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The MASTERPLAN Part 3 – Government Debt (with podcast)

by Marquette Turner

in Features, Podcasts, Special Reports, The Masterplan

PODCAST [podcast]http://marquetteturner.com/audio/090224_Masterplan3.mp3[/podcast]

It is a staggering amount of money, almost incomprehensible but currently the United States Government is running a General Fund debt of approximately $11 trillion. I find it too hard to fathom but they really are – what are they thinking?

The US Debt is spiraling out of control. On October 18, 2005 the outstanding US Public Debt past $8 trillion and is increasing by approximately $1 trillion each year. Put another way the US Public Debt increases by approximately $3.6 billion US each day. The claims of President Obama that he will reduce the deficit by half will still see the total value of US Public Debt increasing by $500 billion each year (or $1 trillion every two years – still out of control).

In the last five years, China has spent as much as one-seventh of its entire economic output buying foreign debt, most of it American. Credit rating agency Fitch Ratings predicts that China’s foreign reserves will increase by $177 billion US this year, down from an estimated $415 billion US increase last year.

China also holds more than $1 trillion US in foreign reserves which creates an enormous and hugely powerful position. Currently 40% of the US debt is owed to the Federal Reserve and 60% is owed to private individuals, corporations or other States. China is also the biggest US creditor other than the Federal Reserve.

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The US Government is planning to outlay just over $2.6 trillion in the 2009 financial year. 54% of total US Government spending is planned for military operations (past and present) – a whopping $1.449 trillion. The United States accounts for 47% of the world’s defense spending.

Tax cuts have been promised to help stimulate consumer spending and business investment. This of course means less money in the Government account to pay down the debt and the situation will just become worse. Why is so much money being spent on military operations? Why is 54% of Government revenue spent on military items?

The United States which is looked to as the economic engine of the world, with a GDP of around $14 trillion – more than Japan, Germany, China and the United Kingdom combined is looking very unstable – the credit driven growth is catching up with Uncle Sam and there are few countries, if any, with the capability of assisting to hold the US together.

The US Budget Office admits to allocating 8% of spending to interest payments on the debt – at least $208 billion US each year. This amount represents interest only payments – it does not pay down the principal by a single dollar.

With total GDP decreasing as millions of people lose their jobs, the subsequent decrease tax revenue and tax cuts exacerbating the situation, the crisis looks bleak. How does the US plan to repay the ever increasing debt?

The question which must be asked at this stage is will countries like China continue to assist the US when the problems they are facing look so serious? There is a real feeling that Beijing needs cash to stimulate its own declining economy so their priorities seem to be shifting.

China also relies on the US to drive demand for their products and they would like nothing more than US demand to return in full swing. However when so much money is owed and consideration of US repayment capacity is becoming an issue, what will be the response?

It would be against China’s interest to support the US to continue to increase its level of debt given their huge stock of US currency (more than $1 trillion US). Devaluing the US currency would decrease the value of Chinese foreign currency hold. It would also decrease China’s competitiveness in the US with the most likely outcome being the decision to decrease the value of the Yuan. This would infuriate the United States however they are in a weak position to bargain with the Chinese.

The Australian Economy

I have mixed feelings about the health of the Australian economy. The Rudd Labor Government did indeed inherit a healthy economy from the Howard Coalition Government, who had paid off $96 billion of Government debt – it took 10 years to achieve this. Consumer debt skyrocketed during the tenure of the Howard Government although publicly held debt is very much under control.

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Summary Thoughts

The Governments of the world need to carefully assess how they are spending money and think long and hard before committing taxpayer funds to bailouts or stimuli packages. The enormous level of Public Debt held by the US Government and their massive, almost outrageous annual spending on military related items must be reviewed. The ability of the US to maintain its influence in the world is greatly affected by the level of its debt. An urgent shift in thought and yes “Change” is needed now!

Michael Marquette

See the US Gross National Debt increase in front of your eyes HERE (middle right of page)

Before:

The MASTERPLAN part 1 – My “Solution” to the Economic Mess (with podcast)

The MASTERPLAN part 2 – Credit Cards, Consumer Credit & Endless Economic Growth (with podcast)

Next:

The MASTERPLAN part 4 – Banking, Insurance, Company Regulation and Limiting the Size of Corporations

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