US National Debt Exceeds Money Supply

If you want to understand just how much trouble the US is in right now, take a look at two key figures (besides unemployment and food stamp use):
1. The national debt
2. The money supply

Today, on December 12, 2010, the US national debt ($13.86 trillion) exceeds the total money supply (M3) which is roughly $13.7 trillion.

To put this into perspective, in 1980 the US debt was just HALF of the money supply at the time.

Basically, the US government debt alone is $150 billion MORE than dollars available to pay off that debt.

What does this mean?

It means that with each new budget deficit, the US will have to print that equivalent amount of money. And that does not include interest which will be compounding on the existing debt. The budget deficit is expected to exceed $1 trillion for at least a decade, as long as the economy remains stagnant. This means we’re pretty much guaranteed at least 7% inflation for the next 10 years.

In one word: INFLATION. Lots and lots of it.

This is what will be necessary in order to cover the payments on the debt. There just isn’t enough money in the US now to even cover the national debt, let alone other obligations like mortgages and other private sector debt.

All in all, the US will need to print some $50 trillion to cover those liabilities. When you add in other unfunded liabilities like social security, that number easily grows to $100 trillion.

So the possibility of monetary inflation on the order of 20% per year should not be discounted.

Taxed Beyond Death

US citizens will be taxed beyond death (TBD) in the next decade, just to cover the interest payments on the gigantic public debt.

Keeping in mind that the Federal Reserve is independent and not accountable to elected officials, it seems that paying any public money to it would constitute taxation without representation and would thus be perfect cause for revolution. As soon as Americans realize this (probably never, given their stupidity), there will be an uprising not seen since the days of Thomas Jefferson.

The tea party is onto something. The only problem is the vast majority of its members have no freakin’ clue (NFR) how the system works. And how can you change something if you don’t even know how it works?

In the next article, I will be writing about how the system works in gory detail. Gory, gory, gory… detail.

Stay tuned.

4 comments on “US National Debt Exceeds Money Supply
  1. Just take example on country’s like Belgium in Europe. Has an enormous debt (100% of their GDP) since more than 20 years, but is able to live with it. Even better, they have a very good economy, a higher export per inhabitant than Germany, and so on and so on…

  2. It would seem we’re already seeing signs of inflation in the market, as this article examines:

    We’ve got some huge problems in the near- and medium-term. Best to trade those dollars in for something of intrinsic worth. Now. I think we’re about to see the greatest robbery in world history.


  3. I come late to this article, and it is interesting, but I have a couple of thoughts:

    1. current inflation rate is lower than inflation rates before our lovely little recession.
    2. You don’t address the idea of money created by fiat (by banks in particular) – which provides a much larger pool of money for transactions than what is currently in circulation. I’m not saying a huge debt is okay, I’m just saying that there is a lot more give in the system than the amount of printed cash.
    3. I’m also not saying that a huge debt is an impending disaster – Almost every 1st world country owes between 50% and 80% of it’s GDP. Third world countries typically have very low debt. Developing countries, like parts of South America have intermediate levels of debt. The exceptions are intriguing: India (developing): high debt, China (developing): Very low debt, Russia (1st or 2nd world, depending on your definitions) very low debt. Oil producing countries (i.e. rich dictatorships) – low debt. Libya – remarkably low debt. Here’s the data: Draw your own conclusions.
    3. What exactly do you mean when you say “Taxed beyond death”? It doesn’t seem that you are talking about estate taxes, and I have a hard time imagining what else you could be proposing.

  4. Wow. Most thoughtful comment I’ve received in a while. Congratulations!

    Now, let me try to indirectly address your thoughts.

    Currently, interest rates are at or near all-time lows in the US. That is not likely to be true forever. Japan is an interesting exception, about which I don’t know enough to state why their interest rates have been low for 2 decades. However, I know for a fact that interest rates can only go up from here.

    So my point is, when interest rates go up (huge hypothetical here), the US is so deep in debt that it will not be able to address its deficit without significantly cutting the budget or raising taxes. I would venture to say the latter is far more likely than the former.

    So, a huge debt is not a problem *now*, because of low interest rates. That will not always be the case. Certainly, the US debt level now is far in excess of any level seen in its history (as a fraction of money supply). So when interest rates go up, budget deficits will become endemic, leading to inflation because taxation will not be enough and neither will austerity.

    Inflation is a tax. It’s a tax on your dollar-denominated savings. That’s what I mean by “taxed beyond death.” Even if taxes stay the same, inflation will be necessary to “monetize” the debt, thus resulting in “indirect taxation” through inflation.

Comments are closed.