(Roughly) Daily

Debt is the slavery of the free.
– Publius Syrius

Earlier this month The CIA World Factbook updated it’s league table of national current account balances.  Through 2007, China holds down the top of the list, with a $360.7 Billion surplus, followed by Japan (+$212.8 Billion) and Germany (+$185 Billion)…

At the bottom of the list, the United States, which had a 2007 current account deficit of $738.6 Billion (roughly five times the deficit of “runner-up” Spain, at -$145.6 Billion)…

It’s only, of course, because the U.S. and its economy are so large– 2007: 300+ million people, and a GDP of $13.84 Trillion– that we can borrow so heavily.  Still, it’s interesting to see the U.S. current account on a per capita basis, and in a global context (2006 figures used here, but the relationships are relatively stable 2006 to 2007):

source (data, from the IMF)

Current account deficits are only part of the picture, of course. Gross “national debt” (money owed by the U. S. federal government to creditors who hold U.S. debt instruments) totaled just over $9 Trillion in 2007.  (It’s at about $9.67 Trillion now.)  And it’s climbing as a percent of GDP.

source

In 2007, the U.S. paid $433 Billion (of $2.7 Trillion received in taxes) on interest on that debt; that total figures to rise over the next several years.

Your correspondent has struggled unsuccessfully to find a punch line for this entry in a series of posts intended to be amusing.  While not a Keynesian, he’s certainly no “debt hawk” (the quote at the top notwithstanding :-)  Indeed, investment in valuable new production capacity– e.g., alternative energy technologies–(and the infrastructure that they require) could be just what the doctor ordered.  There are no strong countries without strong economies… at least, not for long.

Still, he notes that the figures above pre-date largely the bursting of the housing bubble, and the resultant recessionary year in which the U.S. has kept expense on the the war in Iraq roughly constant ($133 Billion so far publicly acknowledged for 2008) and has addressed the recent financial industry unpleasantness (a likely $200 Billion– as against $6,000 Billion in debt exposure*— for Fannie and Freddie; the neo-Resolution Trust, still to come)…  so he finds the likely implications of all this hard to reconcile with assurances that “the system is fundamentally sound.”  It’s looking, best case, like a longer, slower work-out than too many politicians would have one believe.  It’s going to be tough to find the capital to sink into those promising new technologies, and tough– probably tougher still– to find the money to support the education, health care, and infrastructure investments that can provide the foundation on which those new opportunities can flourish.

But then, that just means that we have to try harder.

*The estimated $600 Billion in Fannie and Freddie credit exposure is a very small fraction of all of the at-risk credit outstanding.   As the NY Times pointed out back in February, the mortgage securities market had risen to $7.1 Trillion (a third the size of the stock market in volume) by then– and the credit default insurance market, to a whopping $45.5 Trillion (current estimate– $60-80 Trillion… remembering that GDP is “only” $13.84 Trillion)…

One feels the need to revise Everett Dirksen’s famous quip.  Perhaps now we should say, “a trillion here, a trillion there…  and pretty soon you’re talking real money.”

As we think again about Polonius’ advice, we might recall that it was on this date in 1869, commonly known as “Black Friday,” that gold prices plummeted, sending markets into a spin. Jay Gould and James Fisk had conspired to inflate and then corner the gold market– primarily by spreading a rumor that President Grant was about to stop the sale of government gold.  Grant had initially bought into their logic (believing that the sale of government gold would hurt farmers and small entrepreneurs). But the president eventually saw through the scheme and, in response, put $4 million worth of gold on the market. The price of gold in specie, which had risen to $163.50, promptly dropped to $133.  Investors were ruined and the economy went into a tailspin.  (Gould quietly dumped his share of the gold before the collapse, leaving Fisk holding an enormous loss, and Grant, with [another] blemish on his record.)