Your Money And What It Looks Like

One of the sites on the web I look at frequently is the U.S. National Debt Clock which shows in real the time our national debt, national deficit, tax revenues, Gross Domestic Product and other financial information. As I write this our national debt is at twelve trillion nine hundred seventy eight billion eight hundred fourteen...fifteen million..sixteen million. A million dollars is added to our national debt every twenty five seconds.

The primary reason for the growing national debt is the growing deficit, now over $3.56 Trillion, and growing. This number, the federal deficit number, tripled from the fiscal year ending September 30, 2008 to October 2009. With the spending on TARP, the "Stimulus Plan" adding up to over one trillion dollars a then record deficit of $1.44 Trillion while shocking was no huge surprise. Growing two and a half times from October 2009 to now however is staggering. And it keeps growing.

At one point the American public became used to government tossing around the million dollar number. Later generations became accustomed to speaking of the Federal Government spending and borrowing using the word billion. In a little over a year has the American public come to accept "Trillion" in describing budgets and deficits funded by their taxes?

The comparison below has been sent to me, and I'm sure you, many times showing how much one Trillion dollars is relative to money in our wallet. As our national deficit approaches 100% of our Gross Domestic Product I feel compelled to keep it permanently posted here.

Here is the $100 dollar bill. We don't see these as much any more since most of us get our carrying cash in twenties from the ATM or grocery store. If you want a hundred dollar bill you need to go inside the bank, or cash in your chips in Las Vegas.

Put together ten hundreds and you get one thousand dollars, stack one hundred $100 dollar bills and the bank puts a bank around the stack: $10,000. This is the stack we are used to seeing in gangster movies stuffed into suitcases or used to throw horse races, "Here Louie, see that gets to the trainer." Most Americans, even affluent Americans, have never held a stack of $10,000. I remember counting out $10,000 for a customer at Farmers & Merchants Bank in 1985 when I was a teller and thinking "I'm counting Ten Thousand Dollars!" It was a big deal, still is.

Stack up several stacks, one hundred stacks to be exact (sounds like Dr. Seuss) and you have one million dollars. Being a "millionaire" used to be really big stuff. Now shortstops who can't field, hit or run have contracts that pay them $1 million a season. Towards the end of the housing bubble there were Million Dollar homes in almost every market in the country. When reduced to a stack of hundred dollar bills on the floor one million dollars isn't as impressive as we imagine it to be.







Wow! A pallet of hundred dollar bills! This pallet is worth one hundred million dollars: $100,000,000. The standard multi-year contract for a sports superstar. Remember each of the bands is one hundred one hundred dollar bills. This pallet represents one million one hundred dollar bills. In the time it takes me to write this post this morning this amount of money will be added to our national debt obligations.






Take ten pallets and add them up and you have one billion dollars. That is one hundred thousand one hundred bills. This amount of money used to be the combined budgets of several states, now it may be the budget of a small city. We now have "billionaires" who could go to this stack of money, peel off ten of these bills ever day for over twenty five years and still have a few left over.






Each of these stacks is two-tiered of stacks of pallets containing one hundred million dollars, each level is five hundred billion dollars. This is one trillion dollars. One thousand one billions. Multiply this by three and add one more top level and that is our national deficit. Multiply this by thirteen and that is our national debt. Remember to throw on another pallet every forty minutes.

This is what our government is spending and burdening us and our children with. For those who feel the Tea Party protesters complaining about bigger government and government spending are creating false demons take a look at these pictures. Imagine thirteen times the final picture. Now imagine how we begin to make that pile smaller without crashing our economy or culture.

DCS05192010

Update: A dedicated reader sent this picture in summarizing our national debt:

You Are Government's Line of Credit

Cheap money makes products more expensive. When borrowing gets really easy money becomes cheap. The more qualified borrowers for financing for a product the higher the demand, the more bidders for the product, the higher prices climb. College tuition is a good example. As student loans became cheaper and cheaper more and more people were able to pay for tuition and tuition rose disproportionately to the value of the product produced. Now private colleges will set a family back about $200,000 for four years for a degree that is not much more valuable than that obtained from a state university (also obtained at an inflated price, albeit lower price).

A much more appropriate market to look at is the housing market. As mortgages became easier to obtain and as the amount of money needed for down payment became less and less, home prices climbed. With the introduction of 100% financing with no income documentation prices soared. Suddenly anyone could purchase a home, no money needed, your income was not a problem, hell even if you had crappy credit you could buy a $650,000 home and then all you had to do was wait until it was worth $750,000 and you could sell and make a quick hundred thousand. Or if you liked your home, you could use the same financing to pull equity out of your home. After the first refinance that lowered your rate and your payment and pulled out equity to pay off your revolving debt, you could take out an equity line and use that to remodel your home with all the finest appliances, or buy a boat.

