Saturday, September 3, 2011


This post is prompted by Randy's comment to the original. Randy, first I want to thank you sincerely for your comments. I'm sincere when I ask for feedback and commentary. THX.

As for the Debt-to-GDP ratio, finally more people are reporting the true numbers. When I first drew attention the issue, even our governor, a friend, was quoting 64%. As I reported, the real debt:GDP when GDP was ~$14 trillion was 100%. Most recent estimate of GDP is closer $15 trillion, so the ratio is a bit less than 1:1. But, the new debt ceiling will rapidly take it to >100%....can't win!

The difference in what is quoted as 64-70% is essentially the "debt owed to ourselves" mostly IOUs in the SS trust fund. These are monies already owed by statute, and is money collected but diverted as loans (bonds on the balance sheet) into the general fund. The only way to discount this amount (~$5+ trillion) is to declare it won't be paid to current recipients or it will be monetized away....neither acceptable. It is what it is.

The additional amount of "debt" of ~$60 trillion is that projected to be owed under current laws to Medicare, Medicaid and SS recipients. So, this number is of different character, can change, and undoubtedly it will, with changes in the laws regulating these entitlements.... age requirements, means tests, max. amounts, colas, etc. Or, a tremendous growth in revenue!!! Not likely as I predict lack of growth in the economy. Of course, they can tax us more...and probably will.
So, as the statutes now set, the ratio of debt to GDP can be upped by that amount....legitimately.
I think you know this, but some will not. Thanks again for your interaction.
Undoubtedly, there will be change, but it will be very difficult. A big fight is coming.


  1. Joe, what part in the puzzle does inflation play? Does the government expect deflated worth of the dollar to help pay for such an imbalance? Do they expect it to be a non issue when they pay the bill with dollars whose worth is constantly diminished?

    How about the flood of new dollars printed up by the Fed? The Fed has bought up vast amounts of securities with funny money. How does this factor into the equation? What happens when the Fed is forced to liquidate their position in these securities? Maybe 'forced' is too harsh. How about when they begin to liquidate? Are they using funny money to pay for day to day operations?

    Is it out of control? Can anyone come up with a scenario to bring stability? Can you imagine even an outrageous path to stability?

    They say that the price of gold is an indicator of instability. So if that's the case, is this not an indicator of extreme instability?

  2. Interesting that Bernanke is now promoting a plan to begin liquidating the pile. He's doing what's called the Twist. Selling the short term securities and using the proceeds to buy long term securities. The markets world wide are tanking as we speak. 9-22-2011 at about 1130 hours on the left coast. The Dow is down about 3.74% at this time. Oops, the Dow went to 4.09%. Even Apple is being affected but still above 400 right now.

    It's been sixteen days since I wrote that one above and I would never have thought that little more than two weeks later it would be playing out.