In commemoration of the one year anniversary of the downgrade in US Debt from AAA to AA, I thought you might like to see why we are more inclined to see the US debt rating fall in the not too distant future. This is important to you as the failure to solve this problem will impact the lifestyle of this country for generations to come. While Washington DC is nowhere near solving this looming financial crisis, I will show a simple solution that is within our grasp.
Using data provided by USDebtClock.org, there are 314M (million) people in the US of which only 114M pay taxes or 36%. While the official unemployment rate shows 12.5M out of work, the real number is 23M or 15% of the workforce. Of the 121M employed, 16% are directly employed by government.
US National Debt is nearing $16T (trillion) or $140K (thousand) per taxpayer. Federal spending is nearly 40% more than its revenues.
The Federal Government takes in $2.37T annually. From that, they pay $795B in Medicare, $741B in Social Security benefits, $671B for defense and $213B for federal pensions (Retired federal workers cost you nearly $2,000 a year!). Paying only those expenses listed costs $2.42T. We are $50B in the hole and have not paid interest on the $16T of debt or done anything else. Even if we cut out Defense in total, it only provides sufficient financial relief to pay the interest on our debt which is in the $500B range annually.
How do you fix things? More taxes?
Total debt in the US per person is $57T or $181K per person while personal savings is slightly over $1K per person. Our unfunded social security, prescription drug and medicare liabilities total $120T or $1M (million) per taxpayer. Unfunded pensions increases this implied debt even more.
Total borrowings of government, business and people in the US excluding the unfunded liabilities equate to more than 60% of the total value of all assets held by government, businesses and people in the US. Additionally, our banking system has $735T in derivatives on their books which total eight times more than all of the assets of the country. Derivatives are bets or implied insurance against movements in currency value, underlying debt and other financial instruments. Such a high level of derivative activity suggests that a great portion of those derivatives are no different than wagers in Vegas.
The downward spiral becomes a vicious cycle when you have bad economic times and lots of debt. You need to spend money to solve the problem but you don’t have sufficient money to solve the problem without inflicting greater damage on recovery prospects. The best solutions are game changers that will change this ugly dynamic.
The solution as I see it would be if we moved to US based energies like natural gas, solar and wind. Those moves would cut $461B of money spent on foreign oil. As the overall energy costs of the country would go down and conversion to these energy types would create many jobs, the economic impact would be profound. This solution would provide the economic engine needed to solve the unemployment problem, fix the structural deficits and help get families and businesses the improved cash-flow needed to solve their own problems.
Now if we could eliminate the waste in government and healthcare, we would be well down the road toward solving our economic woes and returning our debt rating to AAA while achieving the most important of things – leaving our country on sound financial footing for generations to come.
Sadly, I don’t think our elected ‘leaders’ have vision or capability to do these things. This is no different than the World Wars – we need to all unite and work together to forge solutions. Partisanship and selfish interests will only make the problem worse.
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