It Is Mathematically Impossible To Pay Off All Of Our Debt

Money - Public Domain

Did you know that if you took every single penny away from everyone in the United States that it still would not be enough to pay off the national debt?  Today, the debt of the federal government exceeds $145,000 per household, and it is getting worse with each passing year.  Many believe that if we paid it off a little bit at a time that we could eventually pay it all off, but as you will see below that isn’t going to work either.  It has been projected that “mandatory” federal spending on programs such as Social Security, Medicaid and Medicare plus interest on the national debt will exceed total federal revenue by the year 2025.

That is before a single dollar is spent on the U.S. military, homeland security, paying federal workers or building any roads and bridges.  So no, we aren’t going to be “paying down” our debt any time in the foreseeable future.  And of course it isn’t just our 18 trillion dollar national debt that we need to be concerned about.  Overall, Americans are a total of 58 trillion dollars in debt.  35 years ago, that number was sitting at just 4.3 trillion dollars.  There is no way in the world that all of that debt can ever be repaid.  The only thing that we can hope for now is for this debt bubble to last for as long as possible before it finally explodes.

It shocks many people to learn that our debt is far larger than the total amount of money in existence.  So let’s take a few moments and go through some of the numbers.

When most people think of “money”, they think of coins, paper money and checking accounts.  All of those are contained in one of the most basic measures of money known as M1.  The following definition of M1 comes from Investopedia

A measure of the money supply that includes all physical money, such as coins and currency, as well as demand deposits, checking accounts and Negotiable Order of Withdrawal (NOW) accounts. M1 measures the most liquid components of the money supply, as it contains cash and assets that can quickly be converted to currency.

As you can see from the chart below, M1 has really grown in recent years thanks to rampant quantitative easing by the Federal Reserve.  At the moment it is sitting just shy of 3 trillion dollars…

M1 Money Supply 2015

So if you gathered up all coins, all paper currency and all money in everyone’s checking accounts, would that even make much of a dent in our debt?

Nope.

We’ll have to find more “money” to grab.

M2 is a broader definition of money than M1 is, because it includes more things.  The following definition of M2 comes from Investopedia

A measure of money supply that includes cash and checking deposits (M1) as well as near money. “Near money” in M2 includes savings deposits, money market mutual funds and other time deposits, which are less liquid and not as suitable as exchange mediums but can be quickly converted into cash or checking deposits.

As you can see from the chart below, M2 is sitting just short of 12 trillion dollars right now…

M2 Money Supply 2015

That is a lot more “money”, but it still wouldn’t pay off our national debt, much less our total debt of 58 trillion dollars.

So is there anything else that we could grab?

Well, the broadest definition of “money” that is commonly used is M3.  The following definition of M3 comes from Investopedia

A measure of money supply that includes M2 as well as large time deposits, institutional money market funds, short-term repurchase agreements and other larger liquid assets. The M3 measurement includes assets that are less liquid than other components of the money supply, and are more closely related to the finances of larger financial institutions and corporations than to those of businesses and individuals. These types of assets are referred to as “near, near money.”

The Federal Reserve no longer provides charts for M3, but according to John Williams of shadowstats.com, M3 is currently sitting somewhere in the neighborhood of 17 trillion dollars.

So even with the broadest possible definition of “money”, we simply cannot come up with enough to pay off the debt of the federal government, much less the rest of our debts.

That is not good news at all.

Alternatively, could we just start spending less than we bring in and start paying down the national debt a little bit at a time?

Perhaps that may have been true at one time, but now we are really up against a wall.  Our rapidly aging population is going to put an enormous amount of stress on our national finances in the years ahead.

According to U.S. Representative Frank Wolf, interest on the national debt plus “mandatory” spending on programs such as Social Security, Medicare and Medicaid will surpass the total amount of federal revenue by the year 2025.  That is before a single penny is spent on homeland security, national defense, paying federal workers, etc.

But even now things are a giant mess.  We are told that “deficits are under control”, but that is a massive hoax that is based on accounting gimmicks.  During fiscal year 2014, the U.S. national debt increased by more than a trillion dollars.  That is not “under control” – that is a raging national crisis.

Many believe that that we could improve the situation by raising taxes.  And yes, a little bit more could probably be squeezed out of us, but the impact on government finances would be negligible.  Since the end of World War II, the amount of tax revenue taken in by the federal government has fluctuated in a range between 15 and 20 percent of GDP no matter what tax rates have been.  I believe that it is possible to get up into the low twenties, but that would also be very damaging to our economy and the American public would probably throw a huge temper tantrum.

