20 Years ago!

Keep this in mind any time you hear Keynesian whackos like Paul Krugman alongside politicians in power propose more and more government spending and debt as a panacea to the US’s comparable problems. They are today laying the foundation for the depredations that are to come in 10+ years from now.

Note that Japan’s PM is proposing to raise the sales tax to cover the shortfall.

This kind of stuff is predictable. As I explained in What’s the Problem With Government Budget Deficits:

Ironically, when you look at the political stage, all you will hear in regards to “solutions” to deficits in the end, will for the most part be tax hikes. These are not solutions. They are the ultimate manifestation of the very problem at hand. They are, in fact, the precise opposite of a solution. Keep this in mind whenever you hear politicians talk about deficit solutions. Raising taxes to reduce deficits is absolutely and 100% an admission that one has completely failed to solve this deficit problem, and in fact laid the final brick that was missing in the very process of the public’s depredation via deficit spending.

Also don’t fall prey to the illusion that the newly elected Republicans in Congress will do anything meaningful to turn the tide. If anything at all, they may come up with half-assed measures to appease the public for a little while longer. But will they propose 50+% cuts in military spending, Medicare, Medicaid, or Social Security??

Just take military spending as an example:

Republicans claim to be anti-taxes, yet they gladly and openly support the wars and destruction that end up gobbling up more tax money than anything else. Democrats claim to be anti-war, yet they gladly and openly support the higher taxes that end up funding all those war expenses.

Could there be a more beautiful example for this mad and brilliant shell game called “public finances”?

Tags: budget deficit, deficit spending, japan, public debt

Republicans in Congress Boldly Pledge to Raise the National Debt Ceiling

January 7, 2011 · Posted in General Economics · Comment

Here’s the new House Speaker John Boehner, with the usual debt ceiling posturing that seems to be obligatory anytime it needs to be adjusted:

“I’ve been notified that the Obama Administration intends to formally request an increase in the debt limit. The American people will not stand for such an increase unless it is accompanied by meaningful action by the President and Congress to cut spending and end the job-killing spending binge in Washington. While America cannot default on its debt, we also cannot continue to borrow recklessly, dig ourselves deeper into this hole, and mortgage the future of our children and grandchildren. Spending cuts – and reforming a broken budget process – are top priorities for the American people and for the new majority in the House this year, and it is essential that the President and Democrats in Congress work with us in that effort.”

Excuse me, but if our dear and heroic Republicans were so concerned about spending and the debt, then why would he “stand for an increase” in the debt limit at all?

If spending was to be cut in any meaningful way, then why in the world would the debt ceiling need to be raised at all??

The best predictor of future behavior is past behavior. Since the “great” Reagan “revolution” in the 1980s through now the national debt has increased by about 1,300%. Republicans had plenty of opportunities to let their supposed desire for spending cuts run wild in the meantime.

Don’t hold your breath for it now.

If there are ever to be any meaningful cuts, then they will happen out of necessity due to an unmanageable public debt interest, no matter whether it be Republicans or Democrats running the racket called government at the time.

Tags: public debt, public debt limit

Are Unfunded Liabilities Part of the Public Debt?

April 26, 2010 · Posted in General Economics · 2 Comments

Mish recently wrote this:

The Chicago Tribune had an excellent set of charts this weekend in A Tsunami of Red Ink regarding US government debt and who owns it, and also a comparison of US debt to the national debt of other countries.

Debt as a Percentage of GDP

Comparison of US Debt to Other Countries

Click on the link at the top to see foreign holders of US debt country by country. The top three US debt holders are China, Japan, and the UK.

Some will not believe those figures on debt to GDP comparisons. I don’t either. For starters the numbers are from 2009.

The footnote also says, if intragovernmental debt is included the figure is 83%. That number is approximately correct in my opinion (as of 2009).

Some will want to count unfunded Social Security and Medicare liabilities out to 2050 or whatever. This is simply wrong. That would be like counting a car you intend to buy 3 years from now as part of your debt now.

Many things can happen between now and then.

You may buy a smaller car.

You may not buy the car at all, opting for public transportation.

When the time arrives, you may postpone buying a car for a couple more years.

You may save enough to pay for the car in cash so that you incur no debt.

Likewise, the plans for Social Security and Medicare might change. Costs may go up, or down. The plans may be scaled back by the next generation of US citizens who think our generation was the most greedy in history.

The first part of the article is informing and interesting, the second part is rather questionable. In particular this statement makes very little sense:

Some will want to count unfunded Social Security and Medicare liabilities out to 2050 or whatever. This is simply wrong. That would be like counting a car you intend to buy 3 years from now as part of your debt now.

