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.
Bah. The beast starves. It might be our best shot since the tyrant Lincoln at getting a Republic back. Look on the bright side!
Oh... I'm just pointing out that Interesting Times are ahead... and there is a reason that living through them is described as a curse. It absolutely is a good thing.
Doesn't mean it will be easy.
by the way... Good to see ya around again FA.
Thanks. Glad to see you back to blogging.
I have a surprising sense of peace about what is coming. I have mixed feelings about what is going to happen to the USA, but I definitely have that feeling of God saying, "Hey, lookit what I'm about to do!"
So if the feds don't pay their debt, do I have to pay mine?
That's a question that's hounded me as well. I went for the "pay off everything" option a couple years ago, so I'm debt-free and mortgage-less.
BUT... if hyperinflation is coming, it would make sense to borrow and leverage up to the hilt and buy tangible goods. Gold, silver, guns, farmland, food, cigars, car parts, whiskey, etc. Then when the currency value plummets, you can zip away your debts by selling off a small fraction of your goods.
BUT... if hyperinflation takes its time (or never arrives... or a new currency rolls out... etc.), then you may be stuck with a pile of debt and a bunch of stuff that isn't worth much more than when you bought it. You may also be income-less if work doesn't pick up.
I went with the "kill debt" route (AND I bought tangible goods) because it seemed like a good compromise - and more Biblical. Whether or not it was the best choice... time will tell. So far, it's been very helpful. My writing and radio production work has been a lot sketchier than in the past - having zero payments has allowed me to spend more time on my agricultural research.
I would argue no. once the federals started stealing your money to pay the banks... I decided the Fed's were simply paying my debts for me.
no sense in giving the bastards a double share.
We've chatted about this before. I'm no further ahead.
Mrs. Giraffe is staying home with the kids. Period. So we make on my income. Or not. She does do daycare for a clueless career mommy, so that has helped.
We are just getting done having kids so we can get cheaper health insurance.
I hate to do it, but I think I am going to refi. I have about 5.5 years left on my mortgage, but I have a Heloc that is just a ticking bomb if interest rates go up. I figure I already have the debt, I should lock it in at low rate.
I've also wondered what to do when (not if) we have some sort of collapse, and I lose my income. If they try to repo my house, I'd feel better about chasing them off with my hand assault rifle it is some bank in NY that I owe money to rather than the local bank. THere's a chance that bank in NY would be a foreign corporation by then.
I also agree, Vidad, that the Christian thing is to pay the debt. I will try. I just don't think I'll have the time. If Nate is correct with 2015, I shouldn't even bother.
I'm going the leverage route. Bought a new house and keeping the old one to rent. Both are at long term low fixed rates. I'm betting on inflation and punishing taxation, so I want the deductions and expenses.
I've got a good business that should keep me in decent cash flow at market rates for the foreseeable future, unless the grid goes down... in which case all that matters is what you can lay hands on and defend.
It may not be the Christian way to go, but I don't feel guilty about playing the system that has played us.
I run my business and personal life honestly and in a straightforward manner. And I'll pay the banks their principal and interest as per contract. If Jesus has a problem with that I'll repent, but I don't see it.
Giraffe my advice would be to refinance at a low fixed rate on the longest term you can get with 20% equity still in the loan to avoid PMI.
That's the plan. Just need to make sure I don't borrow any more after that.
I wouldn't argue, necessarily, that stealing a bit back from a thief is wrong.
What I view as the Christian route is more debt avoidance and responsibility in personal finances. If that means one day you wake up and go "holy nuts... I'm getting screwed by the bank and I'm walking away," then do it.
I'm quite comfortable with people sticking it to the fraudsters that shredded this economy while giving themselves outrageous bonuses.
Bankers sphincters go taught at 35%-40% but that's for normal folk like us who probably have a house payment that takes up a significant portion.
The US Federal Gov't doesn't have that problem. Besides, if they did, they'd just declare the mortgage off budget and not count it and that's if they ever got around to doing a budget.
Besides, the US Federal Gov't is to big to fail.
All joking aside, I think the fact that they aren't even bothering to do a budget is a telling matter.
I think that right now the way the country is, anything you hit while swinging that dead cat could be considered fodder for BJW.
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