US Debt: 136,347 Dollars per Head

Wednesday, June 22, 2005

Michael W. Hodges, author of the Grandfather Economic Report (link in the sidebar) has a nice piece on US debts at Financial Sense Online. According to his calculations every American, from babies to those in the final stage of their lives, carries an average debt of 136,347 US dollars. The total US debt stands now at 40.1 trillion dollars, of which 7.6 trillion is Federal debt, states and communities owe 1.7 trillion and the private sector - including businesses - owe altogether 30.8 trillion. From this sum households owe roughly a third or 10.3 trillion dollars.
Add in unfunded contingent liabilities like Medicare and Social Security and this sum raises to a mind-boggling 84.1 trillion or 286,258 dollars per head, old and young.
Want a still higher number? No problem, do additional research and try to find out about the pension liabilities approaching the aging nation.
Even when one remains with the first number of 40.1 trillion dollars, at a conservatively estimated interest rate of 4.5 percent this means the load of debt costs 1.804 trillion dollars in interest only.
US GDP increased 6.2 percent to 12.192 trillion current dollars in the first quarter of 2005, according to the Bureau of Economic Analysis.
A linear extrapolation would see the total GDP for 2005 come in at 48.767 trillion dollars. Staying with the conservative estimate of 4.5 percent interest this means 3.7 percent of GDP or every 27th dollar have to be used for interest payments.
If interest would rise to 7 percent, and that is not something unimaginable, interest payments would surge to 2.8 trillion which is 5.7 percent of GDP or every 17th dollar made.
What's even more worrying is that every debtor sector has elevated itself to a record debt status. And Hodges thinks the true debt is even higher because of off balance-sheet debt (Enron and Worldcom were very creative at that) and private debts between households.

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