Comments on the Current US Debt and the Potential Collapse of our Economy

Comments on the Current US Debt and the Potential Collapse of our Economy

Economic Item	Trillions or %
US Total Debt	14.512
US Total Tax Revenues	2.198
Fraction of taxes paid by top 10%	70%
Taxes paid by this group	1.5386
Deficit projection	1.5
Current debt service at 1.7%	0.212
Current GDP growth	2%
Ref: http://usdebtclock.org/

It should be crystal clear that the taxes paid by the top 10% in this country match very closely the deficit. As such, we might expect to hear that doubling the taxes on this group would balance the budget at constant spending levels.

That is not good enough. This is because we cannot sustain our debt levels at this current position of the debt-to-GDP ratio of 100%. Our credit ratings will be downgraded if we cannot control this growth in debt. Our debt has doubled in only 5 years from 50% of the GDP to 100% of the GDP. Our growth in the GDP is only 2%.

If the Fed loses control of these very low interest rates [1.7% blended, 0.4% on 2 year bonds and 3.5% on 30 year bonds] then we will run deficits. If the interest rates rose to 3.4% then the debt service would double to $424 bln and at constant spending we would run a 212 bln dollar deficit. If the rates went to 7% [actually low for indebted countries] the debt service would rise to $800 bln putting us 600 bln in deficit.

What if we triple the taxes on the top 10%? Is there any reason to believe that [1] they could even stand a 100% tax increase versus a 200% tax increase? [2] There is no way business can stand taxes of this sort. We have the most hostile place in the universe for businesses with the highest corporate tax rate in the world [35%] and the most punitive regulations anywhere.

Note that there is no solution to this problem other than to just print money and hope that the inflation rates will not get so high that they approach the hyperinflation rate of 15% per month.

Note that there is no other option baring some country [China??] just giving us a gift of, say, 5 or 10 trillion dollars to help us out.

Our economy is going to collapse from this as it is too late to cut enough spending to make a difference in our debt that now increases by some 9% of our GDP per year. In only 3 years we will, at this rate, boost our debt from 100% of the GDP to 130% of the GDP and that is stone cold busted.

We have to ask our politicians if they really understand the economics of debt. If some do, they appear to be willing to call for more spending and higher taxes and advocate our currency crashing. What do these people want to gain from this? Will they announce that ‘capitalism has failed’ and suggest some alternative?

No country has ever spent their way out of debt [Keynesianism] and we will not be the first.

rycK 7.18.11