Truth about the U.S. debt

By Joe Simonds

Advisor Internet Marketing


Most of the articles we read seem to say we have no real debt ceiling. That because we are the U.S. and literally can't declare bankruptcy due to our ability to print money endlessly, that we can continue this for a very long time. Are we really that naive and arrogant?

So far, 2012 has been a banner year for the stock market, and all signs point to an economy that has better times ahead. Unemployment numbers continue to slowly improve. Housing has apparently found a bottom in many of the hard-hit areas. And consumers are back to spending again, which means their confidence in the economy is improving.

If you did nothing but watch the talking heads on TV, you might never know that just months ago, the entire world was predicting another global recession.

Major corporations were announcing more layoffs, foreclosures were hitting record highs, stock market volatility was excessively high, and Greece looked like it would be the first in a long line of dominoes to fall.

To begin, I am a big fan of the stock market going up, having low rates of unemployment, and seeing the U.S. continue to grow and be a global powerhouse. In fact, there is nothing that could make me happier than a feeling of hope for my children’s and my future grandchildren's livelihoods.

But I am also a realist. This recent change in consumer confidence is great for the short term, but what fundamental issues have really changed for the better when just two months ago, everyone thought the world was going to implode (starting with Europe)? The answer is not that many.

And although Greece has managed to move from the front page of the business news back to page three or four, we haven't even begun to hear the end of what will be a giant debt mess in Europe. The only question is which country in Europe will be on the front page next? Portugal, Italy, and Spain seem to be fighting for their positions as I write this.

You would think that we would have learned something from watching Greece almost implode from their burgeoning debt. Do we really believe that just because we are the United State of America, we can ignore this looming debt and that there is no ceiling on how high it can grow?

Most of the articles we read seem to say we have no real debt ceiling. That because we are the US and literally can't declare bankruptcy due to our ability to "print money endlessly," that we can continue this for a very long time. Are we really that naive and arrogant?

Just because we currently control the reserve currency and can keep printing our way out of problems doesn't mean that either of those facts will last forever. At some point, both can implode (or be taken away from us) if we abuse them like we have been.
Many American have no idea that the U.S. dollar is just one of many reserve currencies throughout the global history. For many of us living today, it is all we have ever known and we seem to take it for granted. Can you guess what happened to the reserve currencies that came before the U.S. dollar like the Arabian Dinar or the Pound Sterling? If you guessed they were taken away due to abuse and reckless currency manipulation (equivalent to our modern day printing press), then you would be correct.

Another fact that most Americans have no idea about is a report issued by the United Nations in 2010 laying out plans to abandon the U.S. dollar as the reserve currency going forward. The report detailed that the new reserve system should not be based on any single currency or even multiple national currencies. Instead of the U.S. dollar playing the key role, it would instead permit the emission of international liquidity to create a more stable global financial system.

Google it and check it out for yourself. And you can bet your bottom dollar (pun intended) that our friends in China, Russia, Japan, Brazil, etc. are all backing up this United Nations plan. Can you blame them?

Our long-term plan to fix the country's debt is a joke. We argue over $10–$30 billion budget cuts here and there (to be saved over a 10-year period of time) when we are racking up annual deficits of over a TRILLION dollars per year. The amount of money we owe today stands at $15.23 trillion total. That is the sum of all of our annual deficits minus any surpluses (if you forgot what that means you can Google that, as well). The total debt also happens to be almost precisely the same value of goods and services generated in the U.S. as of September 2011.

Can you handle any more bad news? Well, the long-term outlook says that the national debt will grow faster than the U.S. economy going forward.

Currently, our gross domestic product (GDP) averages about 2 percent. Moreover, each year and from 1947 to 2011, it has averaged slightly higher than 3 percent according to U.S. Treasury statistics. To make matters worse, can you guess what the GDP rate we would have to grow at just to keep up with this mind boggling debt? If you guessed 6 percent, you would be correct.

Our very own White House numbers project the national debt to exceed $26 trillion in 2022 (10 years from now). And we all know how accurate they have been in the past. For instance, can you guess what their estimate for our national deficit today was 10 years ago ? If you guessed $1.2 trillion (our estimated deficit this year) then you are not even in the right ballpark.

In fact, 10 years ago not a single politician or economist in America could have ever guessed that we would be racking up a trillion dollar deficit in a single year. It was unheard of and absolutely inconceivable. So, how far off will the White House be on their $26 trillion debt estimate 10 years from now?

For the sake of our entire society, I can only hope they are spot on because history would tell us their numbers will be way off at this rate.

And if they are spot on, we are still in huge trouble. This ever-growing debt has us in uncharted waters. My message is to educate yourselves, educate your clients, and be prepared for anything.

One of my previous articles, Has Wall Street turned into one big casino, talked about the similarities of Wall Street and modern day casinos. I still enjoy gambling today, but only with a small amount of my money that won’t affect me if I end up departing with it.

* Nothing in this article should be construed as investment advice