Go to the bank and request a loan. When they ask for you to provide information breaking down your financial health, ability to repay, and capacity to borrow, instead of providing your information provide them with the following:
-You’re current unsecured debt to income ratio is 110%
-You have more debt than the 10 other households combined on your block
-You have exhausted all alternative private and public credit resources
-You have long term unfunded liabilities amounting to 3-4x your current debt holdings
-You have little to no assets that you can put up for collateral as any assets you do have are already overleveraged.
-Your work in the service sector, nothing you make or do produces assets or utilizes commodities that could secure your current or future debt.
-Trending the recent historical rate that you have been acquiring debt, 100% of your income will be allocated strictly to paying the interest on your debt in the coming years.
You do not need to be the CEO of Bank of America or JP Morgan to conclude that it would be unwise to loan to a potential borrower with these statistics. But, the bank is curious, what possibly could you be wanting to spend this money on if that is your current situation? Potentially some capital investment with the hopes of providing goods or expanding services to your neighbors? When the banks asks what you plan to do with this new credit provide these reasons:
-One of your friends down the street is in a fight with another household and you want to give them money and supplies to help.
-Another one of your neighbors kids broke their leg and needs money for their medical bills.
-Your parents are not of working age anymore so you will give them some to live on.
-You want to hire someone to fix the sidewalk out in front of your house because no one can get where they need to go otherwise.
-You need some personal stimulus so you plan on using a portion of it to buy stuff for yourself.
-A large portion of your debt is short term and you need to roll that debt over.
-The credit amount required is larger than any other you have been granted in the past.
At this point in time, if the bank hasn't kicked you out it must be from pure shock and amazement from the information you have provided them. There is absolutely no way that you would be granted any kind of credit. As the reader, regardless of your financial and banking knowledge, I would hope that this example seems so wildly ridiculous that you would imagine it must be from a work of fiction or fairy tale. But, it is not fiction, it is noy a fairytale with some magical happily ever after ending. You have just attempted to acquire credit using the financial statistics of the United States Federal Government.
Flawed economic theory has led us to the exact place described above. The idea that finance and economics does not operate in the public sector as it does in the private sector is a prominent theory in economics that has been the excuse to do exactly what was laid out. One flawed economic theory used is that so long as our GDP, gross domestic product, continues to trend up, then our national debt doesn't matter. But the way that the government measures GDP undermines the theory altogether. The government effectively measures GDP as a function of aggregate demand, so they measure it based on spending. If, say for example, they write everyone in the country a $1500 check and everyone goes out and spends it, they claim GDP has risen disregarding the fact that they borrowed that money to begin with. They also do not consider what the money is spent on. Bringing it back to the household example that would be the equivalent of telling the bank that you were given $1000 from your neighbor (that you actually borrowed). You used that $1000 to pay someone to wash your car, and from that, look at how much productive work you created. It doesn't matter that once the money is spent you have nothing to show for it but still have to repay the loan, or that the services you paid for only provide marginal returns. You spent $1000 on services that increased the potential value of the only asset you have, your car, by a fraction of the money spent, maybe $100 at best? As stated, that is one of the principal considerations the government uses to determine their capacity to take on more debt, but when deconstructed it makes no sense.
Another theory oversight would be how the government also likes to pretend that the debt they have and continue to build is transitory. They tell markets, the Treasury, the Federal Reserve, and current/future bond holders that their current and future debt levels can be disregarded as they intend to pay them off. Look at the federal government as if they have no debt simply because they say not to worry about it. Try that position with your local bank and see how far it gets you. Your financial health is in turmoil, as you laid out for them, and you really have little to no plans with the new credit you are requesting that will provide a return of any kind. They just need to simply look past all that as your ultimate plan is to just pay it back eventually. This is the real position our government takes when it comes to addressing the debt and how it should be considered.
