One of the biggest promises I made to you when starting Kung Fu Finance was to tackle the job of demystifying finance for you, to the best of my ability.
For an industry that prides itself on words like “credit default swaps”, “derivatives”, “inverse yield curves”, “gold-to-silver ratio”, “diminishing returns”, “ROI”, “Capex”, “P/E ratio”, “beta”, and more, that’s no easy task!
Even the very numbers themselves are difficult to understand or imagine.
How does one envision a trillion dollars?
Let alone $16 trillion…the threshold that the U.S. crossed just yesterday on our debt!
Yes, the U.S. debt surpassed $16 trillion yesterday. It’s not “official” quite yet as the 2-year bond auction that pushed us over the edge still needs to settle, but next week this will be all over the financial news.
Zero Hedge wrote a great article on this that I highly recommend you read—it’s short, sweet, and to the point, and Tyler points out that it took only 286 days for us to add another trillion to our debt (whereas it took 200 years for us to accumulate our very first trillion!).
At this rate of growth, our total U.S. debt load will surpass (not including unfunded liabilities):
- $17 trillion on June 10, 2013;
- $18 trillion on March 23, 2014;
- $19 trillion on January 3, 2015; and
- $20 trillion on October 16, 2015
But hey, at this point, we’re so used to hearing those numbers tossed around like fluff… “million”, “billion”, “trillion”…
Who can even grasp how much that is or what that really means to our economy?
My poor little brain certainly cannot get a handle on it…how much is $16 trillion anyway? Is it possible to ever pay off this debt?
These are the questions I’ve been asking myself for the past several years, and recently I found an outstanding video from Tony Robbins who has the exact same questions I do, and who actually answered them in a great little video in simple, easy-to-understand human terms!
(Imagine that!) 🙂
I highly recommend you watch the video if you have the time (it’s less than 20 minutes), but in case you are time constrained (like me!) I’ll net it out for you below, because I found it very helpful in framing the problem that we are facing here in the U.S. (and just how massive a problem it is).
How on earth do you envision a number like a billion or a trillion?
Well, you have to convert it to something we can relate to, like seconds.
How long ago was a million seconds?
(Kung Fu Girl, ever bad at estimating things like this, has no idea…maybe a month?)
What do YOU think?
Was it a day ago? A week ago? A year ago? 10 years ago?
1,000,000 seconds was 12 days ago.
How about a billion seconds?
(Kung Fu Girl, again clueless…maybe several years?)
A billion seconds was 32 years ago.
That was back in 1980, when Carter was president, the Empire Strikes Back was in the box office, and yours truly had big 80’s hair and used way too much AquaNet.
Just look at that comparison for a minute, a million vs. a billion…that’s 12 days vs. 32 years, a huge difference.
But the number we hear thrown around by politicians today isn’t a million or a billion…it’s TRILLIONS.
And as I said above, our debt just passed $16 TRILLION yesterday!
So how long ago would a trillion seconds have been?
500 years? 1000 years?
A trillion seconds was…just short of 32,000 years ago!
That’s back in the day when man wasn’t even known as MAN…we were homo sapiens, Neanderthals to be exact!
I don’t know about you, but that certainly helps put it into perspective for me.
32,000 years ago, a trillion seconds, was a very, very long time ago.
And, if you earned a million dollars every single day of your life and you started in the year of Jesus Christ’s birth, making a million dollars every single day up to 2012, you would not even be close to earning a trillion dollars.
It would take you almost another 1,000 years to earn a trillion dollars!
And that’s just ONE trillion…
But our national debt just passed $16 trillion (and that’s not counting the $117 trillion of unfunded liabilities like Medicare and Social Security!).
Tony’s team built on the work of Iowa Hawk, updating all of the U.S. budget numbers for 2012, to attempt to answer the question:
“Just how are we going to pay for all of this debt?”
Because in 2012 alone, President Obama and Congress plan to spend $3.79 trillion.
That is $10.4 billion a day that we have to live on, and we borrow more than $4 billion of that each day just to stay afloat (40%).
So, what should we do?
Well, Tony and Iowa Hawk suggest we start with two of the biggest and therefore “most evil” corporations in America, Exxon Mobil and Walmart, and take every single penny of their combined 2011 global profits. No one will have a problem with that, right, because these “evil corporations” should pay!
That number is $46.7 billion, which gets us from midnight on January 1, 2012 to 12:45pm on January 5th.
That’s ALL the global profits from two of the largest corporations in the world, and yet we’ve barely funded the government a few days.
Well, what about the other 498 companies on the Fortune 500…why don’t we take all of their profits, too?
That gets us $567 billion, and to 12:15am on February 29th.
Unfortunately, that’s nowhere near where we need to be, and is only a few weeks after the SuperBowl.
Speaking of the SuperBowl, and all of that awful corporate advertising, let’s grab that too—all corporate advertising from 2011 gives us another $200 million and runs the country for another…
Not even a dent.
Well let’s take ALL of the 46 years’ worth of SuperBowl ads—that ought to be huge!
And it is…that’s $5.2 billion, which brings us to…
12:15pm on the same day, February 29th.
OK. Obviously we need to do more—these Fortune 500 corporations and their advertising are simply not doing the trick.
