A better understanding of just how big is the U.S. national debt

<< The U.S. debt and other promises to pay … would be about 1/3 of a million dollars per person in the U.S. >> …

Such protestations of outrage over the U.S. debt have been repeated, for as long as I can recall.

Such protestations are deceptively effective.

They don’t change how any of us lead our daily lives, how hard we work for money, or how carefully we spend what we have.

Rather they convince most of us that such matters are beyond our understanding.

There is a related, more ubiquitous yet more subtle deception that has a similar effect. There is an ongoing use of a particular metaphor, ostensibly to help us understand such economics.

That well worn metaphor compares ordinary household economics with the economics of nations that “create” money, which in present times usually means lending money into existence.

That metaphor was even used in a graduate school of economics courses that I briefly attended, and might underlay some of the economics textbooks that I never read.

Both that metaphor, and the protestations of outrage over whatever is the current national debt and unfunded liabilities obscure an essential aspect of these affairs. This aspect, in my idiosyncratic terms, is that it’s “layers”.

Time for my own metaphor:

When I was living higher up on the economic ladder, with a couple more zeros in my assets, debts, income, and expenses, if I had complained to my then young son that he should be alarmed that I was carrying debt that was about a thousand times his allowance per annum, then about all he could have said in response would have been something like “yeah, whatever Dad.” Such a complaint from me could not have elicited any useful change in his behaviour (other than perhaps his noting that Dad was grumpy and best avoided at the moment.)

What’s happening around the world, in the debt and cash flows denominated in the world’s “Reserve Currency”, the U.S. Dollar, is a different layer than what happens in the financial life of the typical American.

There are deep, entangled and turbulent connections between the two layers. Treating it all as one economic and monetary morass analogous to home economics obfuscates the distinction between these two layers and their complex connections. Baffling and befuddling people with such patentedly inadequate analogies further serves to obfuscate those connections, and to convince us all that we’re monetary morons and financial fools.

That is, I would claim, exactly one of the intentions of this well-worn analogy, to obfuscate how our monetary system really works.

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Our monetary system is not just the three layers noted above:

  1. a child’s allowance,
  2. a middle class household, and
  3. a nation hosting the world’s “reserve currency.”

Besides a likely missing layer between (2) and (3) involving corporations and lessor governments, there’s also a higher layer:
4) the quadrillions of dollars of derivatives, dark money, and deep wealth of the most powerful families.

Each layer can pretty much overwhelm the layer below it, as an elephant can squash a mouse by stepping on it.

Each layer has its own rules, participants, traditions, evolution.

To come full circle, telling me that myself and my son each owe 1/3 of a million dollars, as part of our share of the debt and unfunded liabilities of our national government in Washington, DC tells me nothing other than that I am a doomed idiot - idiot for not understanding and doomed for being in such hopeless debt.

That’s a false message, but a common message.

The “official” national debt is about 1/5 of the total U.S. debt and liabilities … something over $20 trillion. Then there are all the “unfunded liabilities,” which term means a lot more to me now that my sole source of reliable income is a social security check. Unfunded liabilities are government promises to pay someone, something, sometime in the future. Governments seem to be fond of such promises (fond of making them; less fond of paying them.)

U.S. debt plus unfunded liabilities is about 1/3 of a million dollars per person.

Just the $20+ trillion debt would be about $70,000 per person.

(Well, technically, a government’s promises to pay someone, something, sometime in the future are liabilities, which in theory might already have funds set aside to handle them, or might not. But since essentially all government liabilities are unfunded, always and forever, I just call them “unfunded liabilities”, without loss of generality.)

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The very question of whether a major nation’s liabilities are funded or not is an example of how the finances of such a nation are not like the finances of a household, or even of a corporation.

A household might “fund” the future college education expenses of a child by accumulating savings in bank or investment accounts.

This does not work, when you’re “bigger than any bank, bigger than any stock market”. A hundred billion dollar bank can easily handle your hundred thousand dollar savings account for your child’s future college education. Heck, it could handle a million such accounts.

That bank cannot handle a hundred trillion dollar account, no more than the island of Manhattan could be shipped across the ocean on the “Unsinkable Titanic”. Withdrawing even just 0.1% of such a hundred trillion dollar account would totally wipe out the balance sheet of that hundred billion dollar bank.

Not even the largest bank, JPMorgan, with assets of about 3 trillion, could handle a 100 trillion dollar account.

Governments the size of the U.S. have no choice but to work with cash flows and assets in a different way … “funded” vs “unfunded” is not a helpful distinction. I should not even have used the qualifier “unfunded”, except that it is the common way that such liabilities of the U.S. federal and state governments are qualified (by way of the same analogy I disparaged above, of household economics with money center economics.)

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All the above fussing over semantics will soon come into play in a publicly visible way.

In “normal” times, ordinary people can be more or less successful in managing their household finances, more financially inclined can tackle the problems of various corporations and governments, and the economic eggheads can study whatever economic theories are currently in favor in academia.

By way of analogy to the (not so) Unsinkable Titanic, the passengers could enjoy the bedrooms, pools, ballrooms, sundecks and restaurants, while the crew tended to the engine and navigation.

But in “extraordinary” times, all came face to face with the far mightier forces of the North Atlantic ocean.

We are now seeing the normally “hidden” power of the above described layer:

  1. the quadrillions of dollars of derivatives, dark money, and deep wealth of the most powerful families.

This is becoming visible as the balance sheet of the Federal Reserve, which seems hell bent on “owning it all.”

First, recall that in a “debt money” system, such as we’ve had for millenia, money is created by issuing two balancing financial instruments: (1) credit now, for (2) liability in the future.

When you get a loan from the bank, you get the loan amount credited to your account (so you can buy that car, for example), and you sign a loan document promising to pay that, plus interest, back in the future. Thus is money created … not out of nothing, but rather out of the bank’s power to enforce such contracts (as your loan doc) in the future.

The Fed is, directly or indirectly (via its partners in crime at JPMorgan, Blackrock, the trading desk at the New York Fed, and the US Treasury) “buying it all.”

Well, actually not all.

The independent pizza shop down the street from me may well close its doors permanently and go out of business. Domino’s Pizza and Pizza Hut, the two largest pizza chains in the U.S., may well get enough credit extended to stay in business, even expand.

It’s as if we’re playing a poker game, and we see the dealer gathering up all the chips and cards (well, except for what’s swept into a trash bin.) Perhaps the dealer has decided to change the game, from poker to blackjack, and hasn’t told us yet.

The Fed’s "buying it all" may well precede a monetary reset, as King Dollar, the world’s reserve currency for the last 70 or 80 years (depending on how you count) is retired, and a new world monetary system is instituted.

No doubt there is a lot of infighting going on behind the scenes, over various details of such a transition.

No doubt there is and will continue to be much propaganda, distraction, and disinformation for the public, in order to guide us sheeple this way or that.

The Fed is “gathering up all the cards and chips”, in anticipation of “changing the game.”

Well … it’s not the Fed changing the game. They’re just the dealer in the current game. I don’t even know yet if the Fed will still be “employed” in the casino known as the World’s Monetary System, once the owners of the casino finish their remodeling and overhaul. Nor is it the real world’s wealth, the “quadrillions of dollars of derivatives, dark money, and deep wealth of the most powerful families” that is being accumulated on the Fed’s balance sheet. Rather it’s just some “chits”, denoting some stake or other in the power and wealth of the elite.

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