58 Trillion in Debt

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Those having a hard time finding growth in the U.S. economy are looking in the wrong places.

Forget about real estate, technology or manufacturing: The real American growth industry is debt. While gross domestic product has lingered in the 2 to 2.5 percent growth range for years, the level of debt as measured through credit market instruments has exploded.

Read MoreRetirees have more of this kind of debt than ever

As the nation entered the 1980s, there was comparatively little debt—just about $4.3 trillion. That was only about 1.5 times the size of gross GDP. Then a funny thing happened.

The gap began to widen during the decade, and then became basically parabolic through the '90s and into the early part of the 21st century.

Though debt took a brief decline in 2009 as the country limped its way out of the financial crisis, it has climbed again and is now, at $58.7 trillion (Tweet this), 3.3 times the size of GDP and about 13 times what it was in 1980, according to data from the Federal Reserve's St. Louis branch. (The total debt measure is not to be confused with the $18.2 trillion national debt, which is 102 percent of GDP and is a subset of the total figure.)

Read MoreWall St getting bitter dose of economic reality

Of the total debt, nonfinancial debt leads the way at $41.4 trillion, which breaks down as household and nonprofits holding just shy of $13.5 trillion, nonfinancial business debt at $12 trillion and total government debt at $15.9 trillion.

Growth, such as it is, has been present in all debt categories: In the fourth quarter of 2014, when GDP was growing at just a 2.2 percent rate, business debt jumped 7.2 percent, federal government debt surged 5.4 percent and household debt rose 2.7 percent, with overall domestic nonfinancial debt up 4.7.

So while many economists have bemoaned the 0.2 percent GDP growth in the first quarter and the dimming prospects for growth the remainder of the year, the debt engine is keeping things humming along—until, of course, the next crisis comes and we start all over again.


http://www.cnbc.com/id/102699109

 

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Looking at chart above is why I keep an allocation of Gold/Silver in my Portfolio. My current allocation of precious metals is around 5% but if I get the chance to buy more at lower prices (Silver at $10-$11 an ounce or Gold under $1100 an ounce) I will do so. Despite our total debt in trillions other nations don't look much better so the USA may be the best house in a crappy neighborhood.

 

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Who do you think will pay down the debt?

 

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[deleted126335]

we might get massive defaults on that debt. If so you will get a deflationary collapse instead. How's gold going to do then?
I don't discount the prospect of high inflation. If we do get high inflation gold sorta works, but common stocks TIPs and series I savings Bonds work better.

http://inflationdata.com/inflation/images/charts/Gold/Gold_inflation_chart.htm

 

[BLADEMDA]

we might get massive defaults on that debt. If so you will get a deflationary collapse instead. How's gold going to do then?
I don't discount the prospect of high inflation. If we do get high inflation gold sorta works, but common stocks TIPs and series I savings Bonds work better.

http://inflationdata.com/inflation/images/charts/Gold/Gold_inflation_chart.htm

Alternatively, the USA loses its status as the world's reserve currency. What happens then? Instead of defaults, the USA just issues more and more debt at higher rates; if so, Gold surges in price. We don't know what the future holds so an allocation to precious metals at today's prices makes fiscal sense.

IMHO, the USA won't allow any "massive defaults on debt" but will instead keep printing money to avoid chaos; this leads to a devalued currency at some point but since many nations are also printing money at a rapid pace (European Union, Japan, etc) I have no idea when this will occur. The majority of Fiat Currencies are being propped up by their Central Banks.

 

[likeaboss]

This is misleading. Yes debt, public and private, has increased in the last several decades. So has the price of gold. That gives them a high correlation coefficient. But we all know correlation does not mean causation.

Consider the source of the graph, a company that sells gold coins to *****s on TV.

 

[likeaboss]

Why does this graph assume 5% when the true number is 2.4%? Again, this is misleading

 

[BLADEMDA]

we might get massive defaults on that debt. If so you will get a deflationary collapse instead. How's gold going to do then?
I don't discount the prospect of high inflation. If we do get high inflation gold sorta works, but common stocks TIPs and series I savings Bonds work better.

http://inflationdata.com/inflation/images/charts/Gold/Gold_inflation_chart.htm

If the USA debt was stable then I could see Gold at $900 an ounce; but, at $18 trillion and rising I want a portion of my portfolio in hard currency which can't be printed ad-infinitum by the Fed.

 

[BLADEMDA]

Why does this graph assume 5% when the true number is 2.4%? Again, this is misleading

The graph is meant to how the danger of the Fed's increasing interest rates to the 4-5% range; historically, interest rates are at an all time low and once we return to the "norm" the debt will sky-rocket.

 

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[likeaboss]

Much of that debt is fixed rate securities and will always be at 2.4%.

Economics is a balance of supply and demand. We have much more debt because it's so cheap to borrow presently. If rates go up to 5 % or 10% we will borrow less while continuing to pay off our current outstanding debt.

That will lower outstanding debt, not increase it.

