Dawn Of The Mathematically Impossible

Balance Sheet of the United States Government - Sept 30, 2009

Source: US Treasury

All figures are in billions of US dollars
                                                  2009                      2008

Cash                                        $393.2                   $424.5
Other assets                           $2274.7                 $1550.2 

Total assets                            $2667.9                 $1974.7

Federal Debt Securities           $7582.7                  $5836.2
Other liabilities                       $6541.1                  $6342.0

Total liabilities                     $14123.8                 $12178.2

Net Worth                           -$12208.6                -$10908.1

If Unfunded Liabilities are included:

Net Worth                        -$45,878                 -$42,970

Note that unfunded liabilities plus the budget deficit grew by $2.908 Trillion in the past fiscal year.
Total tax revenues were only $2.198 Trillion, down from $2.661.4 Trillion the previous year.

To make the problem very clear let us consider how much taxes would need to increase to fund the current level of government spending.

$2.198 Trillion current  revenue + $2.908 Trillion increase in unfunded liabilities

Total tax revenue required $5.106 Trillion.

Note that this does not address the issue of the total debt and unfunded liabilities to date that have accumulated, this only gets us to zero, that is a balanced budget.

This implies that the amount of taxes every family of four needs to pay just to balance the budget is....

$66,964 per year.

The median income for households in the US is $52,029
Source : US Census Bureau

My conclusion:

The United States Of America is insolvent.

Without massive cuts and restructuring of government services the bond market will force the US, at some point, to reduce the size of government, default on all or part of the debt, and even issue a new currency.

For these reasons, I am bullish on gold, and bearish on the US dollar in the longer term (although a higher bounce seems likely short term in the dollar).


  1. PW, what is the time frame for the bond market to force the government to cut its debt?

  2. As I alluded to in my comments on the post Cities will go Bankrupt, I suspect the bond market will be more patient with the US than many analysts anticipate. I expect that we will see bond yields around the world rise steadily, with US bond yields being some of the last to go parabolic. Time frames are difficult to estimate. I expect it will be a year or more before bond yields become particularly punishing.


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