I noticed over at My Modern Country Home
http://mymoderncountryhome.blogspot.com/2009/01/iousa-to-boston-tea-party-part-2.htmlthat there was some excitement about the IOUSA documentary and the repercussions. The numbers are so large that I didn't really understand what they meant. One way to remedy that is to put it into terms that we can understand. I go to work (or will be starting soon, yeah!) and I make some amount per hour. OK great, how long would it take to pay this national debt off?
IOUSA's number for our debt is $53 Trillion. This is the total of government debt. But that number was from 2007. They also claim that the debt climbs $2-3 Trillion a year, lets call it $2.5 Trillion. We also had a large bailout, at the end of the day lets call that another $1 Trillion. I am going to ignore the cost of ongoing wars, the numbers that I have seen are wrong in many different ways. So this leaves us with a total of about $59 Trillion for the start of 2009.
From the CIA World Fact Book the GDP per capita is $45,800, about $22 per hour. It also says that we have 303.8 Million people in this country. Doing a little bit of math and we get that every single person in the US would have to work for 4.25 years to work off the debt. This is with every cent going to pay off the debt, with no new debt.
That is not a reasonable estimate because not everyone works in this country. According to the U.S. Bureau of Labor Statistics only about 143.3 Million people are employed. That means us working folk would have to work for 9 years with *everything* we make going to servicing the debt assuming no interest or no new debt.
But this is government debt, government money is going to pay off the debt. i.e. only the money they take by force or print is going to be used. Lets assume that they don't just print their way out, even if that is what Ben Bernake has said he is going to do, and only count the money that the gov't is taking in taxes. In my pay range they take about one third. That drops the average pay for the government to about 7.25 an hour. This results in a pay back time of 27 and a quarter years. Basically the rest of my adult working life they would be paying off the debt not including interest or further debt.
So that estimate isn't even correct, because we are still spending money hand over fist. Let us take that $2.5 Trillion per year that we estimated from IOUSA's numbers. If we paid all of our money to service this debt we would work (those of us that do work) about 40% of the year to service the years spending. That isn't paying anything down, that is just paying for what we will spend this year. If only the current tax rate is used to service this years spending then it would take 115% of our work. Hmm that is more then a year. That means we are spending ourselves into debt faster then we can pay it off at the current tax rate (the source of the problem).
Because our currency is only backed by "The full faith and credit of the United States", at some point people are going to look at the numbers and say "Wait a second, these guys can't pay back what they already owe us. We are not going to give them more of our stuff." There are a couple of simple options.
1. Increase taxes to get more money to pay back our creditors. As you can see that point will fall somewhere between the current 33% tax rate and 100%. Running the numbers to just service this years debt we would need a 38% tax rate. To start paying down the total debt the tax rate would need to be higher. This is a pretty good way to shut the economy down and lose our credit rating.
2. Print more money. This works in the short term and the politicians don’t even have to raise taxes (something they don’t like to do). It is great until you consider that it would cause inflation. If you want to see what inflation does to a country just look at Zimbabwe. No one wants to live there.
3. Tell our creditors that we are not going to pay them back. Ya that just isn’t going to work out. We don’t have much industry left. What we do have left produces massive amounts, but is highly specialized. If we say that we are not going to pay people back then they are going to stop selling us the things that we need. Then all of a sudden we have a very serious problem.
None of these are good options, but knowing the politicians, they will come up with some scheme that would be called fraud if anyone else had done it.