Roger Marolt: Roger This
December 4, 2008
I know that I am wrong. I have to be. It’s a helluva way to begin a column knowing that what you are about to say must be completely off base, but I have to throw this crooked line of thinking out there for somebody to pull taut so that I can rest a little easier.
I can’t explain why a normal person would dig into this subject, and perhaps one wouldn’t, but on a recent afternoon when the stock markets were plunging while Christmas shoppers were out looking, I got interested in debt.
I researched a few numbers on the subject and came to some startling conclusions. One thing I learned from the U.S. Department of Commerce Bureau of Economic Analysis is that household debt in the United States is now estimated to be about $14.4 trillion. This debt consists of all mortgages, home equity lines, and revolving debt, like credit cards and automobile loans.
For perspective, the much-sweated-over national debt is currently about $10.6 trillion.
This is the amount that our government has borrowed for wars, bailouts, and pork. It is interesting to see that our government has borrowed nearly as much on our behalf as we have borrowed for ourselves, but the combination of the two results in a very large number ” $25 trillion!
But, I am smart enough to know that this doesn’t tell the story. You have to compare the amount of debt we have to the amount of assets we bought with it to understand what kind of financial condition we’re in.
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To this end, I found out that the value of all residential housing in the United States is currently about $16.4 trillion. Yikes! The total value of our homes is barely more than our household debt, and falling rapidly!
I scurried to find data that would reassure me that things were better than these numbers indicated. What about stocks? Surely the value of corporate America held in our savings and retirement accounts plus the value of our homes would provide enough assets to cover our debt.
As judged by the value of the Wilshire 5000, which is an index of basically every publicly traded stock in our country, the total value of corporate America is about $8.5 trillion. So, the total value of the two largest asset classes that Americans own, their homes and stock investments, is about $24.9 trillion. But, as stated above, the total value of all personal and federal debt in this country is about $25 trillion. Holy cow! We owe more than we own!
Now I know that I haven’t considered the value of privately held businesses whose stocks are not traded and the net value of commercial real estate not owned by public companies, but my previous findings don’t lead me to believe that these assets are any less leveraged than the rest of our existence. Neither have I considered things like stamp collections and Barry Bonds’ autographed baseballs, but I’m guessing that state and local bond debt exceeds the value of these “priceless” gimcracks. Finally, I have ignored the value of our country’s infrastructure and public lands, but since we can never hawk these assets, I am leaving them out of the discussion.
And this gets me to my point: This can’t be right! America’s working capital is zero? The Land That I Love is upside down? I must have made a horrible mistake. If the numbers I looked at are correct, it means that there is no equity in the Untied States! After 232 years in business all our country has to show for its Puritanical work ethic and drunken sailor spending habits are perpetual monthly credit card payments and garages packed full of junk from Wal-Mart.
I know my analysis must be wrong, but if the scenario I have conjured points to disaster, it seems to be supported by what is going on in the economy today. A year ago when housing prices were 11 percent higher and the stock markets were up 40 percent over today, there didn’t appear to be a big problem. Our national assets were worth a lot more than our debt, and we spent enough to prove it.
Things have changed. Our assets have been kicked. It seems everything now is worth less, except for a good night’s sleep. Lenders are afraid to lend. Borrowers are afraid to borrow. Our government has tried everything from lowering interest rates to considering bailing out every bankrupt organization from Citibank to the City of Phoenix. It has been about as effective as pushing on the end of a string to untie a knot.
The problem is that debt can’t simply be wiped out. It can only be transferred to someone else. If a borrower defaults, the lender takes the hit. If terms of loans are renegotiated, investors lose. If the government buys up bad loans, they are transferred to the taxpayers. It’s like shuffling cards to get all the aces on top of the deck, but the jokers are still going to show up in someone’s hand.
We are not creating net worth by shuffling our debt around. The government knows this. They are trying to spread the debt around so that people who haven’t borrowed too much shoulder some of the existing troubled debt so that those who borrowed too much can now borrow even more. It is hoped that this will encourage people to start spending again which will cause high inflation resulting in soaring asset prices which will then outpace our debt once more. And you thought Twister was the most
dangerous game from the 1980s.
It seems to me that a better idea for the long run would be to decrease our suffocating debt burden by borrowing less and paying off existing loans, by wanting less and getting by with what we have, by realizing that materialism isn’t all it’s cracked up to be, by simplifying and living within our means for a change. But, I’m sure I am wrong about this, too.