They owe more money than their GDP.
If we assume that GDP is the annual income of a country, basically America owes more than 1 year salary.
AND they have fixed expenses to pay, AND interest to pay.
If they don't do anything, the debt will just keep building up.
AND... they don't look like they are doing anything about it.
If we look at it as a normal human being earning $100k a year.
This person has a debt of $120k.
This person's debt is INCREASING.
This person is not paying interest OR capital.
This person is just taking another loan to service any loan that is due.
This person is telling creditors that things will get better, they will get a better, higher paying job once things gets better. They will hit higher sales targets, as long as the creditors are willing to wait.
This person isn't changing their lifestyle to decrease expenses.
Any other country in a similar situation would be in deep SH!T.
No one would keep lending them money.
BUT... this is America...
The only reason why other countries keep lending America money to service the debt...
It's not cos they believe that the debt will be repaid.
It's cos the other countries know that if USA declares bankruptcy, OR prints more money to settle the debt but in return devalue their own currency...
Well, if the US does that, then the rest of the world dies along with America.
All the country's holding of US treasuries, all their bank's holdings of treasuries, their "assets" would become worthless.
It's not cos the lenders KNOW that the US will pay them back. It's that they KNOW that if they stop lending to the US, they know that the other scenario is probably worse.
If we look at the human being example...
Well... it's something like...
The bank has $150k assets, out of this $150k, $100k is loans to this guy. $50k is lent to some other folks.
The bank also has $140k liabilities, and $10k worth of shareholder capital.
Simple accounting right? Assets must equal to total liabilities + Equity. Double entry.
IF this bank recognizes or forces this fella into bankruptcy, they would have to write off their $100k. Meaning that the bank itself would end up in financial difficulties and may end up closing down.
So it becomes a die-die situation.
There are other countries with this same benefit. Too big to fail.
US is one of them. Japan is another.
Italy and Greece are kept live by the Eurozone countries. Cos if Italy or Greece fails, then the whole EURO currency will go into a mess.
Now... will this ever melt down in the long run? Maybe... maybe not.
Fiat currency is just a numbers game. Just digital numbers. As long as the music keeps playing, people will keep dancing.
No one wants to see a whole GLOBAL financial meltdown. So all other countries continue to sing the same tune and treat US debt as good assets on their books.
Personally, I feel this is bullshit. It rewards bad behaviour cos of the fear of mutually assured destruction.
BUT... remember what I posted 2 posts ago...
I said...
I've come to view the world is irrational and it will remain that way.
I just have to live around it.
So... I just have to work around it.
For me, I would think... maybe I can capitalize on it. The idea that USA or Japan may never be allowed to fail by other countries.
OR IF I'm really concerned about a financial meltdown, then I'll just have to plan around it and make investments in the appropriate asset classes.
But hey... who knows... LOL. This is just my own opinion of this. Maybe I'm wrong and the US and Japan will be able to repay off their debts in the next few generations.
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