Friday, August 24, 2012

Is America Broke?

A few days ago, I read an assertion from a Liberal that America was most definitely not broke. This bothered me, because it was essentially untrue no matter how you look at it. has defined Broke for us. The second idiom is to go bankrupt: In that business people are forever going broke. Which seems like a pretty good example of Broke to me.

So how do households go broke, or bankrupt? First they spend more money than they take in. Check. Then they use credit to make up shortfalls, claimed at first to be temporary. Check. Then they are unable to pay bills including the credit cards due to the simple fact they are bringing in less money than they are spending. Not check, not yet anyway.

Governments are able to borrow money, we call this selling bonds. People buy the bonds in the expectation that in whatever the agreed upon number of years, they'll get their money back, plus interest. The US Government is also using a technique called Quantitative Easing. Translation, printing money. In the modern banking world, this is nothing more than logging in, and adding a couple of zeros to someones account. The money exists, because the Treasury Department just said it does.

Then they use other tricks. The Federal Reserve borrows money from the Treasury Department, and then uses the money to buy bonds from the Treasury Department, which gives the Government cash to use to pay bills. Now, if you and I tried that, we would be locked up so fast it would boggle the imagination. Try it if you dare. Go to Wells Fargo, and tell them you want to borrow a million dollars, to buy Wells Fargo Stock, which you will use to pay off the loan when they pay the quarterly dividends. They will think that is hilarious. They will think it is the funniest thing they've heard all day, possibly all week.

So is the Government Broke? We are approaching the sixteen trillion dollar debt mark. Let me type that out for you. $16,000,000,000,000. We have 314 Million people in the United States as of the last census. Now by applying a little simple division. We find that each of those 314 Million citizens owes nearly $51,000. If you are wondering, that is more than the median income for households of $46,000. You read that right. The United States Government could tax every single household at 100% of their income for an entire year, and still not raise enough money to pay down the debt.

Is that Broke? You bet your behind it is. When you are so far in debt, that you have no hope of ever paying your way out, you are broke. When you are using credit to make the end of the month arrive, you are broke. When you are creating the funds you use to pay for all your promises, you are broke. I note that if you and I tried to do any of those tricks, printing our own money for example, we would be committing crimes which would end up with years of our lives in prison.

When a business, or bank, tries to fudge their books, it's called a criminal act. When the Government does it, it's called big Government economics.

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