 

[BLADEMDA]

Like Doze I don't think we will be seeing anything close to a 4% Fed Funds rate in the next 5 years. I do see a tightening of 0.5% over the next 18 months but the Fed will be extra cautious to make sure there is real inflation before increasing the Fed Funds rate very much. With our National debt at over $18 Trillion we can't afford a 4% Fed Funds rate.

 

[BLADEMDA]

Much of that debt is fixed rate securities and will always be at 2.4%.

Economics is a balance of supply and demand. We have much more debt because it's so cheap to borrow presently. If rates go up to 5 % or 10% we will borrow less while continuing to pay off our current outstanding debt.

That will lower outstanding debt, not increase it.

No. That's not true. The USA govt. recorded RECORD tax revenue so far in 2015 but the debt continues to increase. Our politicians are unwilling or unable to make the hard choices needed to balance the budget. Even when the GOP controlled the govt. they did nothing to balance the budget. Hence, the debt is going up.

 

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[likeaboss]

Gold is a bad investment.

 

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Gold is a bad investment.

View attachment 192322

Gold is insurance which is why I keep a 5% allocation in my portfolio but would flex up to 10% if prices were to hit sub-$1000 an ounce.

You have the wrong chart up there. Please put Deficits vs the price of Gold for the actual chart. If the USA gets her house in order Gold is a bad investment. But, the key word is "if".

 

[likeaboss]

So either taxes will have to go from 18% of GDP to 25% of GDP, or we will have to cut entitlement costs, or we will borrow money to pay the difference. Or maybe a combination of all 3.

If one of those doesn't happen, then I suggest you start stockpiling food water and ammunition in your basement.

 

[BLADEMDA]

So either taxes will have to go from 18% of GDP to 25% of GDP, or we will have to cut entitlement costs, or we will borrow money to pay the difference. Or maybe a combination of all 3.

If one of those doesn't happen, then I suggest you start stockpiling food water and ammunition in your basement.

It's hard to cut entitlements and raise taxes. It's much easier to debase your currency. Each dollar buys less but you "keep your promises" to the masses.
That said, I see taxes going up along with deficits. I do not see entitlement cuts (or any real cuts) in the near future.

 

[BLADEMDA]

Here is the chart I am using for Gold. Since i believe deficits are going up Gold at under $1100 an ounce looks good. Gold under $1,000 an ounce looks even better.

 

[BLADEMDA]

Gold is a bad investment.

View attachment 192322

Gold Bullion/Coins, Firearms (own many) and stock piles of ammo are all things I have no regrets buying. These are items which I hope never to need but have readily available in case that I do.

Gold is a hedge/insurance for your portfolio like the guns/ammo are for you home.

 

[deleted126335]

Have you considered that maybe there will be massive defaults and a deflationary collapse instead?
Not discounting the real possibility that we will get high inflation instead. It is just not the only possibility. Land and businesses (stocks) hedge inflation pretty well as do TIPs. Gold? Check out the link.



http://inflationdata.com/inflation/images/charts/Gold/Gold_inflation_chart.htm

 

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[deleted126335]

I have always felt that Gold bugs are the conservative equivalent of socially responsible investing. Their politics cloud their judgement.

 

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[BLADEMDA]

I have always felt that Gold bugs are the conservative equivalent of socially responsible investing. Their politics cloud their judgement.

Doze,

I use your method of investing these days. Gold miners (stocks), Gold the metal and Silver the metal are part of my portfolio. I keep a 5% allocation to all of the above and add to my positions when price declines occur (10% drop in the price or a 1% drop in my allocation). I fully expect to sell these same things when they occupy more than 7% of my portfolio.

 

[deleted126335]

Alternatively, the USA loses its status as the world's reserve currency. What happens then? Instead of defaults, the USA just issues more and more debt at higher rates; if so, Gold surges in price. We don't know what the future holds so an allocation to precious metals at today's prices makes fiscal sense.

IMHO, the USA won't allow any "massive defaults on debt" but will instead keep printing money to avoid chaos; this leads to a devalued currency at some point but since many nations are also printing money at a rapid pace (European Union, Japan, etc) I have no idea when this will occur. The majority of Fiat Currencies are being propped up by their Central Banks.

We might very well fault on our entitlement promises. Massively downsize our military, defaulting on our security commitments to our allies. Let them talk to china and russia. Let our allies in the middle east deal with ISIS and Iran, massive cuts in social programs and infrastructure.
In short, default to our promises to our citizens.

 

[BLADEMDA]

We might very well fault on our entitlement promises. Massively downsize our military, defaulting on our security commitments to our allies. Let them talk to china and russia. Let our allies in the middle east deal with ISIS and Iran, massive cuts in social programs and infrastructure.
In short, default to our promises to our citizens.

Not going to happen. We can agree to disagree but both parties won't allow it to happen.

 

[deleted126335]

Doze,

I use your method of investing these days. Gold miners (stocks), Gold the metal and Silver the metal are part of my portfolio. I keep a 5% allocation to all of the above and add to my positions when price declines occur (10% drop in the price or a 1% drop in my allocation). I fully expect to sell these same things when they occupy more than 7% of my portfolio.