So, let’s really do it. Let’s soak those rich people.
We can start with athletes…everyone knows they are wildly overpaid anyway and add no value to the world (kidding…) so let’s take all of the salaries of everyone in the NFL, NBA, NHL, MLB, the PGA Tour, and Nascar. Not their endorsements, but their salaries, total $10.1 billion.
(Remember, it takes $10.4 billion to fund the country every day.)
That gets us to…
11:35am on the next day, March 1st.
Well, what about the really rich people?
Let’s take 100% of every penny of everyone who makes above $250,000 per year.
According to the 2010 census, there are 2.35 million households who make more than $250K per year, and the total income from all of those households is $1.363 trillion.
Now we’re talking!
So let’s just eat them and take everything that everyone makes over $250,000 a year, and see where that gets us…
To 1pm on July 10th.
We’ve taxed the richest people and the richest corporations and we’re barely halfway through one year—we’re going to have to start cutting spending somewhere.
But where to start?
Well, let’s stop spending on the wars in Iraq and Afghanistan…I’m sure a lot of people would like to see that happen!
Let’s stop spending on that tomorrow and bring everybody home, and that will save us $117 billion, which is enough to get us to 8pm on July 21st.
Well shoot…that’s only 11 more days!
But who else can we tax who’s living too well? We still need more money!
Well, Iowa Hawk says, screw you Star Wars (yes, THAT Star Wars…) we’re going to take every penny you’ve ever made from movies, toys, lunchboxes, the whole shebang!
It took you 35 years to come up with $26.6 billion, so we will implement a retroactive tax and take it all, which will bring us to…
9:20am on July 24th.
And speaking of those fancy Hollywood people…we’ve already taken all of their money, but why don’t we evict everyone in Beverly Hills!
We’ll confiscate their homes and sell them all at market value and take all of their sales proceeds. That will bring us another $48 billion, which is enough to get us to…
Damn…we’re still only in JULY.
This is still not working. What else can we do?
Michael Moore assures us there is plenty of money out there, all tied up with the rich…
Let’s see…those well known billionaires Warren Buffet and Bill Gates are worth $100 billion between them.
Maybe it’s time for an “accidental fall down the stairs”…? The inheritance tax will then allow us to keep half of that, $50 billion, and that will bring us to…
7pm on August 2nd.
But let’s get serious, there are 398 more billionaires according to the Forbes 400, with a combined total net worth of $1.4 trillion!
Let’s just kill them all off and take 50% of their estate! That’s another $700 billion, which brings us to:
2am on October 9th.
At least we’ve made it to Autumn!
But forget this 50% stuff…heck, let’s just take all of their money, plus that of the hundred or so other “almost billionaires”, which buys us another 32 days, to:
12:30am on November 10th.
That’s the start of the holiday season, so let’s get our Grinch on…let’s confiscate all of the proceeds from all of the expected holiday sales!
That’s $469 billion, which brings us to:
12:55pm on December 25th.
Merry Christmas! We’re almost there…
And remember, this money is for America’s poor, so let’s get rid of all foreign aid, the dying children aid, those things we’re trying to make a difference with…let’s keep it all for ourselves!
That will bring us another $53.3 billion and take us to…
3:55pm on December 30th.
We STILL have a day and change to pay for.
So, in order to cover the remaining $13.8 billion, let’s hit up every single man, woman and child in America (that’s 311 million people) for $44 each, to pay up.
Finally, at 12:00 January 1, 2013, we have made it.
Happy New Year.
But what happens next?
We’ve already taken all of the profits, all of the salaries, all of the assets, and all of the revenues and holdings of the rich and of their corporations, and we’ve liquidated them.
We have destroyed all advertising revenue, professional sports, movie stars, etc…and we have scraped through for only ONE year.
We have killed off the golden goose…there are no more golden eggs. No more profits or revenues available to tax.
Meanwhile, President Obama and Congress are proposing to spend another $3.8 trillion in 2013.
How are we going to pay for that?
Well grasshopper…I think you get the point.
Besides having a firmer grasp of the utter gargantuan-ness of these numbers, I hope you understand just how much we need to sacrifice to bring our debt under control…and how much the politicians are not talking about this, on either side, at least in any frame of reference that will actually make a difference.
Because despite the somewhat rosy revision of today’s GDP report (hey, we can grow our way out of this, right? And avoid all of those tough decisions!), we have a real fiscal solvency problem on our hands.
This matters to you as an investor.
I dearly hope you’re not investing in Treasury bonds (we talked about how to short those a few QnA’s ago…) and I hope you can see that rampant inflation looms not far in the future (although we may see a brief deflation first depending on Europe).
Unfortunately our investment decisions can no longer be made based solely on market or asset fundamentals…we truly do live in a politicized economy.
On that note, I am off to the aptly-named Casey Conference next week (“Navigating the Politicized Economy”) and I hope to see you there! If you are not able to attend in person but still wish to hear the information, you can pre-order the Summit CD’s at a discount here (not an affiliate link).
I hope this helped you understand these crazy numbers and our debt a little better….please let me know your opinion in the comments!
To your financial success,
— Kung Fu Girl