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Borrowed Prosperity

October 23, 2013

U.S. debt jumps a record $328 billion — tops $17 trillion for first time

(That is $328 billion in one day!!!)

This is the headline from Friday’s Washington Times. I really need say nothing more than to leave you to think about that headline! But…

Without dwelling on how old I am, I wanted to see how this one-day debt number compared to our nation’s total debt when I graduated from high school in 1977 (yes I did graduate and yes I am that old — that wasn’t a typo!). The TOTAL accumulated debt for over 200 years of our country’s existence was $700 billion in 1977. So in one day last week we spent an amount equal to nearly half of our entire accumulated debt in the period from our nation’s birth until 1977. I checked when the U.S. debt had first TOTALED $328 billion and that was 1967.

We are now hearing arguments that we should eliminate any debt ceiling at all. “Why even have a debt ceiling anyway?” argue our media pundits. I don’t know? Maybe it is like having a child who is living off his parents. He is given a credit card and immediately goes out and maxes out the card, racking up significant interest payments and late charges. If I was this child’s parent, I would not go to little Johnny to give him a new credit card with no limit on it. I might instead give him a lesson on how finances and debt work in real life and ask him how he plans to extricate himself from the mess he has created. Our government has found that the easiest way to pay off the credit card debt is to issue themselves a new credit card. This is only possible when you hold the world’s currency and printing press.

I do not see this argument often, but this unprecedented debt accumulation is just another form of liquidity. The Federal Reserve’s balance sheet is one way of infusing unprecedented liquidity to keep the facade going, but debt accumulation and even growing your unfunded liabilities are larger ways of spending now what you do not have tomorrow. I refer to this as “borrowed prosperity.”

Our current president ran for office the first time promising to reduce the U.S. debt by half within his first term. At that time we were at about $10 trillion, so a 50 percent reduction would bring us to around $5 trillion. Maybe he meant to say he would increase debt by 50 percent — I need to get my ears checked!  What each of us needs to understand is every time we see a headline like this, it means that our savings or paycheck or pension has just been watered down. Hey, I just thought of a new term: we have been liquidi-sized. Funny, the computer wanted to change this word to liquidized, which means pulverized. OK, I guess that works also. We are living in some crazy times; the question is just how long can we stay in this craziness?

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