While our mind is preoccupied with Europe, nobody seems to remember the mess that USA is in. At least Europe is trying to get its shit together. They have much less debt to GDP compared to US of A. Just look at your backyard swamp and you will see the dragon getting stronger.
US spend about $ 3.8 Trillion in a year and takes in approx. $ 2.15 trillion in various shapes and forms. That leaves a gaping hole of $ 1.65 trillion a year.
And the official debt is about $ 16 trillion. In that official debt, we have not, I repeat not, included any unfunded liability for pensions to Government employees, Medicaid and Medicare and Social Security. The estimates of that unfunded liability vary from $ 66 trillion to $ 122.1 Trillion. For e.g. Uncle Sam has promised about $ 700,000 in pension and health benefits to its retired civil servants and so far the only source of that fund is IOU. Now add another $ 17 trillion to that coming from Obamacare. Before we start throwing Millions and Billions and Trillions, do we even know how much they represent? OK. Here we go:
This is one million in $ 100 bill.
And this is 100 million. All crispy $ 100 notes, stacked on a standard pallet.
This is 1 billion. About 10 tons of paper.
And here is the US deficit, $ 16 trillion and changes and not including the unfunded liabilities.
Remember we were talking about that $ 122 trillion deficit sometime back. Here it is in visual cue.
( All the above pictures are from demonocracy.info)
And we are worried about Europe? The total debt of all of Europe is less than 3 trillion dollar.
How much is a trillion anyway? For an idea, if Jesus Christ spent $ 1 million every day since the day he was born till date, he would still not be able to spend $ 1 trillion. Only politicians can talk about trillion.
So how does America bring its deficit under control. Don’t ask Krugman but some politicians are taking about deficit reduction. Which also means austerity in dirty language. Great news but where can US save money? Let us see where does it spend the money in 1st place?
This is somewhat old chart but the percentages are more or less same. Well, by the theory of Teapublicans (Who incidentally are equally to blame along with Obama) America will have to save about half of its expenses for only 16 years ( I am not even touching the unfunded liabilities) while hoping that the income will stay at the same level and there will not be any riot or social unrest. Other option is to increase revenue by raising taxes. But half of America does not pay any tax anyway. So double the rate of tax on the rest who pay? Like France? Good luck folks.
Well, if that is not possible, what is the other option? Simple actually. Continue to create money out of nothing till you cannot. It is like playing monopoly games by the kids. With fake money and fake assets. Only this time it is being played by the Governments instead of the kids. With the Fed monetizing the debt, (back door, wink wink!) they have been able to bring the interest rate down to an absurd level. But it is starting to hurt in other places. The pension funds who have some money for the retired folks, ( ordinary folks like teachers or policemen etc) are being forced to look for yield in most risky places. Even social security is getting hurt. And what happens when those who are buying into the Ponzi scheme realize that they are being milked dry and refuse to take part any longer. Just like in Europe? Well, you suddenly have a high rate of interest and inflation. The bond market is crushed and along with that the equities.
We are in a secular bear market. The end of the bear market will come when PE is below 10. Right now it is about 22. We have a fair bit to go. It does not mean that the bust is coming tomorrow but time is running out and there are really no alternatives. If you know or have any idea how they will solve this mess, please share it with us. I do not like to sound like a dooms- dayer. I still think there will be a QE soon to lift the asset prices but have we not had 2 official and many un-official QEs in between? What have we achieved? We are still below the highs of 2007. May be we will see SPX 1500 by November with the help of QE, but it will not lead to full employment or wage growth. It is just another bubble.
My math skill is limited and I am unable to add up to reasonable viable outcome. So please help with your inputs.
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