Archive for January 5, 2010

The US debt is too large to ever be repaid

January 5, 2010 11 comments

By Charles Ponzi
EarthBlog News©
TinyURL for this article []

This essay will argue that the US debt is too large to ever be repaid. Not only is it too large, it is over an order of magnitude, a factor of 10, too large.

Following are remarks made by Richard Fisher, President and CEO of the Dallas Federal Reserve, in May of 2008. This was just prior to the bailout. His estimate including obligations which are promised, but not paid for, was 99.2 trillion dollars.

Storms on the Horizon
Remarks before the Commonwealth Club of California
San Francisco, California

Richard W. Fisher President and CEO of the Dallas Federal Reserve
May 28, 2008
Add together the unfunded liabilities from Medicare and Social Security, and it comes to $99.2 trillion over the infinite horizon. Traditional Medicare composes about 69 percent, the new drug benefit roughly 17 percent and Social Security the remaining 14 percent.
More at the Dallas FED website

Now following are remarks by Neil Barofsky, who was the primary person in charge of projecting the ultimate cost of the bailout. His estimate of the cost of the bailout was 23.7 trillion.

U.S. Rescue May Reach $23.7 Trillion, Barofsky Says
By Dawn Kopecki and Catherine Dodge
July 20, 2009 (Bloomberg) — U.S. taxpayers may be on the hook for as much as $23.7 trillion to bolster the economy and bail out financial companies, said Neil Barofsky, special inspector general for the Treasury’s Troubled Asset Relief Program.
more at Bloomberg

Adding 99.2 trillion to 23.7 trillion is 122.9 Trillion dollars.

So what is the income? The income is around 2.5 trillion. That’s probably being very generous. Whatever. Call it 1 or call it three trillion. When you are in the hole for 122 trillion, you are off by an order of magnitude in terms of ever being able to pay off the debt.

As stated in an introspective look, scaling these incomprehensible numbers down to size, this is like you taking home 200,000 a year and owing 12 million dollars. At 3%, the annual interest on 12 million dollars is 360,000 exceeding the income by over 50%.

If you estimate the annual tax revenues at 2 trillion and an average 30 percent tax rate, that would put the number at 6.6 trillion assuming a 100% tax rate. So 123t represents all of the peoples income for 19 years. While this figure is meaningless in itself, it serves to highlight the degree of  unpayability of the obligations.

For the people who say the government can just print money to cover the shortfall,  money is debt. When you print money, you increase the debt and the debt is already an order of magnitude too large to ever be repaid.

This isn’t very complicated, really. The party line…the corporate media groupthink... is that this is all well and good but an issue that will only have to be dealt with in the future. The future is here as our friendly Chinese creditors say “please payment now“. Payment in what? More tokens of an unpayable debt that some people are still pretending to be a currency?

No matter how large the model becomes before collapse, approximately 88% of all people will lose.

the bottom 3 tiers of the pyramid always lose their money when the scheme finally collapses.No matter how large the model becomes before collapse, approximately 88% of all people will lose. If the scheme collapses at this point, only those in the 1, 2, 4 and 8 got out with a return. The remainder in the 16, 32, and 64 tier lose everything. 112 out of the total 127 members or 88% lost all of their money.

Pyramid scheme
From Wikipedia, the free encyclopedia

No matter how large the model becomes before collapse, approximately 88% of all people will lose.

Ron Paul: The US Government’s Debt Can Never Be Repaid