Marc Nuttle – lawyer, businessman, and consultant to leaders in a dozen different countries – makes an interesting point about government debt. While Washington is atwitter over the pending vote to raise the debt ceiling, Nuttle says the real issue is the debt wall.
He defines the Debt Wall as that point at which there isn’t enough loose money in the world to fund the deficits of the 185 nations currently running in the red.
The U.S. of course is the biggest offender with a current deficit in excess of $1.6 Trilliion and a total debt around $14 Trillion.
Typically, a person’s solvency is measured by looking at their debt to equity ratio. For countries, it is the debt to Gross Domestic Product (GDP). The preferred maximum is 70% to 80%. Greece is now at 125%. The U.S. is at 100%.
Based upon world liquidity, the amount of money available to fund the annual deficits of the world’s governments, is about $9 trillion max. But projections for the total deficits actually accrued by nations this year is more like $10 trillion – and rising.
To fund that additional debt, money will have to be taken out of other markets and investments. Attracting that money will require huge interest rate increases. Today our government pays about 1%. Once we hit Nuttle’s Debt Wall, the government will have to pay 6%, or 7% or even more. Greece is now offering its bonds at 30% and not finding many takers.
Businesses won’t be able to survive due to huge interest rate increases. Jobs will be lost as those businesses fail. Even more families will lose their homes as unemployment skyrockets. Retirement savings will be ruined as the markets fall off. And, of course, pleading a catastrophic fall off in revenues, liberals in Washington will attempt to tax everything thatmoves and many things that don’t.
In Marc Nuttle’s words, “it’s an economic death spiral that will damage our families, our communities our way of life.”
This is not a political issue about whether we want the federal government to provide schools, libraries, welfare, healthcare or defense. This is an economic issue that left unattended will result in an already dysfunctional government being unable to provide any services at all.