Washington, DC -- (ReleaseWire) -- 02/16/2015 --On October 27, 1981, U.S. debt levels hit $1 trillion for the first time, and it took us over 200 years to reach that point. According to TreasuryDirect.gov's "Debt to the Penny" application, that figure broke the $18 trillion mark on Friday, November 28 of last year, and now stands at over $18.1 trillion. To give some sense of what $18 trillion looks like, $18 trillion in 100-dollar bills would fill a football field, from goal post to goal post, in stacks about 124 feet high.
That debt falls into two categories. About $13 trillion is debt held by the public, meaning Treasury securities and other instruments held by investors outside the government (individuals, corporations, foreign, state and local governments, for instance). The remainder is intragovernmental debt, money borrowed from entities such as the Social Security and Medicare Trust Funds. The rate of increase is also alarming: of that total $18 trillion in debt, the last $1 trillion accumulated in 365 days. Only one year to go from $17 trillion to $18 trillion in debt!
This new historic level also means that ratio of total U.S. debt to nominal GDP is huge. As a matter of fact, as of September 30th, it's now at the 103 percent debt to GDP. Sadly, it also means that total U.S. debt has increased by 70 percent under Obama, from $10.625 trillion on January 21st, 2009 to over $18 trillion today. This means that, so far, during Obama's presidency, the national debt has increased by $7.38 trillion, which is an average of more than $3.4 billion every day.
Two of the Social Security Trust Funds, the OASI (Old-Age and Survivors Insurance) and the Disability Insurance Trust Fund. They own approximately $2.72 trillion of the total U.S. debt of the $18 trillion. That means in very simple terms that the United States Government owes that money to current and future beneficiaries of those trust funds, which is to say, every single living U.S. citizen. And yet, whenever the government announces higher debt levels in the last several years, they serve it up with a side dish of propaganda, feeding it to the American people spoonful by spoonful. The first piece of this propaganda states that, because we owe the debt to ourselves, it's alright to default. That is the silver lining we're being presented with: defaulting on ourselves.
The U.S. Census Bureau estimates that median U.S. household income was $51,939 in 2013, which means each American's share of national debt is greater than the median household income in the United States, which in turn means that we will never be able to pay this off. Consider, too, that the $18 trillion figure released by the Department of Treasury last week doesn't even include an estimated $49 trillion in unfunded Medicare and Social Security liabilities, and more than $4 trillion in unfunded state pension liabilities. So, rather than $18 trillion in debt, we're effectively looking at $71 trillion.
The second piece of propaganda that the government feeds us when talking about debt figures is that the way to eliminate debt is to simply raise taxes on individual Americans and corporations. This is not a solution, and here's the historical perspective as to why. Since the end of World War II, the U.S. government tax revenue consistently has been roughly 17 percent of GDP, so even if they do raise tax rates on us, it won't move the needle in terms of revenue as a percentage of GDP. In plain English, the U.S. government's piece of the pie is essentially consistent, and with the data available to confirm how public debt was paid in the past, they should be doing everything they could to help make the pie bigger, to make the GDP bigger. But they aren't doing that.
In the past, in order to grow the GDP, there were fiscal policies like lowering taxes so Americans could invest more; policies to support entrepreneurs instead of hurting them and stopping them from starting their companies, even loans for entrepreneurs; or reducing corporate tax rates so we can attract companies from all over the world to grow their businesses here with American workers. Instead, we now have a government that continues to tax and regulate, which effectively leads to more debt.
The bottom line is this: investors may not be able to fix the U.S. debt problem on their own, but they can certainly begin self-protecting and reducing susceptibility to what's coming. When the central banks depend upon purchasing future contracts to shore up markets rather than relying on the fundamentals to determine value, investors cannot buy into everything that the dollar and the S&P are doing. Eventually, the purchases will stop, and the false structure will crumble.
All data sourced through Bloomberg
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About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program called Financial Myth Busting http://www.financialmythbusting.com. She discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included rock legend Ted Nugent, as well as Steve Forbes and Grover Norquist. Listeners can call 855-884-DAWN a as well as take podcasts on the road and forums for interaction.
She can be reached on Twitter @DawnBennettFMB or on Facebook Financial Myth Busting with Dawn Bennett or dbennett@bennettgroupfinancial.com