Racism. Default. Debt. President: Small Answers, Big Problems

There Are No Easy Solutions, But There Are Short Answers

Black White Mice in Bowls
Our Country's Big Problems. Karen Moskowitz

You need to balance your busy life with the bottomless ocean of information which flies at you every day.  Well to help out, here are some of the most important concepts which will affect you, explained incredibly simply. 

Will America Default on Our Debt?

Yes. It is a 100% mathematical certainty.

What Does a "Default" Mean?

When a person or country owes money, they have the responsibility to pay back what they borrowed.

Typically, this involves giving most of it back with a big lump-sum payment near the end of the period for which it was borrowed. However, the responsibility also includes servicing the debt, which is just another way of saying making ongoing interest payments.

If any of these interest payments are not made when they are supposed to be, or the big interim payments made as per the agreed-upon schedule, then the borrower is considered to be in default.

This speaks to the nation's (or person's) ability to make good on money they borrow. However, it also makes the lenders nervous, and in the future, they will need to receive even more in terms of ongoing payments.  

Is There Racism in America?

Yes.

What Is a Recession?

A period of economic decline, where employment, industrial production, income, and the total productivity of the nation shrink. Typically, if various economic aspects of the economy display a decrease over 2 quarters (6 months) or more, the country is in recession.

Are We In a Recession Now?

Yes - either that, or we are approaching one right now. Since the technical definition of recession is predicated on economic data points which trickle in after the fact, we will find out if we are in recession right now, but not until the coming weeks and months.

What Are Negative Interest Rates?

Typically, you receive a little bit of interest on your savings.

The amount you get is based on the interest rate that your institution pays you, which is in turn based on how much the Central Bank will pay them.

Negative interest rates occur when a nation's Central Bank charges interest on deposits, rather than paying that interest out. Those "punitive" rates get passed on to the financial institutions, and they, in turn, hit you (their customers) with them. Instead of $100 eventually becoming $101, then $102, then $103... that money becomes $99, then $98, then $97...

It is theft. As I explained, the idea is that consumers will go out and spend their money, rather than keep it in their bank account and that increased activity will help the economy grow.

What Is the Value of Money Based On?

American currency (like most others worldwide) is basically an idea that we all agree upon. Technically, it has no worth - it is fiat, which means the value was created by the decree of those in authority. In other words, the government told us it is worth something, and we have gone along nicely.

American money was not always fiat. In fact, the dollar used to be linked to precious metals, like gold. Each dollar was worth 1.67 grams of gold, so if you had a buck, you could know that it was worth at least a little bit of something tangible.

You generally don't burn $20 bills for heat, or eat them for sustenance, or build things out of $5 bills. If someone gives you $100 for your services, you must trust that another person will also recognize that same value, and provide you with somewhat comparable goods or services for that money.

As long as people recognize the value of the dollar (meaning that they are still "playing along" with this idea that we are all agreeing upon), then our currency will remain intact, and hold value which can be passed around the economy, from waiter to actress to stock broker to surgeon to waiter...

Should the American Dollar Return to the Gold Standard?

There is too much American money in circulation to return to any meaningful gold standard or silver standard. There simply are not enough of the precious metals in the entire world to attach any such obligation to the US dollar.

Meaning, if each buck is exchangeable for one seventeenth of an ounce of silver, we wouldn't even come close to being able to realistically cover the "promises" made.

This is part of the reason for my bullish outlook on precious metals prices like silver and platinum.

What Is the Debt Ceiling?

The US Congress decides on the upper limit of how much money the government is authorized to borrow. This is not much different than the limit you may have on your credit card.

The problem is that the money's already spent (on things like soldier's salaries, government workers, debt payments, etc...), and raising the debt ceiling is actually just a formality to allow for the bills (which are already racked up) to be paid. The choice about whether or not to increase the level is really just a decision about whether to pay what is already owed or default and not pay.

The debt ceiling is arbitrary. They could just vote to double it or triple it today. What is not arbitrary is the reality that, as a nation, we are dramatically over-spending.

So if the debt ceiling does not continually get raised, many elderly will not receive their pensions, Federal workers would go without pay checks, active military personnel would not receive their salaries, and police, fire-fighters, and ambulance workers not get compensated for their efforts.

How Much Debt Does America Have?

As of 2016, $19,260,200,000,000, give or take a couple bucks. That's 19 trillion, for those who got lost in the zeros. That's about $60,000 in debt per citizen (babies included), or $160,000 for each taxpayer.

That does not include the $102 trillion in "unfunded liabilities," which is made up of items like social security and medicare. The amount of liability for each US taxpayer from these aspects of the economy is about $853,109 each. In other words, it is a joke, and this game of hot potato will end badly for just about every person who is expecting anything from social security or medicare in the long term.

How Much Oil Is There in the World?

According to BP, there are about 1.8 trillion barrels worth, as of 2016, which could be realistically recovered. Meanwhile, the International Energy Agency (IEA) estimates the world uses up about 85 million barrels each day.

If you do the simple math (1.8 trillion, divided by 85 million/day), global oil reserves will run dry by the year 2068, as I explained to you. Of course, as we start running out of oil, prices would rise, making new technologies more pressing and widely adopted, while renewable energy sources became commonplace.  

Hopefully, the world does not engage in irreversible war before then, as powerful militaries squabble over the remaining supply... And hopefully, the earth's population stops increasing... And hopefully developing nations stop guzzling supplies quite so quickly... And hopefully, the world's economies stop growing...

We should be fine. I mean, what could go wrong?