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America's Total Debt Report

$ 57 Trillion - - and soaring
- household, business, financial and government sectors -
by Michael Hodges - email
updated April 2011

- a chapter of the Grandfather Economic Reports -

debt dollars

America has become more a debt 'junkie' - - than ever before
with total debt of $57 Trillion - - and the highest debt ratio in history.

That's $185,668 per man, woman and child - - or $740,260 per family of 4.

While 2008 total debt increased $3 Trillion, 8 times faster than GDP,
Total Debt in 2009 & 2010 stopped growing - like hitting a brick wall !!
While private sector debt dropped via defaults & foreclosures,
federal government debt expanded $3.3 ($1.6 trillion 2009 + $1.7 trillion 2010) 
[state & local govt. debt expanded $226 billion]

External debt owed foreign interests increased $1.2 Trillion in 2008, and $720 billion in 2010.

81% ($46 trillion) of all debt was created since 1990,
a period primarily driven by debt instead of by productive activity.

And, the above does not include un-funded pensions and medical promises.

2 great questions:
Can the production of debt forever replace the production of goods and savings?
Can Americans forever borrow their way to prosperity?
Easy Answer > NO WAY !!

I am concerned about the debt being passed to our younger generation. Who isn't? (The Grandfather Economic Reports is a series of picture reports of economic challenges to the future of families and their children, compared to prior generations. You are now at the chapter on America's Total Debt trends. Welcome. We hope your visit will find useful information to help you and your loved ones.)

The Federal Government Debt Report covers just the federal government debt of $14 Trillion, or $40,065 per child in 2010. This chapter covers all U.S. debt, called Total America Debt (the sum of all recognized debt of federal, state & local governments, international, private households, business and domestic financial sectors, including federal debt to trust funds). Total Debt in America is now $57 Trillion, or $185,065 per man, woman and child.

This is the summary page of America's Total Debt Report, to get you started. Since 'a picture is worth a thousand words', below are two of the many data trend pictures shown in the Full Debt Report linked at the bottom of this page.


Trend national debt vs national incomeBIG PICTURE - $57 TRILLION of DEBT in America, and rising rapidly

the economy is 2-3 times more debt-dependent - -
with $36 Trillion DEBT EXCESS compared to prior debt ratios

Here's one graphic of many shown in the main Total Debt Report, linked below.

This is A SCARY CHART - showing trends of total debt in America (the red line) reaching $57 trillion in 2010 vs. growth of the economy as measured by national income (blue line). (adjusted for inflation).

Which line goes up faster, the red debt line or the blue net national income line? Answer: the debt line.

And, that debt line has exploded up faster and faster than national income! Right?

(maybe, like this chart, your own personal or business debt is also going up faster than your own income - - possible?)

As mentioned, debt is here defined as all U.S. debt (sum debt of federal and state & local governments, international, and private debt, incl. households, business and financial sector debts, and federal debt to trust funds).

This chart shows, for the period 1957 to mid 1970s, total debt (red line on chart) was increasing close to the growth rate of national income (blue line on chart), despite war debt for WW II, Korea and Vietnam.

But, in the last several decades total debt has zoomed up, up and away - - growing much faster than national income. As of beginning 2011 total debt was $57 Trillion ($40.8 trillion private household/business/financial sector debt PLUS $16.2 trillion federal, state and local government debt).


Here are some highlights:

trend of debt ratioWhile the above chart shows debt growth in inflation-adjusted dollars, here's another chart from the main report of this chapter - - showing debt as a percentage of net national income - - which I term the 'debt ratio'.

This chart shows < 2009 debt of $57 trillion was 505% of national income; the debt ratio in 1957 was 186%. If 2009 debt had been at the 1957 debt ratio then 2009's debt would have been $21 trillion, not $57 trillion - - indicating excess debt in America today of $36 trillion. (note - if this chart were plotted as debt % GDP, instead of  debt % national income, the curve would look near identical to this chart)

In this graphic, note how the debt ratio data plots are nearly flat during the first half of the years shown, indicating debt was growing at approximately the same rate as the economy - - not faster than the economy. This proves America's economy can grow without increasing debt at a faster pace (because it has in the past). But look what happened to that trend in the middle of this chart - - debt ratio zooming upward, faster and faster, indicating debt growth way beyond general economic growth - with a new, record high debt ratio each year.

Please note this is a ratio chart - - a plot of debt as a ratio to national income - - called the 'debt ratio.' If the economy performed with less debt each year per dollar of national income growth, meaning better debt productivity, then the chart trend line would be pointing downward. But, the line points up - - each year more and more rapidly upward it soars. This means the economy has been performing with less debt productivity each year, meaning it requires more and more debt each year to produce a dollar of national income than the year before. Like a drug junkie, the economy demands the generation of  more and more debt each year to survive. The debt ratio has now reached 470% of national income - - an all-time high, and shows no sign of even slowing its upward march.

