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 fiat (no longer backed by gold) dollars. The federal gov’t is the sole issuer of dollars. Those US Treasury bonds are obligations, yes (they are backed by the full faith and credit of the federal gov’t); they are liabilities, sure (the federal gov’t promises to pay semi-annual interest and pay back the principal at maturity); but a ‘debt’, no. For example, IBM has liabilities to pay dividends on all of the outstanding shares of IBM stock; however IBM, the issuer of IBM stock, is not in actual debt of IBM stock. 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 about $30T, 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 that unlike the issuer of dollars, when we borrow dollars to deficit spend, there is a real debt attached. The reason being, because we are only users of dollars, the attached debt we take on when deficit spending is denominated in a currency that we cannot issue, and why unlike the federal gov’t, the issuer of dollars, we are going into actual debt. For example, if IBM, a user of dollars, sold bonds for dollars, that is IBM going into actual debt; however, if IBM, the issuer of IBM stock, sold IBM shares for dollars, that is not IBM going into debt, it is a different paradigm.


Furthermore, when any US local gov’t, a user of dollars, or any US state gov’t, also a user of dollars, sells bonds denominated in dollars to deficit spend, they are going into actual debt because they are not the issuer of dollars; unlike the US federal gov’t, when they sell bonds denominated in dollars to deficit spend, they are not going into actual debt because they are the issuer of dollars. Groupthink does not see this difference. Mainstream thought still sees the federal gov’t, the issuer of dollars, as being the same as a household, a user of dollars. The Modern Monetary Theory (MMT) enlightenment is the realization and understanding of these two separate paradigms.


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

$12.7T of US household debt (most of that, $8.6T is mortgage debt, plus $1.3T in student loans, $1.1T in auto loans, and the balance is in credit card or other consumer debt).

$12.8T of US business debt (outstanding non-financial 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,

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.