As if the Federal Government wasn't in enough financial trouble already, one of the biggest concerns is the amount of unfunded liabilities that will be coming due over the remainder of this century. Unfunded liabilities are promises the government has made to pay in the future but have no immediately available or planned funding source for. The 2 biggest contributors to the Government's balance sheet of unfunded liabilities are Medicare and Social Security, accounting for upwards of 95% of these promised payments to come. Many economic and finance sources have estimated the total amount of unfunded liabilities through the remainder of this century to be in the ballpark of just south of 100 Trillion dollars. Just for reference, 50 years ago America was still under 1 trillion dollars of debt, and now we are over 33 Trillion. Over the next 75 or so we have planned nearly triple that amount of spending coming due with no funding source at all. Going back to the household and bank loan request, go ahead and add on top of your balance sheet college tuition for your 2 children. It's not due now, you don't owe it, but you've promised it and it will be a significant payment that you have absolutely no plan for.
What may be the most concerning statistic of all of them all is the amount of interest on the Federal debt. While the exact numbers are possible but tedious to calculate considering there are so many different types of debt at so many different maturity rates, it is easily calculable that about 30% of it is coming due in less than 12 months. This adds up to somewhere around 8 trillion dollars of debt due in the next 12 months. While the number skews a bit based on the source and calculation method, the Treasury and many other finance resources put the amount of tax revenue collected in 2022 at right around five Trillion dollars. If you trend the growth of tax revenue collected there is a generous but still somewhat practical expectation that the government may collect somewhere between 5.5 trillion and 6 trillion for the year of 2023. As stated, they have around 8 trillion in short term debt coming due. All of the tax revenue is claimed for debt. What are they going to do? They’re going to attempt, and probably succeed, at rolling it over. They’ll simply take out more debt to cover what is coming due. But, it's not like they can pay 5.5 trillion of it and then borrow the remaining 2.5, they still have to run the government. That, according to the Treasury, in 2022 amounted to a bit over 6 trillion dollars. There's 8 trillion in debt coming due, 6+ trillion in operating expenses, and the expectation of at most 6 trillion in revenue incoming. The math simply isn't mathing very well for the Federal Government.
Being that Fed knows this is coming, they have 2 options. They can throw their hands up and tell the world they are insolvent, they just can’t pay, which will never happen. They can continue to roll the debt over, which they will continue to do as long as they can. But, as we have experienced over the last 20 years, this is going to continue to devalue the dollar. No one is going to want to loan the US Government money because the Federal reserve will continue to hold interest rates lower than real market rates. But, they can’t hold them too low as they are facing continued scrutiny over loose and cheap money policy causing so much inflation. They also can't raise them too high because not only would that eat away at the government's ability to continue this ponzi scheme but it also puts bondholders underwater. Treasury bonds are already effectively underwater as they aren't beating inflation rates. When interest rates rise and the written return becomes less than the current loan rate, your effective rate is negative. You’re paying the government to loan money from them. All it took was interest rates in the 4’s to take down a string of banks earlier this year. They held massive amounts of US treasuries that went nominally underwater when interest rates rose. When there was a bank run from depositors and the banks could only sell their bond holdings for pennies on the dollar and they couldn't give depositors their money back.
The last time we saw inflation and price increases like this it took 20% interest rates from the Federal Reserve to correct course. That was in the 70’s when our national debt was under one trillion dollars still, we had relatively balanced trade, and debt levels across the board were not at all time highs like they are now. We couldn't handle high 4% interest rates without banks collapsing earlier this year. We expect the Federal Reserve to be able to ease us into a soft landing low inflation economic environment in any formidable way? The next economic crisis is on the horizon and it will be a sovereign debt crisis. As a country we are simply too overleveraged in debt to the rest of the world and the borrowing well is running dry. The Fed knows they can at least get away with lying about borrowing money, acting like it's going to get paid back. They know they can’t flat out say they're going to print it. The bankers of the world are tired of financing our delusion.
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