What you are about to read is a crisis that never was, but became one, that was not necessary. A little truth telling would have spared the public considerable anxiety. But the politicians waged an unnecessary campaign attempting to persuade the public that their party was better at governing the nation than the other, called gamesmenship or oneupmenship.
“How America got itself into the debt crisis.” By Zachery A Goldfarb, Washington Post and published in the St. Petersburg Times, Tampa Edition. Sunday, 31 July 2011.
The United States isn’t broke. The government collects $2 trillion in tax revenue a year and has been able to borrow even more at very low interest rates.
Beyond government, U.S. companies led by giants such as Apple and General Electric have saved nearly $2 trillion at home and $1 trillion more overseas. U.S. banks have up to $2 trillion available to lend. Yet the U.S. government confrontsÂ a debt crisis, and fearsÂ are mounting about a possible default. How can that be?
The answer comes down to the math.
While the U.S. government’s $14.3 trillion debt is an eye popping figure, the country has plenty of resources. It’s just that over the years Americans and their leaders have chosen not to tap them to pay the government’s growing bills. So the United States could be deemed an international deadbeat for a debt load that it has the financial wherewithal to pay off.
Consider the government’s debt. Almost half, or $6 trillion, trillion is money the government doesn’t owe anyone but itself, for instance to the Federal Reserve or Social Security. An additional $3.9 trillion is owed to U.S. Investors, investment funds and companies.
So what does the government owe to the rest of the world?
It’s about $4.4 trillion. But when the government, U.S. businesses and individuals are taken together, the country as a whole owes the rest of the world only a far more modest $2.5 trillion on balance. That’s because of the trillions of dollars that Americans have invested in foreign companies, gold and other assets, offsetting much of the debt.
As a share of the country’s total wealth-or of what Americans produce every year-the country’s debt to the world is small. And it has remained constant over the past decade.
The Unites States is a lot like a rich businessman who owns two homes, a yacht and millions of dollars in stock but is in debt because he took out a big loan to buy a private plane.
The United States is a lot a rich businessman who owns two houses, a yacht and millions of dollars in stock but is in debt because he took out a big loan to buy a private plane.
The fellow could always have used some of his wealth, for instance his stock to pay cash for his plane. But he didn’t want to. Now, with the weak economy, he’s finding it hard to pay of the plane simply out of his salary. By putting most of his wealth beyond reach, he has boxed himself in.
Likewise, U.S. politicians have made a value judgment that they shouldn’t tap much of the country’s wealth to pay for government programs. That judgment, in turn, reflects the preference that Americans have expressed over the years for leaving private resources in mostly private hands.
Political leaders have actually reduced taxes-personal and corpora-to some of their lowest levels in generations and carved out a series of loopholes and policies to allow American companies and individuals to save money. And some of this money ends up leaving the country altogether.
Corporations, likewise, have enjoyed preferential tax treatment through a range of loopholes and breaks that allow many large companies to pay far below the 35 percent corporate tax rate. Again, some of these corporate savings end up invested overseas. Money generated by companies abroad isn’t taxed until it is returned to the United States-which companies are loath to do.
Frank Warnock, a professor at Darden School of Business at the University of Virginia, said government decided to make major expenditures-such as two wars-without coming up with the money to pay for them. But while the country is flush with assets, it doesn’t mean the government can seize them to pay public debt. “I don’t think you can say there are buckets of money and lets grab it,” Warnock said.
The United States finds itself in a very different situation from Greece, Portugal and other European countries that are struggling with debt and trying to avoid default. These Europeans have far less wiggle room, owing the vast majority of their debts abroad while owning relatively few assets. End Goldfrab.
Then why have the nations politicians painted such a colossal picture of financial ruin? Because, as I have tweeted and said elsewhere, it’s a capital hill game of oneupmenship. Where one side works to make the other side look bad for political gain. Knowing all the time that they will reach a compromise with one side claiming to be the real hero and accusing the other side as being the villain.
And O! how it heats up, NOW, and during the hunt for the White House by all those wanna be presidents. Scrap them all and start over-coming soon.