Today, Detroit. Tomorrow, the U.S.? (courtesy Google Images)
Detroit has been mismanaged and allowed its industrial based to wither over the past 2 or 3 decades. As a result, we could see Detroit’s financial collapse coming for many years. Although insolvency was resisted for several years, the inevitable arrived on Thursday when the City of Detroit filed for bankruptcy.
The amount of money Detroit actually owes is unclear but is believed to be between $18 and $20 billion.
The population of Detroit is now about 700,000.
If we divide the Detroit’s debt ($20 billion) by Detroit’s population (700,000) the result is a “fair share” of roughly $25,000 in city debt for every man, woman and child in Detroit.
This suggests that when a government’s debt reaches a “fair share” level of $25,000 per person, that government may be in trouble.
• Like Detroit, the United States has been mismanaged and allowed its industrial based to wither over the past 2 or 3 decades. As a result, we’ve been able to see a US financial collapse coming for many years. That national bankruptcy has been successfully resisted for several years, so the inevitable has not yet arrived.
Still, it’s interesting to compare the US national debt to Detroit’s city debt.
According to the Obama administration, the US national debt is at least $17 trillion. The population of the US is 310 million. If we divide the national debt by the population, you’ll see that every American’s “fair share” of the national debt is about $55,000—about double the “fair share” of Detroit’s debt owed by each citizen of Detroit.
If Detroit’s debt of $25,000 per citizen was enough to put Detroit into bankruptcy, would the national debt of $55,000/person be enough to put the US into bankruptcy?
Probably not. I recognize that the economic realities of the US are much stronger than those of Detroit. Therefore, a national debt that was proportionally double the Detroit debt should not be enough to precipitate a national bankruptcy.
• However, there’s great doubt as to whether the true size of the national debt is “only” $17 trillion.
For example, John Williams (shadowstats.com) calculates the real national debt is not $17 trillion but is actually about $85 trillion. If we divide Williams’ calculation by the 310 million population, each American’s “fair share” of the national debt is $275,000—about eleven times greater than each Detroit citizen’s “fair share” of the city debt.
Admittedly, a national debt that’s proportionally twice as great as Detroit’s shouldn’t be enough to precipitate a national bankruptcy. But, could a national debt that was proportionally eleven times greater than Detroit’s cause national bankruptcy? I think the answer could be Yes.
• The Congressional Budget Office has calculated that, including unfunded liabilities, the national debt is about $202 trillion. Divide that number by our 310 million population, and each American’s “fair share” of the national debt is $650,000. That’s about twenty-six times the size of each Detroit citizen’s “fair share” of Detroit’s debt.
Given that comparison, can a national bankruptcy be avoided?
I don’t see how.
Yes, the economic condition of the US is fundamentally stronger than that of Detroit. But is it twenty-six times stronger?
• More, if the US is so strong that comparing its debt to Detroit’s debt is unreasonable, why doesn’t the “strong” national government simply give Detroit a “bail out”? In just the last five years, under the guise of Quantitative Easing (QE) 1, 2 and 3, the US has given hundreds of billions of dollars to banks and financial institutions that were deemed “too big to fail”.
Isn’t Detroit–with a population of 700,000–also “too big to fail”?
Apparently not.
QE is for bankers, silly rabbit, not for cities—and certainly not for people.
Even now, our government is using QE to inject $85 billion per month into the economy. That’s $20 billion per week.
Detroit’s total debt is $20 billion. Why not kick just one week’s QE to Detroit and let that city escape bankruptcy?
Is Detroit already so ruined—or so black—that the national government sees no point to saving it? Has the national government decided to ship American industries and jobs overseas and destroy those that remain?
Or is the national government already so nearly bankrupt that it can’t afford to take on another $20 billion in debt?
Inquiring minds . . . .
In any case, the point remains that if Detroit’s per capita debt of $25,000 is enough to put it into bankruptcy, what is the likely consequence of a national debt that averages out to somewhere between $55,000 and $650,00 per person?
Is there any reason to suppose that a national bankruptcy can be avoided?
• Punchline:
The Washington Times reported in “Judge orders Gov. Snyder to withdraw Detroit’s bankruptcy petition” that a county judge has ordered Michigan Governor Rick Snyder to withdraw Detroit’s bankruptcy petition, saying the state is “illegally trampling the rights of pensioners.”
The judge says plaintiffs in the case (pensioners) have been “blindsided” by Detroit’s bankruptcy petition.
“Blindsided”?
“Blindsided”??!!
Nobody’s been “blindsided” except maybe those millions who’ve spent their lives watching Dancing With the Stars, drinking beer or doin’ crack. Detroit’s bankruptcy has been clearly seen and anticipated for at least a decade by anyone who bothered to look at the facts.
Similarly, when the United States government finally declares an express bankruptcy and openly defaults on its debts—or at least admits an implicit bankruptcy through hyperinflation—millions of Americans will claim to have been “blindsided”.
But the truth will be that the US bankruptcy has been coming since we adopted a pure fiat currency and has been apparent and inevitable to anyone who had eyes to see and ears to hear. We may be somewhat surprised by the coming national bankruptcy’s timing, but no one but morons, children and addicts will be able to legitimately claim to have been “blindsided”.
I know what’s coming. You know what’s coming. If we don’t prepare accordingly, we’ll have no one to blame but ourselves.
