America's Debt is Trivial. Naysayers are wrong.

With its slumping economy, mountains of debt, ungodly deficits and overseas entanglements, many observers believe the end of the American era is at hand. Not so, according to George Friedman, founder of STRATFOR, a global intelligence company.

Friedman spent almost twenty years in academia, teaching political science at Dickinson College. During this time he also regularly briefed senior commanders in the armed services as well as the Office of Net Assessments, SHAPE Technical Center, the U.S. Army War College, National Defense University and the RAND Corporation on security and national defense matters. In 1994 he founded the Center for Geopolitical Studies at Louisiana State University, which engaged in integrated economic, political and military modeling and forecasting. The Center was the only non-governmental organization that was at that time granted access to Joint Theater Level Simulation by the Joint Warfighting Center. Friedman was also an early designer of computerized war games.

The current crisis is painful and America's deficits are shocking on an absolute basis, but are "trivial" relative to the country's net worth, which George Friedman estimates is about $340 trillion.

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[mryellow123]

Population decline is just a shortfall of labour, restricting growth?

Think he might just be seeing population as a graph and not realising that it declines because the earth will be reaching capacity while easy to access/use resources become ever more scarce.

Can't use growth focused economics to analyse post-peak-population where we'll be working with new systems.

Infinite growth does not marry with the idea of a finite earth.

[edschaeffer]

@mryellow123 - I think you have a great comment. Sort of relating population growth to the Earth as it was a typical population differential equation.While I think that may be true on some level I seem to support Dr. Friedman's analysis, that its due to economic reasons. My evidence would be that of Japan's stagnant recession of the last 20 years. Their GDP shrinked about 6% in 2009, debt is 170% GDP, and now that China and S. Korea competes with them its no surprise the population is plunging.

[davidbarbetta1]

The Federal Reserve calculated household net worth (which includes the value of real estate, stocks, and pensions, among other items) to be $53 trillion ($67T in assets less $14T in liabilities) as of 2010Q3. So the value of everything that is not encompassed in the Fed's "household net worth" would need to be another $287T (net of debt) for total U.S. net worth to be $340T. That seems highly unlikely. When you throw out a seemingly-ridiculous number like that, you've GOT to show your work.

[edschaeffer]

@davidbarbetta1 - David this is a good response. Surely, this is using some sort of Wall Street valuation for America. Very similar to Facebook's 50B valuation. In any event the Fed's numbers certainly represent a tangible "cash value" which are really the important numbers. I commend you on having a sensible response.

[edschaeffer]

@999silverrush

Evidently, you don't understand the concept of assets, just liabilities.

Annually the irs collects....

Individual tax collection $1,366,241,000,000

Corporate: 395,536,000,000

From an income statement / balance sheet point of view please tell me how that is not manageable over 30 years.

You precious metal people are always shitting on currency and spewing stupid propaganda. That's why I put up videos like these.

[Thayabharan]

Wall Street is a confidence trick, a dazzling edifice built on paper promises, gambling, bets and rampant speculations. Wall Street doesn’t manufacture or produce anything. Wall Street , however attractive it may appear, is built on paper.

The total value of Wall Street speculative financial derivatives reached more than $600 trillion – about 10 times global GDP. . Every consumer is paying more for commodities including food and fuel due to the excessive speculation by Wall Street.

[mryellow123]

@edschaeffer I'd love to see some form of triple bottom line accounting, a move away from growth in GDP as our sole focus. Japan may have had a lack of growth over recent years, but did any of the citizens really suffer too badly? Would be interesting to... just did a lil searching... apparently Japan's happiness increased sharply over the same period...

[dodododa]

This guy is either smoking crack or has a serious mental disorder. Third world immigrants are going to save us? If he took a look inside a South Californian high school, he would change his opinion pretty quick.

[WillOrng]

@davidbarbetta1 You've missed out public assets, the nature reserves, interstate highways, rail system, public education, water and sewage pipes...all these things have capital values, then there's corporate assets too.

[WillOrng]

@JamesonSmirnoff Government spending in a floating fiat modern money truly sovereign currency creates money, taxes destroy it, the IRS literally shreds it.

Government then borrows back the money it's spent. If it doesn't the surplus reserves in the bank system at the Fed would drive interest rates down to their natural level of zero.

When foreigners net export and send net money to the US they are effectively saving that surplus at the Fed, by buying bonds they get some interst on that saving

[WillOrng]

Income is produced by capital. Ten Year Treasury Bond interest; 4.3%. The capital needed to produce GNP; 100/4.3. GNP is $14T in round figures, so the capital that would generate that income at 4.3% is $325T rounding down.

On that basis, the figure seems quite reasonable, even if it was only $100T, Federal debt is merely 1% of National Capital.

The debt is held as net financial savings by the top wealthy people and pensions domestically and abroad.

US Politicians and ThEoconomists are wrong

[edschaeffer]

@JamesonSmirnoff - Think of it this way. Keep in mind what the capital markets think. Treasuries are yielding 4.2% for 30 years as of today. This is not the yield investors would demand for a country that would near default. One thing that doesn't lie is the value of money. The Fed can certainly release more money stock but this doesn't debase currency; it makes it less valuable, like share dilution. By comparison Greek bonds are 28%+.

[edschaeffer]

@JamesonSmirnoff - In Clinton's term in office he was talking about paying off the National Debt by 2015 with plans having a trillion or more in surplus. That would've never went down, but the fact that the Fed did print extra money on top of the fact that inflation may indeed outpace the % yield on Treasuries I don't see how the United States is really losing actual value due to the inflation rate and that they can simply keep rolling over their debt. This would invalidate your last sentence.