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Smoke and Mirrors: The Full Implications of the U.S. National Debt

We are told by U.S. Treasury officials and the Congressional Budget Office (CBO [1]) that the Federal Government’s debt is now just over 100% of our nation’s annual Gross Domestic Product (GDP [2]), and while this level of debt is “alarming”, it is “still sustainable.” Meanwhile, Greece’s sovereign debt is now 157% of its GDP, and the nation is on the verge of default and collapse. I presume that Joe Sixpack here in the U.S. sees the news headlines and says to Mrs. Sixpack: “Wow, those poor Greeks. I’m glad that we don’t live there. I wouldn’t feel safe, living in Greece.” Unfortunately, Joe hasn’t been told the whole story.

You see, the “official” National Debt [3] is only around $14.3 Trillion Dollars. But we’ve been lied to. Our actual long term obligations (including the full run costs of Federal retirement programs including Postal Service employees and military pensions) are enormous. We have an aging population. U.S. Census Bureau population figures project that 20.7% of the population will be 65 years or older by 2050. (Currently, it is only around 12.5%.) So our long term obligations are actually far, far greater than the official “National Debt.” All the debt instruments may not yet exist, but one way or another, Uncle Sugar is going to have to come up with a lot more money than just $14.3Trillion. An estimate published by the Heritage Foundation in 2006 [4] mentioned long term obligations of $45.5 trillion. Other estimates range higher: $53 Trillion [5], or $60 Trillion [6], or $63 Trillion [7], or $65 Trillion [8], or $70 Trillion [9], or $99 Trillion [10], or even $130 Trillion [11]. Of these figures, I think that the GAAP [12]-based $70 Trillion estimate is the most accurate. But even that is a shot in the dark, when you consider that future inflation and interest rates are almost impossible to predict. And even just picturing just $1 Trillion [13] (much less $70 trillion) is mind-boggling.

Recognizing that that $70 trillion is nearly 500% of GDP, and that it equates to $233,000 for every man woman and child in United States, we’re in a heap of trouble. There is absolutely no way that this debt can ever be paid off–at least in the absence of mass inflation. (Wherein the debts would be paid in “Dollars” that would have a the purchasing power of just a fraction of cent.) America’s sovereign debt makes the Greek debt look like a pittance. For comparison, the sovereign debt of Greece is only around €340 billion ($481 Billion USD), with European banks are on the hook for about 17% if it.)

Testimony before Congress back in 2005 [14] showed that that by 2070, Federal outlays on Social Security, Medicare, and Medicaid would jump from 16% of GDP to 28% of GDP. And this came with the rosy expectation that interest expenses would not increase at all. It also had ridiculously low estimates for inflation and subsequent cost of living adjustments (COLAs [15]). This report is typical of the deliberate under-reporting and “rose colored glasses” estimates of future debt obligation figures with low interest rates and low inflation.

The Bottom Line
Reaching a logical conclusion to the foregoing, we can rightly surmise that the debt merry-go-round cannot continue forever. Simple demographics and the mathematics of compounding interest dictate that a debt collapse is unavoidable. As former Comptroller General David Walker (the chief auditor the Federal government until 2008) put it: “We face a demographic tsunami [that] will never recede.”

Please soberly consider the implications of the National Debt, and think through what it means for you and your children. In the years to come, we can expect to see higher taxes, a panoply of new fees and fines, decreased pension benefits, and orchestrated currency inflation. Simultaneously, we will face a declining standard of living, shortages, riots, higher property crime rates, labor protests, currency devaluations, currency expatriation controls, bank runs, forced redistribution of wealth, and “social justice” programs that will nationalize entire industries and expropriate productive farmland. This may very well spin out of control until the wealth redistribution and social engineering schemes resemble those in Pol Pot’s Cambodia, or Robert Mugabe’s Zimbabwe.

Protect yourself by moving to a lightly-populated region such as the American Redoubt [16] where you will be well-removed from the major cities, and become as a self-sufficient as possible. (There are thousands of articles in the free SurvivalBlog archives that describe how to do so.) I also strongly recommend getting out of U.S. Dollars. Re-invest in practical, barterable tangibles, as quickly as possible. Be sure to make your portfolio diverse, because you never know what items the Powers That Be will decide to tax heavily or even ban from possession. It is foolish to buy all gold, all silver, all guns, all ammunition, or all farmland. Again, be diverse, and keep a low profile. Oh, and keep your passport up to date.