Not so much! A car I intend to buy 3 years from now is not a commitment made by anybody towards me or from me towards anybody. It does not have any contractual character. It contains no financial obligations whatsoever.

As I explained before:

Then there are unfunded social security and medicare obligations of about $43 trillion according to the Treasury’s own Financial Report for 2008:

The SOSI provides additional perspective on the Government’s long term estimated exposures and costs. However, it should be noted that the Government’s financial statements do not reflect future costs implied by any current policy, such as national defense, the global war on terrorism, and disaster relief and recovery. Table 3 shows the Government’s estimated present value of future social insurance expenditures, net of dedicated future revenues for the programs reported in the Statement of Social Insurance (SOSI), projected to be $43 trillion as of January 1, 2008 for the ‘Open Group’6. While these expenditures are currently not considered Government liabilities, they do have the potential to become liabilities in the future, based on the continuation of the social insurance programs’ provisions contained in current law.

A liability, or debt, is simply “the obligation of one person or group to provide future goods to another person or group.” Thus, for the discerning economist, it is rather irrelevant if the government “considers” or “officially calls” them liabilities. As far as their impact on human action is concerned, and thus all that economics cares about, they are debts. This brings the total US debt up to around $93 trillion (with total public debt at around $54 trillion).

All the arguments Mish advanced against including unfunded liabilities could just as well be advanced against including any public debt outstanding. The government doesn’t have to honor the public debt. It could also decide to “take public transportation” in that sense and “not buy a car” by not paying off its creditors.

It may be accurate to say that a partial default on unfunded Medicare and Social Security liabilities will be a lot less eye catching and PR laden than one on the official public debt floating around. But that doesn’t mean that it won’t have major effects on people’s behavior in society. It also doesn’t change its fundamental praxeological character. One need only look at the current madness unraveling in the field of public sector unions and public pensions to appreciate this fact. (This is one more reason why I am surprised that someone like Mish brushes over the phenomenon of unfunded federal government obligations so cavalierly and suggest that they not be considered public debt.)

In fact, I believe that the first wave of public debt defaults will occur silently in the realm of those unfunded, off-balance-sheet liabilities, just as it has recently been happening in Greece.

A public debt is any monetary commitment that future taxpayers have been put on the hook for, thus there is absolutely no difference in kind between commitments to pay money to a Treasury Bond investor over 30 years, and commitments to pay money to Social Security or Medicare Recipients over the years to come.

Tags: public debt, unfunded liabilities

State Pensions Owe $5.17 Trillion – Total US Debt at 700% of GDP

March 31, 2010 · Posted in Government · Comment

Recently I posted something about the phenomenon of private credit contraction being more significant than public credit expansion.

In there in noted:

I’m also not sure to what extent other municipal and state pensions are covered in the flow of funds number, but I rather doubt they are included at all.

Now I came across some numbers:

Joshua Rauh, an economist at Northwestern University, and Robert Novy-Marx of the University of Chicago, recently recalculated the value of the 50 states’ pension obligations the way the bond markets value debt. They put the number at $5.17 trillion.

After the $1.94 trillion set aside in state pension funds was subtracted, there was a gap of $3.23 trillion — more than three times the amount the states owe their bondholders.

“When you see that, you recognize that states are in trouble even more than we recognize,” Mr. Rauh said.

That same article also points out something interesting about past patterns of debt blow ups throughout history:

Professor Rogoff, who has spent most of his career studying global debt crises, has combed through several centuries’ worth of records with a fellow economist, Carmen M. Reinhart of the University of Maryland, looking for signs that a country was about to default.

One finding was that countries “can default on stunningly small amounts of debt,” he said, perhaps just one-fourth of what stopped Greece in its tracks. “The fact that the states’ debts aren’t as big as Greece’s doesn’t mean it can’t happen.”

Also, officials and their lenders often refused to admit they had a debt problem until too late.

“When an accident is waiting to happen, it eventually does,” the two economists wrote in their book, titled “This Time Is Different” — the words often on the lips of policy makers just before a debt bomb exploded. “But the exact timing can be very difficult to guess, and a crisis that seems imminent can sometimes take years to ignite.”

This is important: What will break the federal and state governments’, and ultimately of course the taxpayers’, backbone, won’t be the officially declared debts, but the ones that are off the books.

So based on this, the total debt count in the US so far:

Total private+public debt as per flow of funds report: $52.5 trillion
+ Social Security & Medicare obligations: $43 trillion
+ State pension obligations: $5.2 trillion
= $100.7 trillion total debt or about 700% of US GDP.

“When an accident is waiting to happen, it eventually does …”

Amen to that!

Tags: pensions, public debt, state pensions