Monday, January 25, 2010

Admittedly, I have come up with some real entertaining ideas. Recently though a friend of my family's whom we have known in excess of 20 years was "politely amused" at my suggestion that the US is facing some stresses that are potentially life-threatening for it, and that these are largely financial and of our own making rather than due to anything pressing on us from outside of ourselves. So in the middle of a software upgrade (which is like watching grass grow: 99% nothing and 1% doing something), I made my case. I decided to post it here since I have posted nothing of substance (unless you call videos substantial which... well, maybe they are) in some time. Here is a copy of my latest diatribe for those who care to read it:

Date: 1/25/10
Subject: Campbell on the US Fed debt and the next 40 years

Dear [Redacted]:

See http://finance.yahoo.com/news/Figures-on-government-apf-2178072020.html?x=0&.v=2

[In 000,000s]:
Total public debt outstanding Jan. 22: $12,302,465

That's 12,302,465,000,000, or: "12 trillion, 302 billion, 465 million dollars".

Now that is US gov't DEBT - just DEBT. The US's GDP in 2006 (ie, gross domestic product: all that we, the people and our employers, produced) was $16 trillion.

This current figure of $12.3 trillion is just what the US gov't OWES in debt obligations to all manner of other entities: foreign and domestic - via things like Treasury bonds. This is money our gov't has spent already and owes payback with interest on it - it is not anything we the people have borrowed though it is money our gov't has borrowed and oftentimes redistributes back to us in one form or another (no wonder the Chinese are so pissed). We are on the hook for it in any case via taxes.

Now this $12.3 trillion figure has NOTHING to do with US worker productivity or our GDP. It is ONLY a statement of what the federal gov't of the US owes to others, based on its own lending to pay for things like wars, welfare, redistributions of wealth to "non-natural persons" (eg, so-called corporate welfare, etc.), direct gov't services to states and to individuals, and so on.

So for perspective: Imagine you make $80k/year. Let's say that that $80k represents the $16 trillion the USA produced in 2006. Now let's say you owed total in all your debts (and we'll be generous and say we are excluding your house): $12.3 trillion. What %age of that figure would be of the $16 trillion? Answer: (12.3/16) x 100 = 76.88%. Now take your $80k/yr salary and do the math: $80,000 x .7688 = $61,500

So, you owe $61,500 in debt, even aside from your house, but make only $80k/yr, and of course you have lots of expenses you have during the year such as the mortgage, food, home and personal upkeep, etc. How do you keep up? Well if you can, you just keep borrowing. And that is what we are doing. And since we're a country and a very big one, it seems, no one wants to really say "No!" when in fact any bank would have long ago cut us off if we were just individuals looking to borrow more money again and again.

Now before you say this is not a good analogy because our sovereign debt stretches out over 100s of years (eg: Treasury bonds with a 100-yr maturity, and we keep issuing them), I just want to say that actually, we as individuals are not much different. In fact at least with sovereign debt there is a time the note comes due. With our revolving credit debt, we can easily use it until we die. Those are in fact better terms than sovereign debt. Buyers of sovereign debt are also betting that the country whose debt they are buying will be around when the note comes due. Well like anyone who bought Soviet debt found out, that is not always the case. (See http://www.bloomberg.com/apps/news?pid=20601085&sid=aapTzajNP0XI :
"Russia last month paid the last of its Soviet foreign trade debt, exchanging $406 million of so-called FTO debt for cash and Eurobonds. Russia plans to return this year to the international debt markets for the first time since 1998, when it defaulted on about $40 billion of domestic debt.").

In this position, anyone would say you are bankrupt, but since we are a big ol' honkin' country, we're "too big to fail". (That's what they said about GM, too, which did, in fact, fail, and they had the US gov't on their side - don't believe the press, GM did in fact fail). Well, the USSR failed. And so you wonder why anyone would suggest that the USA may not be able to remain together as a political entity "merely" because it is having cash-flow or debt problems? It was cash-flow and debt problems that brought down the USSR, not the ideological issues that some would have you believe were the cause. They just couldn't make good on their bills to anyone else or to one another.

Now re "falling apart" over money - well, people "fall apart" all the time over cash flow and debt problems. As you well know, they kill themselves over it. They kill wives and children over it, then themselves over it, leading to grisly "News at 11" reports no one wants to watch. Or a better outcome, they "merely" get divorces. Or maybe if they can do it, they declare bankruptcy and shunt from job to job, apt. to apt., relationship to relationship, trying to find someone to have some faith in them. But once bearing this modern-day Mark of Cain, always bearing this modern-day Mark of Cain. A person with bad credit is a burden, like a leper. They are never entirely trustworthy and no one should take too much of a chance. It's as bad for some employers as being asked to hire a convicted felon, yet one who was in jail over drugs or a violent crime.

The same thing is happening here but on a grand scale. No one wants to be left holding the bag. Did you see this off-linked from the reference on my earlier note re US state secession proposals?:

http://en.wikipedia.org/wiki/List_of_U.S._state_secession_proposals

So why would one think then that where there are discussions of states splitting up ("Um, WE're not going to be stuck with YOUR debt!") or of the union itself (ie, the USA) trying to find a new way to organize itself so that it gets out from under the debt it created, that such is unrealistic or dramatic talk? In the past, nations have just become a new nation or new set of nations by pen-strokes and hopefully got some relief. (Alas this has usually led to war between themselves and their creditors, but not recently, as was the case with the old USSR - this only because they had nuclear bombs.) Creating a new currency has traditionally been the way this was done without busting up the country itself. The Germans did this at least twice in the last century, actually, I think, three or four times. But they also went through three different kinds of governments, too, and lost a really big war that they started. (Bad luck all around - for them, anyway. Amazing they stayed together at all in one form or another. Can't beat the Germans for this kind of stick-togetherness, really.)

So can the US do the same thing? Yeah, sure it can. Will it? I dunno. But the potential is there. We are only 150 years away from our famous Civil War. We are only 80 years away from the Dust Bowl and the New Deal (like it or not) whose existence arguably kept America from falling prey to revolution and becoming either a communist or fascist state. We are also a mere 50 years away from the 1960s and '70s that saw violent clashes and calls for armed revolution openly made in the streets, as well as political assassinations that we still discuss furtively.

[Actually, we have been coming down. We have gone from civil war to rioting/political violence, now just to the occasional demonstrating and rioting. Maybe there is some hope for us, at least in the civility dept. :) ]

Nonetheless, in answer to the question, "Gee, can what you suggest, American disintegration due to debt hardships and their associated problems, even be possible?", the answer is, yes, of course it is. More possible than a lot of other things. This is why I am not looking forward to the next 40 years, politically-speaking. But, I am hopeful, and I do love my country, for all its faults. I will hope and work for the best for it in all cases.

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