The U.S. Debt Limit

Write-off the US at your own risk. They have been there and done that. For instance between 1995-2005, the tech boom pulled out the US from a deep slump.

See these cartoons as calls for action. (Debt Crisis ; Cartoon by By Bob Englehart, in The Hartford Courant  -  3/14/2008 12:00:00 AM; source and courtesy - Click for larger image.

See these cartoons as calls for action. (Debt Crisis ; Cartoon by By Bob Englehart, in The Hartford Courant - 3/14/2008 12:00:00 AM; source and courtesy - Click for larger image.

The Senate has signed off. The president’s borrowing power has been floated up to $10 trillion, which beats the AmEx black card. The president’s limit when he came into office in 2001 was $6 trillion. So it’s been hiked an average of $500 billion per year during his eight years of office.

Five Countries with the Highest External Debt, 2006

1. United States $10.0 trillion
2. United Kingdom, $8.3 trillion
3. Germany, $3.9 trillion
4. France, $3.5 trillion
5. Italy, $2.0 trillion
Source: CIA, The World Factbook, as of 9/20/07.

Five Countries with the Highest Current Account Deficits, 2006

1. United States, -$862.3 billion
2. Spain, -$98.6 billion
3. United Kingdom, -$57.7 billion
4. Australia, -$41.6 billion
5. France, -$38.0 billion
Source: CIA, The World Factbook, as of 9/20/07.

(via John Tepper Marlin: The U.S. 10-Trillion-Dollar Debt Limit).

Latest count

Now, an update on this status.

US Government debt has crossed US$14 trillion. That is equal to US GDP. It means that the US govt. alone owes as much money as what the entire USA earns each year (GDP). Corporate debt (150% of GDP) and individual household debt (150% of GDP) is on top of this. Since, finally household pay of all the debts, the US citizen is about 400% of income in debt.

Britain is about 500% in debt. The difference between exports and imports is current account deficit. All these countries are also running a huge current deficit.

What to do

In the medium term, control over oil may give the West the means to sustain the life-style that makes them ‘world-leaders’. No wonder the West is willing to kill millions in Iraq, Afghanistan, Libya. But all this killing is also an expensive affair. This killing of millions in Iraq, Afghanistan, Pakistan, Libya is costing US$ trillions.

After that …

  1. October 17, 2011 at 3:26 am


    suppose, if US decides to tax all wealthy, to repay the debt, wont they come out of this crisis?

  2. October 17, 2011 at 4:52 am
    Let us get the big picture first.

    US economy is US$14.8 trillion.
    Assume conservatively US$14.
    Their Govt debt is also US$14 trillion.
    Their Govt budget deficit is US$1.3 trillion – which is little less than India’s total GDP.

    How much more can they tax the US wealthy?

    Add a few more billions to their tax collection
    Assuming that they can get US$10,000 extra
    From 1 million millionaires.
    It will give them another US$10 billion.
    It will only stop the deficit from increasing.

    What the US needs is another boom

    maybe like the internet boom between 1995-2005
    The Chinese Yuan appreciation is helping.
    The yuan is expected to appreciate further.
    India’s exports will increase because of this.
    Have you noted how our exports are growing
    Even with the Govt doing nothing.
    Even with the EU and USA in recessionary situation.

    Can the US do it?

    It most probably will.

    Where will the new boom be?

    My top three bets are

    Most probably in the mobile phone space
    Or electricity generation space
    A completely new chip architecture – which will reduce chip costs by 90% and power consumption 50%.

    Lower on my list

    A small, new powerful jet engine that can drive large trucks and small trains.
    Shale Oil and natural gas will is my last but one bet.

  3. manu
    October 17, 2011 at 8:50 am

    Anuraag whats your take on this crisis being a scaling back of the credit expansion that began after 1945 … increased in pace after 1970 USD becoming fiat currency….And reached frenzy with US and Europe property bubble…. Mostly fuelled by the Gramm–Leach–Bliley Act…. Since 2007 the private debt after reaching its limit has started to deflate or go bad…..This credit expansion moved lot of future demand to present…
    Bubbles/Boom are misallocation of money into a certain resource or sector….Government debt has become a bubble now… and with Greece it has started to burst….IS there a way out besides a complete reset of the world monetary system as it stands….? As in can the debt ever be repaid ?

  4. October 17, 2011 at 9:14 am
    Manu – There is a problem of terminology. Everything has got corrupted.

    1. Who is the creditor? US banks? They got the money to lend from the Govt. from the Federal Reserve’s printing presses. So, it is not shareholder or depositor money which will be lost. If shareholders or depositors finally lose, it is because of one turn o f the dice. But overall, depositors and shareholders will not lose.

    2. The West owes various creditors around US$100 trillion. That is equal to nearly 5 years of their total economic output. If you take debt equalling 5 years of your income, can you ever repay? Unless you have earning assets, that are going to pay the debt. Now most of the debts have gone to fund the killing of Iraqis, Afghans, now Libyans, – and for funding the Welfare State. Free hospitals, Free education, Free Housing, etc. These are not ‘earning’ assets.

    3. So, we may have an optical illusion – maya of debt repayment. A new Super-Strong Dollar-Euro (Duro) may get get created. Old debts will be converted to Duro-Debt – and these will paid by printing the new currency.

    5. The real victims – is not the American tax-payer, who is moaning and crying. Not the European tax-payer. They have been getting a Free-Ride – which they believe is because of their technology, their ‘superior ‘institutions’, etc. None of which is true. The Africans more than anyone else is paying for this ride. The Native Americans and the Aborigines, who have paid a price for this.

    6. Who will pay the highest price will be the Africans. They will come out the worst in this scenario. China and India will not suffer much. India will be saved due to the vestigal Bharatttantra that still exists. Because Indians have bought gold, created families and did not ask for too much from the State.

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