The real problem, of course, is our out of control spending.

During the past two decades, spending by the federal government has grown 63 percent more rapidly than inflation, and “mandatory” spending on programs such as Social Security, Medicare and Medicaid has actually doubled after you adjust for inflation.

We simply cannot afford to keep spending money like this.

And then there is the matter of interest on the national debt.  For the moment, the rest of the world is lending us gigantic mountains of money at ridiculously low interest rates.  However, if the average rate of interest on U.S. government debt was just to return to the long-term average, we would be spending more than a trillion dollars a year just in interest on the national debt.

So the best possible environment for “paying down our debt” that we are ever going to see is happening right now.  The only place that interest rates on U.S. government debt have to go is up, and our population is going to just keep getting older and more dependent on government programs.

Meanwhile, our overall debt continues to spiral out of control as well.  According to CNBC, the total amount of debt that Americans owe has reached a staggering 58.7 trillion dollars…

As the nation entered the 1980s, there was comparatively little debt—just about $4.3 trillion. That was only about 1.5 times the size of gross GDP. Then a funny thing happened.

The gap began to widen during the decade, and then became basically parabolic through the ’90s and into the early part of the 21st century.

Though debt took a brief decline in 2009 as the country limped its way out of the financial crisis, it has climbed again and is now, at $58.7 trillion, 3.3 times the size of GDP and about 13 times what it was in 1980, according to data from the Federal Reserve’s St. Louis branch. (The total debt measure is not to be confused with the $18.2 trillion national debt, which is 102 percent of GDP and is a subset of the total figure.)

As I discussed above, there isn’t enough money in our entire system to even pay off a significant chunk of that debt.

So what happens when the total amount of debt in a society vastly exceeds the total amount of money?

Is there any way out other than collapse?

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Capn Mike
Capn Mike

It’s ok!
We’re Amurka! The eggsheptshunnal nation!! The rules just don’t apply.

Actually, I had a theory back in the Dick Cheney days. “Deficits didn’t matter” due to two little words: “Nuclear Blackmail”.

Gryffyn
Gryffyn

Just wondering….How much of my $145k is owed to the Fed?

AC
AC

Can we pay it off with cans of ground politicians*?

* May contain up to 10% corporate executives, judges, bureaucrats, lobbyists, roadkill, and/or assorted zoo animals.

llpoh
llpoh

The author is incorrect – the debt can be repaid. Really. It just cannot be done at the current “value )or lack thereof) of the dollar.

Inflation is the answer – which is one reason that governments are so shit scared of deflation.

If there is, say 10% inflation per year, then the debt balance effectively will fall by 10% each year – voila! the $53 trillion magically becomes but $48 trillion.

The problem of course is how to manage inflation at say 10% or 12% or some such. Because it can run away to 100% or 1000% or even 1,000,000 per cent very easily.

I have said many, many times that ultimately the governments will attempt to inflate away the debt. I believe it is the only answer. The Us will not go bankrupt when it has the ability to print dollars, and the debt is in US dollars.

If and when the debt stops being in US dollars, THEN by golly there will be REAL a problem.

See Greece for what happens to a country that owes debt in currency that it is unable to print.

Iska Waran
Iska Waran

The problem with inflating away the debt – aside from the intrinsic immorality of it – is that it would likely eventually push bond yields up to the point where you can’t reach “escape velocity”. In a rational market anyway. The Fed could currently be said to be suppressing rates, but what’s really suppressing rates is that we’re the least bad among many fucked up nations. Whose bonds would you buy in lieu so US bonds? Other countries’ bonds have literally gone negative. At some point, though, America won’t be able to sell bonds if inflation is indisputable. If they really want to “inflate it away”, they should reverse what Clinton did and float the entire debt on the long bond (instead of short term debt) – while spinning a yarn about inflation having been subdued and deflation being the real risk. Once the entire debt is financed on long term bonds, then pull the rug out from under the bond holders and turn the printing presses on full speed. Of cpurse, they’d also have to balance the budget at the same time. As if.

Brian
Brian

No shit?! If 98-99% of all the “money” in circulation is a debt, and the debt is owed to the creditor at the principle amount + XX% interest. Therefore the principle + interest is > all the “money” in circulation. They could take it all and it wouldn’t fucking pay it off. The monetary system is fundamentally & fatally flawed to self destruct. The grounding strap was cut starting in 1913 and finalized in 1971.

