Thinking about the US dollar

Things looks hot. Stock markets are sizzling and luxury condominiums are hitting the $3,000psf range. As Asia and indeed much of the world depends on the US market, we need to take a good look at Uncle Sam. Uncle Sam is the kind rich old uncle who has been spending and spending to keep the rest of the world busy and profitable. But how rich is Uncle Sam? We need to know this answer for Uncle Sam is the world No 1 Consumer! When Uncle Sam catches a cold, the world sneezes along with him.

Strangely enough, the question should be the opposite. How poor is Uncle Sam? Uncle Sam has been borrowing huge amounts of money from the rest of the world. How huge is the debt? the National Debt is US$8.6 trillion, just over 70% of the value of all the listed US companies. Perhaps in time to come, all the listed US companies will be owned by foreigners. Think of the assets that a country has. There is land and buildings owned by the Government, by individuals and by companies. Then there are the equity of large public companies which in turn may own land and buildings. To imagine a debt equal to 70% of the total capitalisation of public listed companies in USA is staggering. When we think of the value of all Microsoft shares , we shake our heads at the size of the amount involved. Here we are looking at ALL the companies from Ford to Google. All the Fortune 500 companies and more! The National Debt is well and truly humongous.

The US Government pays a staggering US$406 billion on interest, the 3rd largest item in the federal budget. Let us try and reduce these numbers into terms that are more easy to grasp.
The US population is 301 million and based on 3 people per family, there is roughly about 100 million families in USA. This means that each year, Uncle Sam has to tax each US family US$4,000 just to pay interest on its debt. This tax does not go to pay for military defence, education , health care but on interest to its debtors! Imagine every family has to be taxed more than $300 a month in order to pay the interest on the National Debt. We are not talking about tax to run the Government but tax to pay interest.

The National Debt is said to be about $30,000 per citizen. Would you like to live in a country where the Govenment on your behalf owes $30,000 to the rest of the world? I took my figures from www.federalbudget.com. The figures can be obtained also from www.publicdebt.treas.gov/opd/opdpenny.htm which is the Bureau of Public Debt.

This budget deficit is said to be higher than reported as the surpluses in Social Security has been used to reduce the size of the deficit. Say the Government collects $500 million in taxes and spends $1,000 billion. It has a deficit of $500 billion. But it deducts $250 billion from the amount it collects for Social Security and uses it to reduce the defict to $250 billion. Social Security is like our CPF and it seems that all the funds collected for Social Security has been spent.

USA Today in 10/3/2004 wrote:
The $53 trillion is what federal, state and local governments need immediately — stashed away, earning interest, beyond the $3 trillion in taxes collected last year — to repay debts and honor future benefits promised under Medicare, Social Security and government pensions. And like an unpaid credit card balance accumulating interest, the problem grows by more than $1 trillion every year that action to pay down the debt is delayed.

"As a nation, we may have already made promises to coming generations of retirees that we will be unable to fulfill," Federal Reserve Chairman Alan Greenspan told the House Budget Committee last month

Greenspan and economists from both political parties warn that the nation's economy is at risk from these fast-approaching costs. If action isn't taken soon — when baby boomers are still working and contributing payroll taxes— the consequences may be catastrophic, some economists say.

Big payments on the debt start coming due in 2008, when the first of 78 million baby boomers — the generation born from 1946 to 1964 — qualify at age 62 for early retirement benefits from Social Security. The costs start mushrooming in 2011, when the first boomers turn 65 and qualify for taxpayer-funded Medicare.

2008 is just a year away. The biggest event that will affect billions of people this year will be the US dollar. We all hope for a soft landing. We all want to believe in the invincibility of Uncle Sam, Surely nothing can happen to the world's only superpower? Or can the inevitable happen?