Recently I wrote about the fallacy of the debt-to-GDP ratio and that a day of financial reckoning would come.
So why aren’t most creditor governments worried and continue to load up on debt?
Turns out that they have a secret weapon that they think is infallible and will solve all their problems.
And the weapon at their disposal is the ability to print money as and when they need it. In most parts of the world, this is called counterfeiting and if private citizens decided to print money as and when they needed it they would probably end up in jail. But governments can do this with impunity …………………. or so they think!!
So how does this work and what are the consequences? Let’s use my friend America as an example. The good old USA has roughly $23 trillion dollars in obligations that it is committed to paying back and approximately $80 trillion dollars in unfunded liabilities. Let’s round up and call their debt obligations $100 trillion dollars.
Let’s diverge for a while. What exactly is a trillion? It is a big number, but just how big is it? Let’s reference it to something that we are all familiar with; units of time.
How many days would it take to consume one million seconds?
Answer: roughly 11 days
How many days would it take to consume one billion seconds?
Answer: roughly 32 years
How many days would it take to consume one trillion seconds?
Answer: roughly 32,000 years.
Back on track from my foray into the fantastic world of big numbers.
To pay this debt (principal and interest), the US government has an annual income of approximately $3.3 trillion and from this, it has to pay for items such as healthcare, social security, defence, etc.
Since 1970 the US government has run budget deficits in 46 of 50 years and only managed a surplus 4 times. People this is scary!!
When will the USA government ever save the money needed to repay its debt?
Answer: NEVER, EVER!!