Debt Levels Rapidly Mounting

Here are some excerpts from a couple of recent In Session threads:

I thought that the disconnect between how you and I might see the economic world and how central banks see it was perfectly captured by an audience's reaction to statements made by Timothy Geithner on his recent trip to China:

BEIJING, June 1 (Reuters) - U.S. Treasury Secretary Timothy Geithner on Monday reassured the Chinese government that its huge holdings of dollar assets are safe and reaffirmed his faith in a strong U.S. currency.

A major goal of Geithner's maiden visit to China as Treasury chief is to allay concerns that Washington's bulging budget deficit and ultra-loose monetary policy will fan inflation, undermining both the dollar and U.S. bonds.

China is the biggest foreign owner of U.S. Treasury bonds. U.S. data shows that it held $768 billion in Treasuries as of March, but some analysts believe China's total U.S. dollar-denominated investments could be twice as high.

"Chinese assets are very safe," Geithner said in response to a question after a speech at Peking University, where he studied Chinese as a student in the 1980s.

His answer drew loud laughter from his student audience, reflecting scepticism in China about the wisdom of a developing country accumulating a vast stockpile of foreign reserves instead of spending the money to raise living standards at home.

(Source)

Laughter is, of course, the perfectly rational response to Timothy's banalities about the safety of Chinese assets when parked in the currency of the country most responsible for the current crisis and leading the way in terms of fiscal and monetary recklessness.

I find it telling that regular people find hisstatements ludicrous and laughable, yet the policy folks seem to have no clue as to how far off the reservation their actions and words appear to the average person.

Maybe some Chinese students have tipped Timmy off in this regard?

One of the few journalists out there that "gets it" is Dennis Cauchon of USA Today.  I have cited and referenced his work numerous times in the past.  It escapes me why he alone seems able to comprehend the obvious issues that face a long-term strategy of failing to live within our current means.  It's not like this is a hard concept.

At any rate, he's done it again and spilled the beans on the latest US deficit spending.

Leap in U.S. debt hits taxpayers with 12% more red ink

By Dennis Cauchon, USA TODAY

Taxpayers are on the hook for an extra $55,000 a household to cover rising federal commitments made just in the past year for retirement benefits, the national debt and other government promises, a USA TODAY analysis shows.

The 12% rise in red ink in 2008 stems from an explosion of federal borrowing during the recession, plus an aging population driving up the costs of Medicare and Social Security.

That's the biggest leap in the long-term burden on taxpayers since a Medicare prescription drug benefit was added in 2003.

The latest increase raises federal obligations to a record $546,668 per household in 2008, according to the USA TODAY analysis. That's quadruple what the average U.S. household owes for all mortgages, car loans, credit cards and other debt combined.

"We have a huge implicit mortgage on every household in America — except, unlike a real mortgage, it's not backed up by a house," says David Walker, former U.S. comptroller general, the government's top auditor.

USA TODAY used federal data to compute all government liabilities, from Treasury bonds to Medicare to military pensions.

Bottom line: The government took on $6.8 trillion in new obligations in 2008, pushing the total owed to a record $63.8 trillion.

Imagine that.  $6.8 trillion in new obligations were taken on, and yet, somehow, only $0.1 trillion of that was dedicated towards rebuilding the nation's vital energy infrastructure.

When we add it all up, it turns out that the only way that government debt can ever be paid off is through the actions of households.  People have to work and pay their taxes.  Even corporations make their money by the actions of those same people, so it can be said that it is the households that are "on the hook," for not only their own borrowing, but that of the entire government as well.

By that measure, you can get a sense of how this might all turn out by asking yourself, "What's the chance that every family could have their debt load multiplied by a factor of 4 and still pay it all off?"

If you are like me, you quickly come up with the answer of "zero," meaning that the debt cannot and will not be repaid.

Once that's out of the way, we are free to try and figure out who will be left holding that bag.  I think the Chinese students have already figured that one out.