It’s Time to Declare a Financial State of Emergency

Most AT readers regularly consume staggering numbers about our debt and deficit, but not all those that report this news will put those numbers in a perspective that provides meaningful context. I will try to do that here.

The USA is on track to have a national debt of $35 trillion very soon, which is rising by $1 trillion about every 100 days. That’s $3.6 trillion every year. We’re no longer doling out free cash for COVID, so it’s a good assumption the $3.6 trillion additional annual debt is this administrations “business as usual.”

According to Financebuzz total private wealth in the U.S. is about $111 trillion. Cross-checking with other sources and doing the math; according to U.S. Census, there are 125,736,353 households and the average net worth for U.S. families according to nerdwallet is about $1.06 million, (referencing Federal Reserve Board’s Survey of Consumer Finances). This computes to $94 trillion. So, just for the sake of argument let’s round off the total privately held individual wealth in the U.S. to $100 trillion.

For the record, a lot of sources like to use “median” when presenting numbers like wealth, income, etc. Median is not mathematically useful in calculations because it is a number that is corrected by the number of values in a data set. Median income and wealth are presented substantially lower than the average (in the U.S.) because there is a smaller number of people with much greater wealth and income than those with very little wealth and income, so a “median” number will be biased by the number of people represented in the sample with very little wealth or income. I have no problem with “median” as an interesting reference, but it’s basically useless in computations.

Moving on, at a rate of $3.6 trillion added debt per year, it will only take 17 years for the national debt to match the total of American citizen’s private wealth. That alone should be enough to declare a State of Emergency, but there’s more.

Is all that private wealth liquid (cash)? Nope. Americans only have about $1 trillion in liquid personal savings in the United States, the rest of that $100 trillion wealth is mostly in non-liquid assets, which cannot cover the debt if the economy crashes from debt default because current value of non-liquid assets depends on a strong and predictable economy, not a volatile one.

Is the debt being serviced entirely by private sector income? Nope. Average household incomes are $87,864. Not all of that comes from the private sector, however, so we must correct that number by income obtained from the governments from taxes paid to the governments. I’m making the gross assumption here, just for the sake of argument, that money spent by a government eventually largely makes its way to personal income, be it thru wages, contracts awarded to companies who pay wages, service providers who pay wages, direct SSA and Medicare benefits, even the profits of privately and publicly traded companies who are paid by the government must eventually distribute those funds will pay dividends. So, for now I believe that is a safe assumption.

Federal spending will be about $6.5 trillion. Much of that is delegated to the states for various reasons, so we can’t look at state spending as a reliable figure, but we can assume state tax income (overall) is about their level of spending because they are supposed to be reasonably fiscally responsible since they can’t print money (California and New York are exceptions to the rule of fiscal accountability). Total state income is about $1.5 trillion.

Doing the math once more, total household income is about $11 trillion (125,736,353 households times $87,864 average household income), but we must cut that back by Fed spending and state income which totals $8 trillion, leaving only $3 trillion coming from the private sector. That ratio will be rapidly changing for the worse as the baby boomers continue to enter retirement and add to the already overwhelming SSA and Medicare burdens and stop contributing to private sector GDP.

Looking at it another way, currently federal and state spending funds approximately 70% of its own tax income through its own spending. You reach communism at 100%

Is it time to declare a State of Financial Emergency?