Unfortunately... the bad joke... is the economy.
Folks... economically speaking... the US Federal Government is already bankrupt... but it literally all comes to a head sometime in 2015. I know some of you have heard me say this before. When questioned... I've simply said, "that's when the money runs out" or, "its a math thing." Well... for this first BJW... I thought I would actually explain the math. That's about as bad as any joke gets ain't it?
So here goes...
See... the US currently spends about 200% of its income. Meaning for every dollar that comes in... we spend $2.00. Every day the ratio gets worse... as the spending continues to rise. We continually borrow more money... so the servicing cost (think minimum payment on a credit card) rises. Not to mention all of the enormous new spending bills that seem to pop up annually. But lets not get ahead of ourselves. Lets start with income.
US income in trillions:
2010: 2.1 trillion
2011: 2.3 trillion
2012: 2.4 trillion
So total direct revenue from taxation and fees and such is going up slightly, but it should be noted its still down considerably compared to the highs of 2006 and 2007. Not to mention that inflation has eaten away at the value of those dollar far more than meager growth... but I digress.
Now... lets look at total debt... only the current number matters... and its close enough to 16.5 trillion that we may as well go ahead and use it as a round number. Now again... we're already spending a big chunk of our income on just making the minimum payment on this debt. 360 billion it turns out in fiscal 2012.
Here's what we do know... the historical average debt yield is 5%. So using that number... at 20 trillion... its going to cost the US Fedgov about 1.02 trillion dollars just to service the debt. Are you paying attention? We're talking 40% of all income... being used to make the minimum credit card payment. That only leaves 60% of the income left to pay for.... everything. Remember.. we're already spending about 200% of what we bring in.
Now... what is important about 40%? Well 40% is the debt to income ratio where bankers buttholes start to pucker. They start refusing to lend money right about there.
We call that a tipping point. The money it takes to service the debt, takes up so much of the income, that the rate of borrowing must increase so fast, that the lenders are no longer willing to take the risk.
So... if 20 trillion is the tipping point... and we're at 16.5 now... at the current rate... when do we hit 20 trillion in federal debt?
Barring any new enormous entitlement spending... or some epic foreign adventure.. we hit 20.5 trillion sometime in 2015. Of course its almost certain that we will have both of those... so we'll probably hit it before 2015... but I have wiggle room because debt yield may not be all the way up to 5% by then. So if it stays a little lower then the total debt can be a little higher... and thus we have a little longer.
So there you have it.
Some time in 2015... we can't afford to keep the lights on.