How every US household is liable for $516,000 of America's spectacular $59.6 trillion debt

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For Chris:

Interesting and sobering article published back in May on (Yeah, I'm behind in my reading a bit.) We'll get to it in a minute.

Note: Because I am a worthless echo chamber (isn't that what we bloggers are?) I won't bother to fact-check, but feel free to do so at your leisure.

About this article, I will just say this: Alarmist vernacular aside, if you ignore the doomsday predictions and just focus on the numbers, our nation's current financial situation isn't good. Worse yet, our nation's financial future is not looking good at all. There might be a reason why so many CEOs are negotiating ridiculously high compensation packages and bouncing from job to job as often as they possibly can.Maybe they saw the writing on the wall long before the rest of us did.

Okay look, I know we all want to live in big houses, drive cool cars and dress like movie stars without having to work all that hard for it - and worry about the costs later- but there comes a point when you kind of have to wake up and accept that a) credit has its limits and b) financial responsibility isn't something you can put off. This applies to banks a whole lot more than it applies to consumers, but it does start with individual responsibility when it comes to our attitude towards borrowing. Without debtors' prisons around anymore to remind us that credit isn't infinite, we need to start giving some thought to how and why we buy the things we buy.

What does this have to do with branding? Two words: "Brand USA."

This has to do with future foreign investment in the US economy, in the fate of the US' workforce, and in the viability of its buying power twenty years from now - as opposed to say, Asia and Europe.

Put yourself in the shoes of an investor with a finite amount of money to invest, and do your homework. Then ask yourself this: Right now, are the US economy and the US Dollar really your best bets for a strong return on investment? Is the dollar doing well? Is the US creating more jobs than it is losing? Are the new jobs being created as good for taxpayers as the ones they are "replacing?"

The rub is that economic pressures tend to work as circular cause-and-effect cycles. Lack of confidence in US markets by foreign-owned banks can trigger the kind of economic downturn that our current overconsumptive lifestyles might not jive well with. Downturns shatter investor confidence. Low investor & consumer confidence means more slowdown.

It isn't brain surgery.

In the past, a good way to kick the economy into high gear was to get involved in a good war. War always stimulated economies... But in the global marketplace we live in today, we're more likely to stimulate China's economy by going to war than our own. What was true of the 1940's isn't applicable to the world we live in today.

For all the "reality" TV we consume daily, we're painfully out of touch with reality.

Brand USA could really use a big boost over the next 6-12 months... and neither the Huckabee-Clinton-Obama-McCain race to the White House nor the current state of things in Iraq nor the endless stream of bonehead "news" stories about Britney, Paris, Lindsay or whatever politician got busted doing something embarrassing in airport bathrooms is really helping.

Now news about the exciting research that American Universities and labs are moving forward with in fields like advanced robotics, superconductors, fuel efficiency, AI, smart materials, etc., about exciting emerging technologies and how they can be incorporated into our everyday lives, and how successful grassroots social programs could be used as templates for large scale federal programs in coming years might serve our interests as a nation a bit better.

As a nation and cluster of business communities, we really need to raise the level of the conversation just a tad.

Read this, and I'll let you figure out the rest.

Americans, on average, spend more money than they earn. How do they manage to do this? Easy credit, low interest debt.

Thanks to their magnificent consumption, soaking up the goods produced by tens of thousands of Chinese factories, Asia keeps offering Americans easily accessible credit and buys up the monumental debt wracked up daily by the American government in the form of Treasury bonds. Without Asia both offering credit, and buying up debt, the average American lifestyle as they now know it would cease exist.

But even though the US government, and federal reserve, freely admits to shocking levels of debt and losses, the true scale of America's extremely fragile economic situation is lost behind illusionary accounting practices, the kind that no corporation is allowed to get away with.

The true scale of America's extremely fragile economic situations has now been exposed :

The federal government recorded a $1.3 trillion loss last year — far more than the official $248 billion deficit — when corporate-style accounting standards are used, a USA TODAY analysis shows.

The loss reflects a continued deterioration in the finances of Social Security and government retirement programs for civil servants and military personnel. The loss — equal to $11,434 per household — is more than Americans paid in income taxes in 2006.

"We're on an unsustainable path and doing a great disservice to future generations," says Chris Chocola, a former Republican member of Congress from Indiana and corporate chief executive who is pushing for more accurate federal accounting.

Modern accounting requires that corporations, state governments and local governments count expenses immediately when a transaction occurs, even if the payment will be made later.

The federal government does not follow the rule, so promises for Social Security and Medicare don't show up when the government reports its financial condition.

