Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Death Spiral

America’s Debt Crisis Could Be Worse than That in Greece

The Greek debt drama is getting more and more like a soap opera with a new crisis complicating matters almost every day. Not surprisingly, American pundits, left and right, are using Greece to criticize American fiscal policy. Unfortunately, few of these critics have noticed that the American situation could be far worse than that in Greece.

Since it is in the Eurozone, Greeks at least have a stable currency they can use. One reason why Prime Minister Alexis Tsiaris is bending over backwards to stay in the European club is that it at least gives Greeks access to real money in the form of the Euro. Staying in also obligates Europeans, particularly Germans, to compromise to help Greece out by either writing off its debts or bailing the nation out.

If the debt crisis forces the European Union to transform itself into a true federation like the United States, Canada or India, Greece would be even better off. It could theoretically rely upon German or Dutch taxpayers to support its welfare state, the way Alabama relies on New Yorkers and Californians to cover its costs. Even if the Europeans kick Greece out, the nation can simply default on its loans and start rebuilding its economy much as Argentina did. It would be painful, but at least Greece would have a functioning economy that would be a tourist mecca because of its low costs and close proximity to Europe.

Greeks respond to debt Crisis with violence.
Greeks respond to debt Crisis with violence.

America does not have such luxuries. If a debt crisis were to engulf the United States, there is nowhere we could turn. No country, not even China, has the money to bail the USA out. Unless space aliens land and offer Washington a debt relief package from the Galactic Empire, America would be sunk. What is truly scary is that such a debt crisis could be closer than we think.

Why America’s National Debt Could Be a Bigger Problem Than We Think

The U.S. national debt could be greater and far more problematic than we’ve been told. The main reason I say this is that even experts disagree on the national debt’s size in relationship to our Gross Domestic Product (GDP), the estimated value of all the goods and services produced in America.


Congressional Budget Office (CBO) director Keith Hall told Congress that the national debt equaled 74% of the U.S. GDP on July 9, 2015, CNSNEWS reported. Yet investor Dan Perkins believes that the national debt is actually greater than America’s GDP. In a recent op-ed for The Hill, Perkins estimated the debt was 101% of the GDP.

So who is right here? Disturbingly enough, Perkins probably is. In 2013 the U.S. Bureau of Labor Statistics estimated the Gross Domestic Product at $16.77 trillion. Even the amount of debt is in dispute; the CBO estimated it at $18 trillion, but blogger Dave Manuel estimated the debt at $14.22 trillion.

This means that America could already be in the debt danger zone, according to Romina Boccia, a research fellow at the Heritage Foundation who is described as a national debt expert.

“What research does show is that when countries’ debt levels reach 85 percent of their economy and higher, you see a strong correlation with lower economic growth,” Boccia told The Caller.

The debt is also growing very fast, according to Perkins. He estimated that the debt made up 76% of the GDP in 2009 when the Obama Administration started. If his figures are correct, the national debt grew by 25% in just six years. If that were to continue for another 18 years, America would have the level of debt seen in Greece, 177.1%, by 2033.

Now for a truly frightening fact they are not telling you: The U.S. government itself is currently underwriting a large portion of that debt. Manuel estimated that around $4.6 trillion, or a little over 25%, of the national debt is in the form of intergovernmental holdings; that is, it is owed by one government agency to another.

This occurs because Uncle Sam plays the game of using cash from government agencies that generate excess government revenues to cover the cost of agencies that lose money. The government results to such measures because it allows Congress to keep taxes low, which is politically popular.

How the National Debt Could Threaten Social Security

Now for the really frightening part:

“The largest purchaser of U.S. debt is the Social Security Administration,” Perkins wrote in The Hill. “We are selling the lion’s share of our debt to ourselves, so not only is the Social Security trust fund in trouble, further expansion of the debt to GDP ratio approaching that of Greece may find that the Social Security fund could be holding worthless securities.”

Battles between police and rioters are now a daily occurrence in Greece.
Battles between police and rioters are now a daily occurrence in Greece.

That’s really frightening because 55 million Americans depend on Social Security for all or part of their income in 2011, the American Association for Retired People (AARP) estimated. Social Security was the only thing standing between 35% of older Americans and poverty in 2010, according to the AARP.

Since many if not a majority of those that depend on Social Security have no way to generate income without it, this is both disturbing and immoral. Politicians are effectively stealing from the poorest Americans to cover up their own ineptitude.

America’s Other Debt Crisis

To this we must add America’s other debt crisis, the individual or household debt crisis that is being fueled by growing income inequality. Our friends over at Nerd Wallet estimated that individual Americans and households owed $11.6 trillion in debt in July 2015.

That means the amount of consumer debt in the United States nearly equals 65% of the nation’s Gross Domestic Product. According to my calculations, 65% of $18 trillion is $11.7 trillion. Now, if that were not frightening enough, Nerd Wallet estimated that debt grew at a rate of 1.9% between July 2014 and July 2015.

According to Nerd Wallet, America’s consumer debt consisted of:

  • $901 billion in credit card debt.


  • $8.17 trillion in mortgages. This could the worst of the figures because many of those mortgages could be backed by real estate with artificially inflated values.


  • $1.21 trillion in student loans, which increased by 8.5%. This is particularly disturbing because student loan debt cannot be erased by bankruptcy.


Note: This figure sounds low because it does not include some kinds of debt, such as car loans, business loans, cash loans, payday loans, peer to peer loans, etc. A big problem is that Nerd Wallet does not count subprime loans.

Basically, American households are drowning under a mountain of debt. Forbes contributor S. Kumar estimated the debt to income ration faced by the average U.S. household at 370%, or three times what got Greece into trouble.

The average American household now owes $15,863 in credit card debt, $156,584 in mortgage debt and $33,090 in student loan. That adds up to $202,992 in a nation where the average household income was $55,192 a year and the average salary was $44,888.16 a year, according to the U.S. Social Security Administration.

America could be on the verge of a serious debt crisis that could be worse than that in Greece. The United States needs urgent reform to our tax system (tax increases), Social Security, bankruptcy laws (which can make debt go away) and lending if it is to avoid the kind of catastrophic economic failure seen in Greece. Unfortunately, such reforms are probably unlikely until the crisis actually hits.