Comments on: US Bankrupt?

By: Charlie

Charlie — Fri, 19 Dec 2008 04:53:45 +0000

Well, if you're disbelieving, consider my position. I just wrote a whole thing -- actually I've written three or four things now -- making the point that comparing debt to GDP is comparing a balance sheet item to an income statement item, and some damn fool comes along and makes the very same comparison in a comment. I tell you, it makes me despair for the American education system. Now, it turns out that the article I wanted was one that I put up on here after publication at PJM; here's the link. But, on the off chance you're trainable, let's try it once more. If you want to make a valid comparison here, you need to compare total assets to total debt. When you do so, you find that the US has right around 2x assets as debt. Ergo, not bankrupt. What a deficit indicates is that income is outrunning expenses. While we certainly have a deficit, comparing the deficit to the debt doesn't make any sense either. What does make sense is to compare the deficit to the total net worth; right now, we've got a trillion dollar deficit. But we also have something like 45 trillion dollars in net worth; it follows that we wouldn't spend that down to bankruptcy for about 45 years at the current rates.

By: jkline

jkline — Fri, 19 Dec 2008 04:06:51 +0000

Sigh. I can’t believe what I’m reading. Look at a graph of US debt vs. GDP. Then look at a graph of the diminishing returns on the economy for each new dollar of debt. It is simple mathematics– we’re screwed: the gubmint can either inflate or reneg, and it’s trying to do the former but losing. If we are lucky we will get a Great Depression; my money is we will get an 1872/3 depression, which was much worse. But hey, take heart, you’ll be needed in Obama’s CCC– that will be your social security, chumps.

By: Charlie

Charlie — Thu, 18 Dec 2008 23:28:18 +0000

No, because not all stock is owned by households, either. Consider, for example, the stock held by the Bill&Melinda Gates Foundation: they don’t own it any longer, it’s not part of Bill’s net worth, and the Foundation isn’t “owned” by anyone, it’s a corporate entity on its own.

If you want to make this argument, how about some links?

By: coliva

coliva — Thu, 18 Dec 2008 23:17:25 +0000

I may be missing something, but isn’t corporate net worth actually a subset of household net worth? When you own stock, you own the book value of a company’s assets + a “good will” fudge factor. That makes all stock-issuing companies owned by families and private companies are also owned by families and are part of their net worth. After all, Bill Gates’ billions are a reflection primarily of his current ownership stake in Microsoft.

Foreign stockholders own a percentage of American companies, so that percentage of the companies stock value doesn’t belong to Americans anyway.

So going back to the original point, I think that it really *is* accurate to say that they US is now a net debtor country, not just negative trade and negative federal spending balance.

By: Opinionated Vogon

Opinionated Vogon — Thu, 18 Dec 2008 19:29:22 +0000

I think there is something else you missed besides Corporate net worth. What’s being done here is single entry accounting. If you look at the debt of the Federal Government – its liabilities – then don’t you also have to count its assets?

What does a fully trained and battle hardened military cost? Can you put a price tag on a carrier group? What would it cost to build one if you had to? Whats the price of our nuclear arsenal? How about our interstate highway system? What would the cost be to build that today? How about the value of our national parks and their resources? What is the price tag on our monuments and federal buildings?

It appears more than two cards were palmed :)

By: Daily Pundit » WIN - Whip Inflation Now? Nope.

Daily Pundit » WIN - Whip Inflation Now? Nope. — Thu, 18 Dec 2008 16:54:24 +0000

[...] US Bankrupt? | Explorations Then, note that a lot of the actual bailout is being done with *new* money, instead of debt, and the comparison gets even more silly. But the monetary model for inflation says that when you’re deflating, money supply is too small — and we’re deflating at about an annualized 18 percent per year, there’s room for new money. [...]

By: Instapundit » Blog Archive » WELL, THAT’S A RELIEF: Charles Martin says the United States isn’t bankrupt….

Thu, 18 Dec 2008 12:45:39 +0000

[...] WELL, THAT’S A RELIEF: Charles Martin says the United States isn’t bankrupt. [...]

By: NukemHill

NukemHill — Wed, 17 Dec 2008 17:08:22 +0000

1) Ah. So you’re arguing about their languaging. That’s completely reasonable.
2) Hmm. I’m going to have to think about this one. Everything that I’ve read (or claim to understand!) points to the liquidity injection requiring financing by Treasury. Maybe I’m missing something fundamental here. I’m still trying to get my head around monetary policy. There continue to be nuances that escape me.

By: The Sky Isn’t Falling Quite Yet « Blog Entry « Dr. Melissa Clouthier

Wed, 17 Dec 2008 16:44:12 +0000

[...] Chas Martin explains: They palmed a card, actually two cards: the first one is they’re using household net worth … but that leaves out corporate net worth, so they’re ignoring, eg, Exxon. The second is that they’re comparing future obligations to pay with current assets, so it’s like saying you’re “bankrupt” because the total of your expected future living expenses exceeds your net worth. [...]

By: Charlie

Charlie — Wed, 17 Dec 2008 16:37:57 +0000

Thanks for commenting.

(1) is true, but not very significant to the argument that the US is currently bankrupt. Say you go out and buy a used car, for $10,000 cash. So that one day, your expenses are running at a rate of at least $365,246 a year. If you make $250,000 a year, by this argument, you’d be currently bankrupt.

Of course that doesn’t mean that you won’t eventually be bankrupt if you keep spending at that rate.

(2) That’s not necessarily so: when Treasury sells T’s to finance debt, that doesn’t really create new money, it just reuses dirty old used money. (This isn’t 100 percent true, as it has the effect of creating new money from the interest, but to a first approximation.) When the Fed makes a “liquidity injection”, though, that’s brand spanking new money. “Created from nothing” as they say, but that’s not a good analogy either.