I mentioned in a previous post that we as a nation face two problems that are far and away the most pressing and menacing, and that almost every other problem—even all the rest combined—barely amount to a hill of beans in comparison. Those problems are: (1) our public debt, at the federal, state, and local levels; and (2) geopolitical instability and aggression. I think we need to address those two problems before we worry about anything else. And we must address them like grown-ups, who understand there is an external world with realities that we must face, not as intellectual children who believe that wishes, words, hopes, or dreams can make all of reality’s hard edges and all the world’s bad men go away.
Laurence Kotlikoff, professor of economics at Boston University, now tells us that the first problem is even worse than I feared. According to his recent arresting essay in Bloomberg, “The U.S. is bankrupt.” Using CBO data, Kotlikoff calculates the net present value of the United States debt to be $202,000,000,000,000. That is two hundred and two trillion dollars.
That is approximately $673,333.33 for every man, woman, and child in the United States.
That is approximately $2.7 million for every family of four.
And that is not considering the debt that each individual, or each family, has incurred on its own. So if you have a mortgage on your house, car, or boat, or if you have student loans or credit card bills, you have to put that on top of the debt the government has created for you.
Kotlikoff says the only ways out of our almost unimaginably bad fiscal nightmare—which is, in reality, he says, worse than that of Greece—are (a) immediate and permanent doubling of taxation at all levels; (b) radical, drastic, and immediate slashing of federal obligations (on the order of defaulting on Social Security, Medicare, and Medicaid completely); or (c) massive priting of money to “pay” the bills, leading to corresponding massive inflation. He predicts a combination of all three.
A fourth option he neglects to mention is (d), an aggressive policy of imperialism, whereby we conquer lands and territories, claim their assets, and use those assets to pay off our debt.
You don’t think (d) is possible . . . do you? Well, whether you do or not, it’s going to be some combination of those four. There are no other options.
We have been living in a fiscal fairy tale for a long time. The unprecedented wealth to which America’s political and economic institutions have given rise have also enabled us to develop and nurture a juvenile worldview of unreality, where wealth, production, goods, services, peace, and leisure are all naturally occurring features of the world—instead of fragile historical anomalies that must be carefully and diligently and continually maintained. Our wealth has allowed us to adopt adolescent economic theories that are the intellectual equivalents of “milk comes from the grocery store” and “money comes from the bank.”
At some point, adults are going to have to begin acting once again like adults, and do the equivalent of cutting up the credit cards. It is nice and fun and oh-so-freeing to live as if we had no responsibilities, as if someone somewhere else were taking care of things, as if we could act like children our whole lives. But we can’t. After decades of pretending we could, the real world is now crashing back down us with a vengeance.
Some are beginning to realize the gruesome reality we face. Koltikoff, for one, is sounding the tocsin; he is not the only one. But if his numbers are right—if they are even close to being right—it might well be too late.
Time to buy gold?