The Hypothetical US National Debt v. The Actual US National Debt

 

The Hypothetical US National Debt: The FEDERAL GOV’T is hypothetically in debt of $19T, but it is actually zero because all those outstanding US Treasury bonds are denominated in US dollars and the US federal gov’t is the issuer of US dollars. Those US Treasury bonds are obligations, yes (they are backed by the full faith and credit of the US federal gov’t); they are liabilities, sure (the US federal gov’t promises to pay semi-annual interest and pay back the principal at maturity); but a ‘debt’, no (same as IBM will never be in ‘debt’ of or ever ‘pay back’ all the outstanding IBM shares of stock that it issues). Ask any accountant and they will confirm that all debts are liabilities but not all liabilities are debts, nor does IBM have a ‘budget’ (any constraint whatsoever) of how many shares of IBM it can issue.

 

The Actual US National Debt: The NON FEDERAL GOV’T is actually in debt of $31T, and that’s a real debt because the non federal gov’t (you, me, all households, all businesses, all local and state gov’t) are not issuers of dollars. We are users of dollars, meaning when we borrow dollars to deficit spend, we are going into actual debt (it’s the same as if we borrowed IBM shares).

 

Here’s a breakdown of the Actual US National Debt:

$14.2T of US household debt (mostly $8T in mortgages and $2T in student loans, credit cards or other consumer debts).

$12.8T of US business debt (outstanding nonfinancial corporate bond market).

$3.7T of US local & state gov’t debt (outstanding municipal securities bond market).

 

Takeaway: There is no federal gov’t debt to worry about, and for all of the 50 US state governments combined, the median debt-to-GDP ratio is an easily-serviceable 2.4%.

 

P.S. The Actual US National Household Assets were over $100T in Q4 2015 (adding that $14.2T household debt back to $86T of US household net worth). Factor in household, business, plus local, state & federal gov’t assets and you’re looking at Actual US National Assets in the quadrillions.

That’s a lot of Benjamins.

 

Happy Spring,

eddiedelz@gmail.com

Buy and Hold

Bearish market sentiment is at a five-year high, so should you be feeling the same?

Look at the previous peaks on this graph:  Short Interest near five year high

The US Treasury bond downgrade in August 2011…The Euro zone crisis in ’12…Last week’s and last summer’s Shanghai Composite Index selloffs.

Market sentiment is usually considered as a contrarian indicator, a good thing to bet against, especially when it is more extreme. Very bearish sentiment is usually followed by the market going up more than normal. Buying low-cost, broad-based, index funds when they are on sale is an easy way to get rich.