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Friday, November 20, 2009

DON'T WORRY TOO MUCH ABOUT OUR NATIONAL DEBT




How serious is our public debt? Let me cite two tables. The first is from the 24October09 issue of The Economist:



Yes, while the Japanese public debt is around 230% of their Gross National Product (GDP), the United States is at a "mere" 100%.

Interestingly enough, the CIA Factbook has a table of essentially the same international comparison, with Zimbabwe at the top with a debt percentage of 266%, and Japan's is listed #2 at 172%. Italy (#5) is shown at 105% and Canada(#21) is at 64%, both very close to the above numbers. However, I couldn't find the USA until I reached #61 at 38%.

So what's going on? On the right you see an entry point for the national debt, and clicking on it gives:

$ 1 2 , 0 2 2 , 1 4 1 , 4 4 7 , 1 5 6 . 9 7

or just over $12 trillion (I insert it here, as this number sometimes disappears) as our debt. Our GDP is $14.4 trillion, so a simple calculation provides a figure of 83%. What is the CIA trying to do? Certainly, I would tend to believe The Economist. Anyway, our national debt is around our annual GDP. A third summary of the U.S. debt from Wikipedia:

Year .........Debt....% of GDP
................(trillions)
20089,985.870.2
2009 (est.)12,867.590.4
2010 (est.)14,456.398.1
2011 (est.)15,673.9101.0
2012 (est.)16,565.7100.6
2013 (est.)17,440.299.7
2014 (est.)18,350.099.8
Thus, yes, the percentage is at around 100%, which is expected to edge up until 2012, then begin to drop. Expect an even higher figure, though, for the health care measure will initially add more debt (just plain old common sense as 50 million or so more people will now need to be covered), but over the next decade, when the public option finally kicks in to compete, the unacceptable growth rate will be checked. Yes, the U.S. Senate apparently will vote tomorrow (Saturday) night to try to begin debate. This should last almost till Christmas Eve, then, dramatically pass. In any case, barring any new wars, the Venus Syndrome or the crush of true Peak Oil, we should be okay by 2020.

Oh, by the way, also from Wikipedia:

The debt limit was most recently raised to $12.104 trillion by the American Recovery and Reinvestment Act of 2009 (H.R.1), which was signed into law on February 17, 2009 (P.L. 111-5).[11]

So there is a check and balance system in place in case you were wondering if this can go on forever. The answer is yes, of course it can, as Congress regularly raises the limit when asked by the President.

To go on, let us look at a historical graph from zFacts:



The all-time high of 120% was attained at the end of the Second World War, but the current exponential slope looks damning. However, 83% or 100% is still nowhere close to Japan, which appears to be surviving at double that rate. I should mention without going into details that the Gross Domestic Product is about 10% lower than the Gross National Product, and these percentages differ from different sources depending on whether GNP or GDP is being used, and the year cited.

You will note that the Reagan-Bush the Senior years reign showed a doubling of our national debt/GDP ratio, while the Bush the Younger years initiated the jump when Congress passed the initial bailout package in December of 2008 before Obama came into office. While we're at this, look to the right and focus on the CALCULATE THE CURRENT VALUE OF MONEY box, where to the astonishment of most you, President Reagan, when he came into office in 1982 faced exactly the same predicament as Obama, for the second energy crisis had discombobulated the economy. As you can read, in 2009 dollars, Reagan got a $1.8 trillion recovery package, double that of Obama.

Finally, what about China:



Yes, China owns 24%, and Japan, that country with a 200% or so debt/GDP ratio, is at 20%. Actually, China recently dropped to 23% and Japan rose to 21%, and all this is not as bad as you might think, as foreigners only account for about 25% of this debt. 75% is owned by us. Thus, China's hold on on our economy is actually less than 6%. So let them them bolt and invest in Zimbabwe (remember, their debt/GDP percentage is 266%--and China has a platinum problem with this country today--this from AlJazeera.net, of all places) instead. Yup, China is contemplating moving money from the U.S. into African, South American and Indonesian resources. It's a risk, but would you rather trust in the USA or gain sure access to world resources, which will only jump in prices over the next decade?

So, be mildly concerned about our escalating national debt, but there is no need to anguish, and ignore those editorials that regularly pop up throwing fear at you about China pulling out their money, causing an American depression. Just won't happen.

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The Dow Jones Industrials, at one point down 56, ended only 14 down at 10, 318, while world markets all dropped. Gold hit another all-time high, up $6/toz to $1150, while crude oil slid below $77/barrel.

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