Bottom line: Taxpayers are now on the hook for a record $59.1 trillion in liabilities, a 2.3% increase from 2006. That amount is equal to $516,348 for every U.S. household. By comparison, U.S. households owe an average of $112,043 for mortgages, car loans, credit cards and all other debt combined.

Unfunded promises made for Medicare, Social Security and federal retirement programs account for 85% of taxpayer liabilities. State and local government retirement plans account for much of the rest.

This hidden debt is the amount taxpayers would have to pay immediately to cover government's financial obligations. Like a mortgage, it will cost more to repay the debt over time. Every U.S. household would have to pay about $31,000 a year to do so in 75 years.

It would seem almost impossible for the American economy to be facing disaster when the stock market is roaring past 13400 points, but most of this growth comes from the availability of extremely cheap debt. Get a big fat low interest loan and pour the money into stocks and bonds, and watch the stock market climb.

Mike Whitney is not alone in claiming the strength of the American stock mark is but an illusion, a simple con aimed at propping up the American dollar and holding back the financial devastation that will eventually break out across the nation.

The illusion, he claims, is shattered when you take a look at what's happening to American real estate, and it's not a pretty picture. When the real estate market completely disintegrates, so will most of the rest of the American economy :

The real estate market is crashing faster than anyone had anticipated. Housing prices have fallen in 17 of 20 of the nation's largest cities and the trend lines indicate that the worst is yet to come.

March sales of new homes plummeted by a record 23.5% (year over year) removing all hope for a quick rebound. Problems in the subprime and Alt-A loans are mushrooming in previously "hot markets" resulting in an unprecedented number of foreclosures.

The defaults have slowed demand for new homes and increased the glut of houses already on the market. This is putting additional downward pressure on prices and profits. More and more builders are struggling just to keep their heads above water.

This isn't your typical 1980s-type "correction"; it's a full-blown real estate cyclone smashing everything in its path.

Tremors from the real estate earthquake won't be limited to housing--they will rumble through all areas of the economy including the stock market, financial sector and currency trading. There is simply no way to minimize the effects of a bursting $4.5 trillion equity bubble.

The next shoe to drop will be the stock market which is still flying-high from increases in the money supply. The Federal Reserve has printed up enough fiat-cash to keep overpriced equities jumping for joy for a few months longer. But it won't last.

Wall Street's credit bubble is even bigger than the housing bubble---a monstrous, lumbering dirigible that's headed for a crash-landing. The Dow is like a drunk atop a 13,000 ft cliff; inebriated on the Fed's cheap "low-interest" liquor. One wrong step and he'll plunge headlong into the ether.

The stock market cheerleaders are ooooing and ahhing the Dow's climb to 13,000, but it's all a sham. Wall Street is just enjoying the last wisps of Greenspan's low interest helium swirling into the largest credit bubble in history. But there are big changes on the way.

In fact, the storm clouds have already formed over the housing market. The subprime albatross has lashed itself to everything in the economy ---dragging down consumer confidence, GDP and (eventually) the stock market, too. The real damage is just beginning to materialize.
The entire thing house of cards is propped up by confidence. The confidence that says property prices will recover. The confidence that claims the stock market will stay strong. The confidence wishes, dreams, hopes, that jobs will grow, that exports will rise, that the inevitable crash and burn will never come.

Perhaps spending more state and federal money on education, infrastructure, healthcare networks, and research might yield better ROI than supporting the Halliburtons and Blackwaters of the world. We just can't keep borrowing trillions of dollars from foreign banks to fund little more than day to day war-driven government services, an ill-managed federal budget and our purchasing power... and expect the bubble to keep growing and growing and growing without ever bursting.

Unlike the other olivier blanchard, I am not an economist, but as a guy who has worked for fifteen long years to finally get out from under a pretty decent amount of debt, this seems pretty obvious: Debt doesn't just go away when you ignore it. Sooner or later, you have to pay the piper. Yes you, not the next guy.

No one is going to bail us out of this mess. No one is going to come along to magically rebuild confidence in our economy or our government. Democracy only works if people take their civic, financial and professional responsibilities seriously. As a nation, we could be doing a whole lot better.

Also check out this very cool visual tool.

Additional reading:

US Economy Overtaken By EU And Japan

Whitney : Doomsday For The Greenback

Chinese Taking Out Unsecured Loans To Invest In Stock Market

China's Stock Market Plunges 6.5%, Losses Continue Into Second Day

To leave comments (and read previous, related posts) hit the brandbuilder's main page.

Image source: China Economics Blog.

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