Category Archives: National Debt

Fuhgedaboutdadebt

The federal debt sits around $19 trillion and continues to grow. A sane person would worry about such a large number but Washington, D.C., does not contain a majority of sane people. Many in government think debt is a good thing and more debt would be a better thing.

Witness a June 3, Wall Street Journal letter to the editor by one Francis X. Cavanaugh, “the founding chief executive of the Federal Retirement Thrift Investment Board, 1986-1993.” He complains that a recent column worrying about the debt, especially in the light of the trillions of dollars in unfunded obligations to retired and retiring federal workers (which it totaled up to $118 trillion).

Cavanaugh says, “Mr. Melloan’s concern that ‘we have borrowed so heavily from future generations’ is baseless. Future generations will indeed inherit the liability of the debt but they will also inherit the offsetting asset of the Treasury securities issued to finance the debt. So the net impact of the debt on future generations is zero.”

Whew! That’s a load off my mind.

In case you didn’t follow that, Mr. Cavanaugh is saying that we can’t owe money to ourselves. All those T-Bills bought by American investors (including retirees), don’t have to be paid off; or rather the Treasury can just crank out more debt to pay them off. In fact, the debt is turned magically into an asset!

Don’t you wish you could do that with your mortgage debt; your credit card debts; any student loans?  They aren’t debts, they are assets. take that mortgage debt and use it to buy a car!

Even more good news from Cavanaugh, the feds in Washington can keep spending like drunken sailors because there really is no such things as a yearly “budget deficit” pumping up those federal accumulated budget deficit numbers. He says, “The maturing debt and the interest on it are effectively paid off by issuing new Treasury securities. So the controllable budget has been balanced on average over the past 70 years.”

He even quotes Abe Lincoln, “Men can readily perceive that they cannot be much oppressed by a debt they owe to themselves.”

It’s just that simple.

Except it’s not.

Like a lot of Lincoln’s quotes, the quote can be “perceived” two ways. Anyone can “perceive” the Earth is flat. You can “perceive” you don’t owe a debt. That doesn’t make it so. It doesn’t mean that the person who originally loaned the money is happy to wave goodbye to it.

As anyone who has paid off a debt with a credit card knows, that debt doesn’t actually go away. Rolling over debt eventually catches up with you. Admittedly, the awesome power of the U.S. government means that it can get away with things that you and I can’t get away with but it eventually will catch up.

Real people own that debt. They payed their money fairly and legally on the promise that the U.S. federal government was good for the debt. People like Cavanaugh think, SUCKERS!

Cavanaugh is typical of so many people in government. Their knowledge of economics is horrific, actually downright dangerous. Many of them, like Cavanaugh, seem to be of the mind that a future miracle is going to happen, perhaps finding a winning trillion-dollar Lotto ticket under one of the government’s many couches. The other group, socialists that are growing in power within the Democrat party (and hence the U.S. government), will simply cancel the debt just as they wish to cancel the now trillion-dollar student debt morass and are beginning to look at the mortgage market to patronize their supporters with repudiations and write-offs.

My recommendation, avoid federal government debt instruments. They might be repudiated in a future Democrat administration populated by in-debt Millennials.

All the Gold in Fort Knox

Here’s a sobering (at least for me) thought about the national debt.

When I was young, the phrase, “All the gold in Fort Knox,” was used as an analogy for an immense amount of something or an expensive item or comparative.

So, how does our current national debt, in the neighborhood of $18+ trillion,  compare to all the gold in Fort Knox?

There’s a smidge over 147 million ounces of gold in Fort Knox. That’s a lot! For accounting reasons, the gold is actually on the books at a paltry $42.22 per ounce.That values that gold at $6,206,430,000. Yeah, a surprisingly small $6+ billion. Apple probably has that much lost in its seat cushions at its Cupertino headquarters.

Gold is currently selling in the range of $1,150 per ounce. So if by some magical method the gold could be sold at that more lucrative price without crashing the market it would fetch $169,050,000,000. That’s a more impressive $169 billion.

But that $169 billion would barely scratch the $18 trillion national debt. Scratchdini would buff that out in no time.

In fact, it is estimated that all the gold in Fort Knox might be around 3% of all gold mined in history – just under 5,600,000,000 ounces. So if we take that number and sold all of the gold mined in history at our magical $1,150 per ounce we’d collect $6,413,550,000,000,000 or $6.4+ trillion, barely a third of the (rapidly growing) national debt.

In other words, our national debt is higher than the “value” of all the gold mined in history.

It’s something to think about when Pres. Obama cavalierly dismisses the debt or Congressmen of any party blow through hundreds of billions of dollars like its popcorn and we’re firing up a Lord of the Rings/The Hobbit marathon.

Here’s an interesting page to bookmark on all the debt we’re ramping up like we’re Rockhound in “Armageddon” and there’s no tomorrow.

BTW, I’ve done all these calculations on my own so there is no guarantee they are 100% accurate so it would be nice if someone who is good with numbers checked them.