That is very reasonable. I have been toying with the idea of adding precious metals equity to my portfolio. They are probably about the cheapest asset class at this time. excellent diversification benefits but horrendous volatility and the benefits frequently take a long time to pay off.

 

[deleted126335]

Not going to happen. We can agree to disagree but both parties won't allow it to happen.

Meredith Whitney's prediction of municipal bond defaults didn't come to pass because many municipalities have defaulted on their promises to their citizens. Lots of construction projects- roads, bridges, schools, utilities have been tabled. Civil service pensions are not as safe as they once were. Another type of default.

 

[BLADEMDA]

If I had any money whatsoever, I would move to Australia. I'm willing to bet in the future the U.S. government won't allow anyone making money to leave the country until they have "paid their portion" of the debt. Forget about securing the border at this point, you should want to get out before the government imprisons you for not enslaving yourself to paying off the debt. Don't be surprised if this happens in the not too distant future. Also, don't be surprised if the government forces you to incorporate a % of medicaid and obamacare into your annual caseload or risk losing your license to practice medicine. I can just see this system failing and no doctor accepting it after it's in full effect and then the government dropping the hammer.

I think Medicare for all is much more likely. This means the govt. controls healthcare and the wealthy buy private insurance or pay cash. Some offices and surgicenters will do cash/private insurance only just like in the UK.

Primary care- Slight pay raise

Everyone else gets cut especially those specialties where an Advanced practice Nurse can do the job.

 

[likeaboss]

It's hard to cut entitlements and raise taxes. It's much easier to debase your currency. Each dollar buys less but you "keep your promises" to the masses.
That said, I see taxes going up along with deficits. I do not see entitlement cuts (or any real cuts) in the near future.

LOL it's not easy debasing your currency. It's political suicide. You really think destroying the U.S. Economy and runaway inflation are easier than raising taxes?

 

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[BLADEMDA]

LOL it's not easy debasing your currency. It's political suicide. You really think destroying the U.S. Economy and runaway inflation are easier than raising taxes?

A $1.00 Bill issued in 1913 is worth about 5 cents today as far as purchasing power. Debasing our currency has been going on for over 100 years and it will only get worse over the next few decades as the national debt sky-rockets with ever increasing entitlements due to retiring baby-boomers (SS, Medicare) and Obamacare (free govt. subsidy) along with Medicaid (expansion due to the ACA).

 

[BLADEMDA]

I agree with all of your points. I was referencing to what happened in Massachusetts when Romneycare was enacted and every doctor was forced to take it or could not practice medicine. Imagine people signing up for insurance, regardless of how ****ty it is, and then not being able to use it because no one will take it. Their senators and congressmen will be getting a litany of angry phone calls and there will be a borderline riot for them to do something. Hence, force doctors to accept it in order to retain their license. The two tier health care system will be inevitable and I think universal healthcare is in the not too distant future. There was speculation that Obamacare was a Trojan horse for universal health care because he knew it would fail. I don't even know if primary care will get a pay raise when they can just expand the practicing rights of ARNPs. If anything these mid levels may put pressure on primary care doctors to be paid the same or less. Any field with a mid level in it will see a pay cut... it only makes sense. It follows the basic rule of economics... if someone can do the same job for less, the person willing to do it for less will win out. Period. The only wild card is in anesthesia where patients' lives are literally on the line so deaths may save anesthesiologists if CRNAs are proven to kill people at a higher rate. That would incentivize hospitals and insurance companies to pay the anesthesiologists the same or maybe even better if it gains enough traction with the public.

We agree here on most points except the Govt/Medicare doesn't really care if ASA4 patients bite the dust due to poor care from Sally CRNA, DNAP. Sally is saving the system money every time she does an ASA4 patient proving her value to the system even more. The fact is the ASA 1 and 2 cases are the most productive members of society and Sally CRNA, DNAP is cheaper/more cost effective for those patients. Under Universal Health care denial of care, demise in the O.R., limiting ICU admissions, etc are all cost-savings measures to the system.

https://www.aana.com/resources2/research/Documents/nec_mj_10_hogan.pdf

http://content.healthaffairs.org/co...ey=ezh7UYKLtCyLY&keytype=ref&siteid=healthaff

 

[Silent Cool]

 

[BLADEMDA]

Anesthesiologists and certified registered nurse anesthetists provide high-quality, efficacious anesthesia care to the U.S. population. This research and analyses indicate that CRNAs are less costly to train than anesthesiologists and have the potential for providing anesthesia care efficiently. Anesthesiologists and CRNAs are interchangeable. They can perform the same set of anesthesia services, including relatively rare and difficult procedures such as open heart surgeries and organ transplantations, pediatric procedures, and others. CRNAs are generally salaried. Their compensation lags behind that of anesthesiologists, and they generally receive no overtime pay. As the demand for health care continues to grow, increasing the number of CRNAs, and permitting them to practice in the most efficient delivery models, will be a key to containing costs while maintaining quality care.


https://www.aana.com/resources2/research/Documents/nec_mj_10_hogan.pdf