Money for mortgages was cheap, way too cheap, and it created a surge in home prices. But what happened when the money went away? What happened when the mortgage lenders started to fall and the credit decisions became tighter? Housing prices at first stalled and then crashed. Ten percent, twenty percent, thirty percent lower. Suddenly millions of Americans are going through foreclosure, living in homes worth 50-70% of the amount they owe on mortgages and the Obama Administration is pushing lenders to modify loans, forgive principle on debt and relieve borrowers of having to make payments they agreed to make.

At the same time 8 million Americans have lost jobs. Personal consumption, which is 70% of our nation's economy, has dropped precipitously. As a result tax revenues are down, all tax revenues, income tax, property tax, sales tax, capital gains tax. Despite the rising unemployment figures and dropping tax revenues, trends that could be seen to be coming in 2007, our state and federal governments continued on their spending binges. They were like homeowners with an ever increasing home value and lenders willing to make them easy and cheap loans.

Now that the economy has gone further south state governments who do not have printing presses, have now been faced with having to cut their budgets. Despite rising unemployment last year California Democrats, aided and abetted by three Republicans and the Governor, raised taxes, essentially going back to their line of credit--you and me. No doubt they will try it again this year to protect their special interest from budget cuts, yet further cutting budgets for school districts across the state. They see us as their equity line. A cheap and endless stream of funds for them to spend as they see fit. And one can't help but get the feeling that the underlying mentality is, "Obama and Pelosi will bail us out if it gets really bad."

And why shouldn't they have this attitude? GM got bailed out. AIG got bailed out. Homeowners are getting bailed out, or at least they are trying to bail them out. Congress passed a $787 billion spending bill in a few days that went to all sorts of non-essential projects. Why would Washington not bail out California? We are a huge part of the economy, surely we are too big to fail?

The current deficit for the federal government is $1.4 Trillion. This year's spending from Washington is $3.5 Trillion. Our federal debt is $12.6 Trillion. Trillion. I'm not sure everyone is capable of comprehending how much one trillion actually is. The number is thrown around so often it has become as easy to say as "billion" but the difference is enormous. And that is what Washington has been spending with as much thought as you may put into a new set of golf clubs, actually probably less thought since they do not have to worry about paying it back, you do.

Money has become so cheap for Congress and the Obama Administration that they are re-creating the housing bubble with government debt. A health care bill that costs a couple of Trillion dollars. Stimulus packages that add up to a Trillion dollars. Spend, spend, spend, borrow, borrow, borrow. Sound familiar?

Whereas before Countrywide, Bank of America, Wells Fargo, Chase were the lenders for lines of credit that supplied the funds that helped create the housing bubble; today the American voter has become the lender for Congress and the creation of the debt bubble. Our borrow and consume mentality gave us some good times for much of the Aughts, has transferred to our elected officials. Go ahead and spend the money, it's cheap. We'll just have Treasury auction some more T-bills and write another spending bill.

Try to stop government spending and you are demonized. First Senator Bunning and last week the Republican Senators blocked legislation to continue unemployment benefits unless the funding was taken out of either the already passed stimulus bill and unused funds, or cuts are made in another part of the budget. How dare you hold up unemployment checks for Americans in need! Who cares where the funds come from? We are the federal government just spend it!

Just spend it. Borrow it. Rates are low and repayment is cheap. But for how long? How long can the debt bubble continue before it pops? Every month the Treasury has been auctioning hundreds of billions of dollars in various notes, 3 year, 5 year, 7 year, 10 year, 30 year debt auctions have been occurring all year. And most of them have been fairly well received, meaning there have been sufficient buyers to keep the rates on the notes sold low.

But this past week the sentiment was not that great. With the backdrop of Greece having difficulties with its debt, a tremor went through the debt markets. Not as big of a tremor as went through Wall Street when New Century Mortgage had capitalization problems and started the credit collapse, but a tremor nonetheless. Investors hesitated before buying U.S. debt.

Wait a minute. The U.S. outstanding debt is $12.6 Trillion and growing. It's GDP is $14.3 Trillion, and finally growing but at a slower rate. America's equity is mortgaged to almost 90% of its economy's value and they are still spending and increasing their borrowing on their equity line--the American consumer and tax payer. How much more can the United States borrow before its bubble bursts?

Cheap money leads to price inflation, which creates bubbles, which pop. When they pop prices drop, money becomes more expensive and markets collapse. Debt is a market. The more demand there is for someones debt the higher the price and the lower the interest rates the borrower has to pay. As demand wanes prices drop and rates increase. This past week demand was not as great as it has been for U.S. debt.

And Congress went on recess with Democrats upset because they could not spend a few billion dollars more on the credit line. Your credit line.

You, and me, are the lender for the U.S. government, we are guaranteeing debt that at this point approximates $42,000 for every person in America--that's $168,000 for my home, how much for yours? Like the housing and equity frenzy of 2002-2007 a bubble is growing rapidly. When will it pop and what will happen to the credit markets when that happens?

My daughters are 8 and 10, they haven't been to college, haven't bought a car, haven't even had a job yet and already both are over $40,000 in debt. It bothers me to think what that number will be when they start their careers in about fifteen years.

To follow our national debt, revenue and spending check out the U.S. National Debt Clock


DCS 03292010