Our debt TODAY (after a very expensive 9/11, 2 wars, etc.!) is smaller per GDP or per capita or by many other measures then UK, Germany, France, etc. So, which country all the whiners on this page are proposing to use as a better managed example? I came here from USSR and sure hope you are not for copying that economy or their “free” medical care and education (may be Cuba’s is better?) Even small Norway with its practically socialist way of life and huge oil import has about $50,000 per capita debt, which is about $5,000 more then USA. But you have to wait a loooong time for a CAT scan and if you are an older person you may be told that it is practical to spend money at all on that “expensive” procedure.

our social security system has had zillions put into it – so it’s worth zillions right now – right? If I read this article correctly, Charlie would have you believe we can happily borrow against those zillions. All I really see there are a bunch of IOUs, with no governmental motivation to collect on behalf of the depositors, who, as a group, will never be able to demand it be payed back. It’s gone. We’re still legally required (extorted) to keep putting money into this silly system that even Charlie’s economics/accounting 101 would tell you never to invest in such insanity… We’ll never see it. Our lawmakers will continue to borrow against it, because it ‘keeps growing faster…’.

clear as mud?

buy gold

We both know that economics is the study of trends and co-relationships that are more theory than mathamatical fact. That is why the following statement is, frankly, misleading.

“jaybo, the nice thing about arithmetic is that it’s not a matter of credibility.”

It is also why the only “specific data” that you can reference is historical in nature.

The second point that you make is equally weak; “But, pace jaybo’s video, if the total assets are growing faster than the total liabilities, you can continue borrowing indefinitely.”

Notice the use of the word “IF” in the statement above. In mathamatical terms it implies that there is an undefined variable that can change the outcome.

Finally, anyone that has a backround in accounting understands that assests like your home have a value on paper that does not necessarily translate into “cash in hand”.

In truth, there is another variable that determines the “cash equivalent” of your home. It is called the Law of Supply and Demand. This law dictates the actually price that someone is willing to pay for your home today if you had to get your equity in cash.

Charlie has outlined a dangerous theory that is hauntingly similiar to those people that told investors not to worry about the lack of profits when investing in internet stocks back in the 1990s and others that said not to worry about how much you borrow to purchase a home of refinance your home recently.

In both of the examples above, individuals have lost millions of dollars collectively because they ignored basic financial priniples.

They were told the same thing that Charlie is trying to tell us here.

“Don’t worry, the price of your stock will always go up”

or

“Borrow as much as you want because the price of your home will always rise”.

The carnage that has resulted from those that listened to these “snake oil salesmen” is there for everyone to see.

So why do the basic laws of economics never apply to our national debt?

Good question……………

jaybo, the nice thing about arithmetic is that it’s not a matter of credibility.

Dan_b, the thing about these numbers is that they indicate that we are investing in greater productivity. Whatever the underlying mechanisms are, the net national wealth — assets minus liability — is growing. Could it grow faster? You bet. But, pace jaybo’s video, if the total assets are growing faster than the total liabilities, you can continue borrowing indefinitely.

This is about to roll off the front page; I’ll be posting the original, along with more extensive comments, at my Explorations blog. Let me encourage everyone to come there if you want to continue the conversation.

Looking at Enron’s ‘numbers’, you can see how it’s not a completely unfounded angst.

My concern is that the comfort this particular perspective might inspire could lead to unwarranted complacency. As an analogy, it feels to me like we’re buying big pleasure-boats using the apparent equity in our homes, in a very uncertain housing market. More important than *my* risk, is when our banks *multiply* this exposure across their base, there’s the obvious fallout that may occur.

For What it’s Worth, it’s not an inherent aversion to borrowing – I’d feel much better about the loans if we were using them to buy new ‘printing presses’ and investing in growing our productivity.

I hope that’s more clear.

Jim – If accurate, your numbers lend a comforting perspective. That said, after owning stock in Lucent, Hayes and DEC, and watching Enron and WorldCom… Clearly, the value of any entity is largely based on its management vs its capital value/earnings.

Right now, I wouldn’t make that 4 trillion loan :^), both because of the current management, as well as momentum of the Democratic candidates (future management).

Whether or not we have a tough couple of months/years ahead, I believe most of us will come out of it fine. Can responsible fiscal conservation prevent/temper some of this potential stress? – I think so, and look to our leaders to err in the conservative during this volatile period. I think they are denying the problem even exists (lowering interest rates, etc.). I hope I’m wrong either way!