The excess debt is even higher than the $36 trillion excess shown on this chart, if a nation's economy were structured to become more productive such that it could grow without increased debt. Why can America not grow by normal population  and savings growth and labor and equipment productivity - - without growing debt ratios higher and higher?

By the way > a chapter of this series called the 'Family Income Report' shows the time period of the first half of this chart, when debt ratios were stable, was also one of the best periods ever of real median family income growth - most with one wage-earner per family.

Stated differently, in 1957 there was $1.86 in debt for each dollar of  net national income, but in 2009 there was $5.05 of debt for each dollar of national income - up 171%. It also means this extra $3.19 of debt per dollar of national income produced zilch extra national income. Even worse, in 2008 alone it took $9 of new debt to produce one dollar of national income, whereas in 2009 a drop in total debt saw a drop in national income. What kind of 'so called productivity' is that, a nation run near entirely on debt? Answer > Negative Productivity.


external-debt.gif (3703 bytes)INTERNATIONAL OWNERSHIP OF U.S. DEBT - - SOARING - - now $14.4 Trillion

"Foreign interests have more control over the US economy than Americans, leaving the country in a state that is financially imprudent. More and more of our debt is held by foreign countries – some of which are our allies and some are not. The huge holdings of American government debt by countries such as China and Saudi Arabia could leave a powerful financial weapon in the hands of countries that may be hostile to US corporate and diplomatic interests.” David Walker, the US comptroller general. 23 July 2007.  http://business.timesonline.co.uk/tol/business/markets/united_states/article2120735.ece

Total America $57 Trillion debt shown at the top of this page can be broken down into two parts > $14.4 Trillion owed to foreign interests and $42.6 Trillion owed domestically.

This data graphic is of External U.S. Debt, meaning sum total of all debt owed to foreign entities. From $6.4 trillion of external debt in 2003 to $14.4 trillion in 2010 - 125% increase in 7 years of $8 trillion.

According to the Federal Government Debt Report federal debt was $10.6 Trillion at the end of 2008, including $3.2 Trillion owed by the U.S. federal government  to foreign interests - which represents 49% of all Treasury bonds & notes, compared to but 15% in the late 1980s.

As of 2004, according to Gillespie Research/ Federal Reserve, U.S. financial assets owned abroad included 13% of all stocks and 27% of corporate bonds, and foreign investors & central banks also owned 13% of U.S. government agency debt up from 5% in 1995. However, the above graphic shows a rapid quickening of external debt since 2004, meaning the foreign ownership share of stocks, bonds, agencies, etc. is today higher than ever. Consider this > Fannie Mae and Freddie Mac are the largest suppliers of mortgage funds in America, borrowing extensively on the open market - it has been reported two-thirds of  their $1.5 trillion outstanding debt is held by foreign investors, up from one-third in 2002 - - (dangerous with a long-term falling dollar exchange rate).

Additionally, foreign interests own real estate and factories - - and some would be surprised to learn that the well-known and respected California-based Pimco, the world's largest bond fund, that many believe is an American firm is in fact a unit of Allianz AG, a German firm.

As reported in the International Trade Report, in 2008 the U.S. had a total merchandise trade deficit of $821 billion, while Japan & Germany produced a cumulative trade surplus of $301 billion ($36+$265). That's a whopping $1.1 trillion worse relative trade performance for the U.S., in JUST ONE YEAR - against just 2 nations that also are high-wage nations. And, Japan and Germany actually inport a higher percentage of their oil needs than does the U.S., and still relative U.S. trade deficits go on, and on, continually building soaring international liabilities - - to the benefit of foreign entities, because the American economic system 'refuses' (or does not know how) to produce enough of its needs.

External debt and trend of foreign holdings of federal government debt is covered more extensively in the Total America Debt Report (link bottom page)


We should not be mad at foreign interests. We are the ones borrowing from others so we can consume beyond our own production and savings, thereby creating unprecedented debts and trade deficits PLUS excessive government spending. While America's debt used to be nearly all owed domestically, increasingly huge portions are now controlled by foreign interests.

America is less and less independently in control of its economy

and, this is happening on OUR WATCH !!
- - not a nice bequest we are creating for our children and grandchildren.


While facing this accelerating debt Challenge:

- a few hard questions > With the lowest personal savings rate on record, with the federal government relying more and more on foreign entities to lend it funds to operate and prop up its currency, and with run-away trade deficits, where will this debt monster lead? Does America simply borrow savings of non-Americans until either they stop lending or until America has mortgaged or sold-off all its assets to others?  

How can this direction be changed - - or am I the only one who does not believe individuals and a nation can, forever, borrow their way to guaranteed continual prosperity and security? Also, am I the only one who believes these trends represent major negatives regarding the future of our children and grandchildren - - in many, many ways?


The End Game of debt expansion ??

Esteemed Economist Ludwig von Mises stated the endgame brought on by reckless expansion of credit (debt): "There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved."