Jackbooted
Jackbooted

Inflating away our debt has been the way the government works. It Has been this way for as long as I can remember. The problem today however is that they can’t get inflation to work as welto as into theus past without destroying our economy and probably the world’s. Three things together are already occuring inflation, devaluation and confiscation of assets. All that remains as a problem is how to keep these things from being widely known while ramping them up. Oh and by the way confiscation that’s called taxation. And inflation comes through devaluation and is caused by printing money. It’s all quite simple but they don’t want you to think it is and most of us go along with their way of thinking, and of course tell themselves what can I do…..

taxSlave
taxSlave

Brian is correct.

If the principle of the debt were payed off, there would be no money left in circulation.

Debt != money

Debt = Debt

a cruel accountant
a cruel accountant

It would be very easy to pay off the national debt. Just have treasury print a 100 trilion dollar bill and give it to the fed reserve.

problem solved ??!?!?!

Mark
Mark

Mathematical possibility and political possibility are 2 different things. U.S. government debt owed to the public still isn’t where it was during WWII as a %.

The government would need private sector growth and less spending . Nope. Ain’t going to happen . Too many demagogues. Too many stupid people. Fortunately, crash and burn is just around the corner.

OutLookingIn
OutLookingIn
overthecliff

Protect yourself. Convert money into stuff. Stuff that has actual utility. Then Pray and hope that your stuff lasts until the dust settles. Then maybe we canstart over. I dread the thought that the debts will be paid in blood.

Brian
Brian

@ a cruel accountant, remember the stories a few years ago about the Trillion dollar platinum coin? The Treasury could have absolutely done that based on the statutes authorizing the platinum coin minting. Mint off 50 of those and hand them to The Fed and say the bonds are paid. The would need congressional buy off to print a $100 trillion bill.

Of course whomever tried to do that would be nail-gunned before the statute was ever passed or the platinum was dusted off in the storage room.

Yin-yang….We are missing the “yang”. The yin is the borrowed money clause of Article 1 section 8 clause 2, this allows the government to issue bonds that banks buy up and issue bank credit upon. The missing “yang” is Article 1 section 8 clause 5. Which allows the government to issue debt free money via the Treasury/mint.

Homer
Homer

Llpoh is right. The debt can be paid off, but not at the current value of money and that’s the rub.

Figure out how to pay off the debt with current money and a Nobel prize awaits you. You would get the undying love of Congress and the people. So, why ain’t being done? Cuz it can’t. It is easier for a camel to pass through an eye of a needle, than for the debt to be paid off with the current value of money.

AC–very funny.

a cruel accountant–Yes and No. A trillion dollar coin made out of platinum? Why not plastic, it means the same.

a cruel,,, You don’t understand money. It is not the money that is important. It’s the ‘goods’ that money can buy that’s important. So…Just increase the ‘goods’ to balance out the money that has been printed.. Problem solved. It’s called ‘growing the economy’. ha ha ha!

Money is produced at the push of a computer button. ‘Goods’ are produced arduously (with great difficultly). Only the Free Market can balance the ratio of money to ‘goods’, government can’t. They just want to keep 1956 in perpetuity. Trouble is, change can’t be chained to the past. The money has already been printed and is competing with all the existing dollars competing for ‘goods’. You would have a better chance of commanding the tides to recede than to halt change that the increase in money has caused.

Debt is the Gordian Knot of economics. My mother use to say, “You can’t have your cake and eat it too”. She was right, something has to give. The government is desperately trying to keep the balance between money and ‘goods’ and a platinum trillion dollar coin ain’t gonna do it. In the end someone is gonna get screwed. The Elites, Bankers and Politicians are gonna make sure it’s not them.

Homer
Homer

overthecliff–I guess it is better to buy stuff rather than wait for your monied wealth to fizzle into thin air from whence it came.

But…The government might just want your stuff. Surely, your neighbor would. Hummm? What to do?

Homer
Homer

overthecliff–I got it. Buy shit. Nobody wants it an nobody will take it from you. Everybody uses it.

Everything Congress and Obama says is full of shit. The food that we eat is full of shit. Our drinking water has shit in it. I can’t think of anything that doesn’t use shit.

You will maintain your wealth through this maelstrom and can sell your shit for a higher price as there will be very little of it left and everyone in the government and media will need a lot of it explaining what went wrong with the economy.

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