The US Is Dead Broke

“The rich rules over the poor, and the borrower becomes the lender’s slave.” – Solomon

This is the story about Debtor, a newborn American baby. Debtor has just been born into the greatest economy in the world, a land full of promises and opportunities. This is what his parents tell him. But unbeknown to Debtor, he has been given a very bad start in life. Because the parents haven’t told Debtor, and how could they since they are not aware themselves, that he starts life with a massive debt burden that will grow manifold during his lifetime.

THE AMERICAN DEBT SLAVE

King Solomon’s words will ring true for almost every American born today. The average American is a debt slave already at birth. And by the time he dies, his debt will have increased exponentially, thus passing on an even bigger debt and greater enslavement to the next generation.

This is a vicious circle that has gone on for just over 100 years. A very small elite has become incredibly wealthy and the masses have become enslaved by private and government debt. What Has Government Do... Murray N. Rothbard Best Price: $6.48 Buy New $6.50 (as of 12:40 EDT - Details)

For the majority of people it will be impossible to extricate themselves from this massive debt stone around their neck. Instead they will add to the debt by taking on more debt.

US DEBT GOING FROM $21 TRILLION TO $43 QUADRILLION

But the government will also do their part. They will at least double the national debt every 8 years as they have been doing for several decades ( see last week’s article). Starting from $21 trillion debt today and assuming that Debtor will live until 88 years old, a doubling of the debt every 8 years would lead to a $43 quadrillion federal debt in 2106. Most of us will of course not be around to check that forecast but since it is just an extrapolation of long term trends, it is difficult to argue with although a lot can of course happen in 88 years.

Even the $43 quadrillion US debt in 2106 could be conservative. Higher deficits and higher interest rates, both being likely, could multiply the $43 trillion many, many times.

I am sure that no one expected, in 1981 when Reagan started with a $900 billion debt, that the US debt would have gone up 23x to $21 trillion, 37 years later. No one likes forecasting the truth, because the truth looks horrific when it comes to all the mismanaged economies in the world.

But the federal debt is of course only a smaller portion of the total debt and liabilities that Debtor and his fellow Americans are responsible for.

US UNFUNDED LIABILITIES $220 TRILLION

The biggest burden will be the unfunded liabilities of Medicare and Social Security. Professor Laurence Kotlikoff has calculated that these amount to $220 trillion. That is 10x current federal debt and a liability that is unlikely to ever be funded. The best solution would of course be a miraculous increase in prosperity and tax revenues – Very unlikely.

Another alternative would be that Debtor and his young friends spend all their working life just to pay the pension and medical costs of the older generation – Unlikely, plus it would lead to a revolution.

More likely is that the government will just create more debt to pay for these commitments. We know of course that a debt problem will not be solved by incurring more debt and whatever additional money the government will create out of thin air will have zero value and therefore also zero effect.

So that leaves the option that there will be virtually no medical care or pension for Debtor and his fellow Americans – This will lead to civil unrest as well as poverty, famine and disease. Not a very desirable outcome but sadly very likely. Economics in One Lesso... Henry Hazlitt Best Price: $3.98 Buy New $8.68 (as of 02:15 EDT - Details)

EVERY AMERICAN HAS A $715,000 LIABILITY

If we take the US population of 325 million, Debtor will be responsible for his share of all outstanding government debt and unfunded liabilities. That means 1/325 millionth of $21 trillion or $65,000 of debt is what Debtor starts off with as a baby. He clearly didn’t deserve that and nor can or will he ever repay it.

Debtor also needs to take responsibility for his share of unfunded liabilities which is 1/325 millionth of $220 trillion, or $650,000. His parents never told him this because they were brought up in an era when the government just printed or borrowed money whenever a need arose. So in total Debtor owes $715,000. The parents never understood that their government constantly spent money that didn’t exist. They clearly hadn’t read Charles Dickens’ David Copperfield and nor had their government:

“Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result MISERY.”

Charles Dickens, David Copperfield

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