Two Questions: 1. Does anyone wish to offer guarantees that Dr. von Mises is wrong?
                         2. Does anyone believe these debt trends can continue forever - without dire consequences?


Is this a way to run an economy for my children and grandchildren
- - debt, debt and more debt?

Idea > > There can be little doubt that the only way energy (for example) will be better conserved with reduced dependence on foreign interests is with significantly higher economic (prices) costs and lower consumption. The same goes for debt > > a free market (without central-planning via the Federal Reserve to manipulate interest rates) setting significantly higher economic costs (higher interest rates, elimination of tax subsidies on debt, higher bank reserve ratios, etc.) to debtors, until debt ratios fall back more in line with America's past. Perhaps payroll taxes for social security and Medicare should be eliminated with its revenue loss (plus the gap missing for the future) transferred to the equivalent tax on energy and on debt.

What's your idea to get these debt ratios down significantly toward ratios of the past,
including reduced dependence on foreigners?

Most can agree >
The U.S. is
more debt-dependent than ever.
That is not a nice bequest to our young generation - - on our watch !!


Why are these warnings about debt expansion ignored
by most households, businesses and government?

"I place economy (saving) among the first and most important virtues,
and debt as the greatest of dangers to be feared." -
Thomas Jefferson

"He who goes borrowing, goes sorrowing." - Benjamin Franklin

"We hear sad complaints sometimes of merciless creditors;
whilst the acts of merciless debtors are passed over in silence."
- William Frend, 1817

"The decline of great powers is caused by simple economic over extension."
The Rise and Fall of the Great Powers, by Paul Kennedy

"There is no means of avoiding the final collapse
of a boom brought about by credit (debt) expansion.
The alternative is only whether the crisis should come sooner
as the result of a voluntary abandonment of further credit (debt) expansion,
or later as a final and total catastrophe of the currency system involved." -
Ludwig von Mises

"Growing domestic and international debt
has created the conditions for global economic and financial crises.”

Bank for International Settlements June 2005

"The US spends tomorrow's money today.
That's why we have this financial crisis.
We Chinese spend today's money tomorrow."
Cheng Siwei, vice-chairman, China's Standing Committee 2009

No generation has a right to contract debts
greater than can be paid off during the course of its own existence."

- George Washington to James Madison 1789


(HOW dare anyone support >
consuming beyond today's income and production,
funded by debt-loading and lost purchasing power
of our young generation?)


Debt Burden Hinders FutureAmerica, that used to derive strong family values and incomes with savings and paying 'as you go', has moved to a more consumptive society financed by ever increasing liens on future income - - with debt/leverage ratios reaching new records in all sectors.

America has become less a family-based, frugal society of strong real savings, producer of nearly all needed goods, and small government. It has become a more consumptive, more debt-dependent with nil private savings, and more a government spending-dependent society - - depending more on the production and savings of others (including foreigners), and on debt and currency debasement, than ever before - - quite different from that envisioned by its founding forefathers. In the long-term there are consequences to be paid for excess debt reliance, in addition to sucking more mothers into the work force and away from their children.

The purpose of the Grandfather Economic Reports is to increase public awareness

of difficult trends facing today's families and youth - compared to prior generations.

KNOWLEDGE IS POWER - IF YOU HAVE IT


You have just viewed a summary with 3 of the trend charts of  "America's Total Debt Report", a chapter of the Grandfather Economic Report series.

From here you might consider 4 possibilities >

1. Go to the full chapter of "America's Total Debt Report" - which includes many data graphics to help tell the story of debt in America, including a breakdown of government debt, household debt, corporate debt, financial sector debt and external debt - - from the following link - - give it a chance to load those neat color graphics. This chapter is on 2 web pages, so be sure and click the link at the bottom of the first page that comes up to see the second page.

- a picture is worth a thousand words'
TO THE FULL REPORT on Total Debt in America, with 12 tell-all pictures
- Click This

Click This


or - 2. Go to the chapter called "Federal Government Debt Report", showing many data graphics about federal government debt-only. This chapter tells the story in one summary page, plus two web pages of the full report with many graphics.

or - 3. Go to a simple web page showing a Summary Table of debt by sector.

or - 4. Go to the home page of the Grandfather Economic Report series to view the list of chapters on other critical issues facing our nation in addition to debt, each story told by use of data trend graphics. (the reader may wish to book-mark that page).


TOP

Copyright 1997-2011 Michael W. Hodges. The Grandfather Economic Report series is the intellectual property of its author; all rights reserved under Copyright Conventions. Permission to redistribute all or part of this series for non commercial purposes is granted by the author, provided the associated web page address is included and full credit given to the Grandfather Economic Report (including its home page web address http://grandfather-economic-report.com/) and the author, Michael Hodges. Notice appreciated via email.

- bottom of >  http://grandfather-economic-report.com/debt-nat.htm

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