How much do you owe, debt slave?

[Rumpelstiltskin]

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2017’s Real Milestone (Or Why Interest Rates Can Never Go Back To Normal)
JANUARY 24, 2017 5 COMMENTS

Forget about NAFTA or OPEC or TPP or crowd size or hand size or any other acronym or stat or concept that obsesses the financial press these days. Only two numbers actually matter.

The first is $20 trillion, which is the level the US federal debt will exceed sometime around June of this year. Here’s the current total as measured by the US Debt Clock:
Debt-clock-Jan2017.jpg

To put $20 trillion into perspective, it’s about $160,000 per US taxpayer, and exists in addition to the mortgage, credit card, auto, and student debt that our hypothetical taxpayer probably carries. It is in short, way too much for the average wage slave to manage without some kind of existential crisis.

It’s also way more than it used to be. During his tenure, president George W. Bush (2000 – 2008) nearly doubled the government’s debt, which is to say his administration borrowed as much as all its predecessors from Washington through Clinton combined. At the time this seemed like a never-to-be-duplicated feat of governmental profligacy. But the very next administration topped it, taking the federal debt from $10 trillion to the soon-to-be-achieved $20 trillion. And the incoming administration apparently sees no problem with continuing the pattern.

The other meaningful number is 6.620. That’s the average interest rate the US government paid on its various debts in 2000, the year before the great monetary experiment of QE, ZIRP and all the rest began. When talking heads at the Fed and elsewhere refer to “normalizing” interest rates they’re proposing a return to this 6% average rate.

But of course the last time that rate prevailed our debts were just a little lower. Run the numbers on today’s obligations and you get, well, let’s see:

$20 trillion x 6% = $1.2 trillion a year in interest expense. To put that in perspective…

It’s $15,000 a year per family of four, or about a fourth of what the typical American family earns.

It’s 31% of the federal budget, which would mean massive cuts in every other spending program.
The conclusion: It can’t happen without causing one of the following:

Government spending cuts and/or tax increases that impose Greek-style austerity on Americans who won’t respond well to their sudden demotion to Third World status.

A new round of monetary experiments involving the “forgiveness” of the government’s debts, financed with newly-created dollars. This will work – as long as dollars remain universally accepted as a store of value. History offers no examples of such a thing.

An overt effort to devalue the dollar, with the goal of paying the interest in full, but (again) with newly- created, much-less-valuable currency.
The resulting dilemma: If we hope to live within our means interest rates can never be allowed to rise. But if interest rates don’t rise, the Fed is forced to create a tsunami of new dollars to keep rates low, and must take its chances with inflation, currency war, crack-up boom, and all the other black swans that live in the land of monetary excess.

Which is why the sound money community keeps harping on gold. All the politically-acceptable policy options have inflation/devaluation at their core, and those things are always and everywhere great for real assets.

Zero, zilch, zip, nil, nought, nothing, nada, null. I paid off my last $2000 a month ago.

[Silver]

Visualizing How Much State Debt Rests On Your Shoulders?
by Tyler Durden
Apr 4, 2017 10:15 PM

How much state debt is there per person, and, as Visual Capitalist's Jeff Desjardins asks, why is there such a wide discrepancy between states like Massachusetts ($11,000 per person) and Nebraska ($1,000 per person)?

THE SNOWBALL OF STATE DEBT
Today’s infographic from HowMuch.net, a cost information site, organizes states by debt per capita using a snowball-like effect.

state-debt-per-capita.png (1.7 MiB) Viewed 1302 times

Courtesy of: Visual Capitalist


The five states at the center of the snowball with the highest debt per capita are Massachusetts ($11,000), Connecticut ($9,200), Rhode Island ($8,900), Alaska ($8,200), and New Jersey ($7,400).

On the other end of the spectrum are the five states with the lowest state debt per capita: Tennessee ($900), Nebraska ($1,000), Nevada ($1,200), Georgia ($1,300), and Arkansas ($1,500).

While it is reasonable to expect big differences in debt per capita between countries, seeing an interstate difference of up to 10x per person seems a bit perplexing at face value. Let’s see if we can dig a little deeper on what accounts for these differences.

THE CURIOUS CASE OF MASSACHUSETTS
Currently, Massachusetts holds the title of the highest state debt per capita, as well as ranking #2 in terms of state debt as a percentage of GDP (14.0%). It’s also worth noting that debt analysts at S&P have recently lowered the outlook on state bonds from stable to negative.

Meanwhile, The Mercatus Center ranked Massachusetts in 49th place in their 2016 State Fiscal Rankings. (The only state to fare worse was Connecticut.)

Mercatus snapshot for Massachusetts

Like other old and urban states, Massachusetts requires significant investments to repair aging roads, schools, and other infrastructure. For many fiscal analysts, however, it is the gap in unfunded liabilities that is the long-term concern.

Forbes notes that unfunded liabilities from public pensions are probably the biggest fiscal problem facing state governments today, and Massachusetts is no exception. Unfunded liabilities in the state are pegged at $94.45 billion with other postemployment benefits (OPEB) at $15.38 billion, and eventually these are issues that will have to be dealt with.

HEALTHIER BUDGETS
What does a healthier state budget look like? The best examples can be found in the Midwest.

Here’s Nebraska, which has about $1,000 of debt per person:

Mercatus snapshot for Nebraska

Nebraska exhibits strong fiscal health across all categories. On a cash basis, Nebraska has between 3.81 and 5.02 times the cash needed to cover short-term liabilities. Revenues exceed expenses by 7 percent, producing a surplus of $294 per capita.

– Mercatus Center at George Mason University