Friday, December 7, 2012

Joe Weisenthal's Amazing Don't Sweat the Debt Chart

A few readers have asked me to comment on the Joe Weisenthal "Chart That Really Puts Our National Debt Into Context"

Weisenthal writes (my highlight):
The Federal Reserve's quarterly Flow Of Funds report came out today. It contains a wealth of information related to the balance sheets and incomes of various parts of the economy: households, corporations, non-profits, levels of government, and so forth. 
Calculated Risk presents what is one of the most important charts derived from the data: Household Net Worth as a Percent of GDP.

As you can see, household net worth is over 400 percent of GDP. This is really a key thing to realize and think about, when you talk about "the national debt." The debt that is owed (much of it to ourselves and the Fed) is dwarfed by the assets that households have. Remember, the national debt is somewhere around 100 percent of GDP. Ultimately, government debt flows through to households, and so even after household debt, the net worth of America is massively positive. We're not broke at all, or even close.

Weisenthal's comment is complete rubbish. Household net worth being high doesn't have a damn thing to do with the national debt problem.

Warren Buffett, Sheldon Adelson and other oligarchs may have total net worth in the trillions, but what exactly does this have to do with most Americans, who if they have any substantial wealth, have a large part tied up in a house? In other words, if the government needs to pay off its debt, and it goes to the average American to do so, it is a big problem, especially since the oligarchs are part of the "protected rich," which means they will always have legislation that will protect them from, among other things, severe taxation.

Weisenthal's chart is typical Keynesian aggregative muddle headed thinking. The national debt is a problem because 1. interest rates will eventually rise, resulting in a huge increase in the deficits and 2. the government will go to the average American to pay down the escalating debt. The government  will take from, among others, those who have little, no or negative net worth, by taking from income streams---regardless of a person's net worth.  That's the problem.

The per capita debt is now over $53,000---most Americans have nowhere near that kind of cold cash to payoff the debt---or support from income streams higher interest rates on that debt.

Further, Weisenthal's entire argument assumes that the government has some kind of right, in the first place, to go to Americans minding their own business and taking their money to pay down the debt---debt created to finance the expansion of the ever intrusive empire.

Business Insider tends to be a  soft thinking, interventionist thinking, apologist for government intervention in the economy. This is just another example of that. 


  1. That 400% GDP is NOT the Government's money. Simply more collectivist garbage.

  2. Preaching to the choir, but to me that 400% of GDP net worth represents the capital stock of the economy. Do we really want to start liquidating that to pay off debts? That would completely destroy our future ability to earn and pretty well put us back into the 1800's. I'm sure that's no big deal.

  3. As. Sovereign nation issuing its own currency and borrowing in its own currency the United States is not revenue constrained. What is seen as debt is the dollars that's already been spent into the economy and saved by non-govt sector and now moved to a interest bearing account at the Fed.

  4. The amount of assets to debt ratio is only relevant if the debt were to be liquidated. It has zilch, nada, nothing to do with the servicing of the debt which is what drives a debt crisis. Can't believe this guy is an economist making this argument. This is pretty basic stuff.

    If I am worth $4mil and my debts are $1m but my income falls and I can no longer service my debt, the only relevance my net worth has is that it can be liquidated to pay off my debts. Having $4mil in assets has nothing to do me being able to service the measly $1mil of debt.

    Of course the government doesn't actually own these assets and thus if did not service its debt, the holders of its debt could not confiscate these assets, so they are irrelevant. But let's say one of these left wing nuts actually convinced the government to confiscate assets and pay off the debt. The problem would be that such a move would destroy the value of the assets to point of probably only being worth a fraction of their present value. This is because the only way the government could sell those confiscated assets would be at a steep discount since any would-be buyer would understand that his property could be arbitrarily confiscated like the last owners. Once property rights come into question, property loses most of its value.

    1. That's the problem with "value". Right now gold is +/-$1800. If a meteor shower of pure gold hit the planet, doing no damage, and the supply of gold increases by 100x then gold would fall in scarcity, and thus (probably) in value.

      My house is only valuable to another buyer as long as I have clear title and a government that protects that title. Confiscation would damage the value, and thus the 400% value is arrived at by assuming protection from confiscation.

      Lord, these people need courses in logic, and Weaslethal (typo-it stays) needs to get a grip.

  5. As a sovereign nation issuing its own currency and borrowing in the same currency, the United States is not revenue constrained. What is seen as debt is the dollars that's already been spent into the economy and saved by non-government sector and now move to interest bearing account at the Fed.

  6. Start a petition to abolish all govt taxing power, but be careful about putting you'r names on it, might end up as an associated force of a terrorist group and be assassinated by dear leader....hopeless

    1. I agree with ending all govt taxing power. But to me, what's even scarier than being killed is being sent to a federal "pound me in the ass" prison, for years, or life.

      To me, the government's ostensible aims to move from soft-fascism to all-out totalitarianism is a huge mistake on their part. They have too much fear to exploit, as is, and overwhelming cooperation with the current system.

      I suppose their imminent bankruptcy is why they would make the move. I think Gary North is right: the youngsters are going to stiff the oldsters when they become tired of paying into the system, while getting poorer.

      Millions of baby-boomers did Ok in times past. The warfare/welfare state has got to end. The age of universal plunder has got to end. I can't wait to see if personal responsibility, unfettered by government, makes an epic return.

    2. I definitely agree with your point the problem is becoming more of an international one though, SDR's are becoming a topic for a new monetary system, the UN controls a lot of US foreign policy not to mention NATO and is trying to regulate the Internet. This is ominous, the total lockdown of world gov't may happen before total tyranny had set in. Not that things aren't bad now, but people in power know the system is unviable economically, and will not give up power easily. While I root for our younger generation taking up Dr. Paul's mantle, the hour is late and each day govt conspires against all of us to control the world. I believe it was Paul Warburg who said, "We shall have world govt, by force or peaceful means". Paraphrasing but you get the point.

  7. One of my employees is a trust-fund baby worth many millions of dollars.

    So, since he is my employee can I list his assets to secure loans for my cash-losing buisiness?

    Basically it works like this:

    -Entity A (myself) is operating at a loss and funding expenses from an expanding credit line.

    -I nominally have authority over Entity B, who separately from this authority relationship has significant assets.

    -So, from my position of authority can I pledge my employee's personal assets as collateral for loans in my cash-losing business?

    It appears that Joe Weisenthal's answer is, "YES!"

    If he answers differently one must ask how the above scenario is different from the scenario he raised.

    The only difference is that the authoritarian relationship in question is called 'Government' rather than 'Employment'. But aside from the name, what is it that he is asserting as different?

    Does government own people outright, and thus also own all their property?

    And if Weisenthal claims the difference is the power to tax, then we must ask whether it is realistically possible to tax assets on such a scale and retain the support of their citizens?

    His attitude will be laid bare as starkly openly autocratic.

    He thinks you and I (and maybe even he) are the property of the government, and that government can continue without the support of its citizens...

    ...or his argument falls apart.

  8. The national debt people usually talk about is only a fraction of the problem, right? I'm on a phone but isn't that number like $16 trillion but if you include future unfunded liabilities it is over $75 trillion and possibly a multiple if even that? So, the government has at least $75 trillion in debt while that Fed report says Q3 2012 household net worth was just under $65 trillion. I'm not a mathematician but I think 75 is bigger than 65. So, government debt is over 400% of GDP and what like 2000% of federal taxes?