Wednesday, 11 March 2009

How NOT to think of a trillion.

I've seen a lot of people jumping up and down about how big some of these numbers are in this crisis. I've seen people say that if you stacked up the bills they'd reach the moon or circle the globe and all that. See here for an example. But actually this irritates me because it serves no purpose in making the numbers more understandable. The thing is that there are already some massive numbers that could be reported from an economy that are not indicative of anything abnormal. I dare say that the number of cups of coffee drunk by Americans each year is a massive number that most people would not be able to visualize very well. So what should we do when faced with these "massive" numbers. Well a better thing to do is divide them by the number of people in the country to get perhaps the debt per person. But I think its possible to do one step better than that. What we should really do is divide by the number of workers in a country. After all, retired people aren't going to be paying back any of this debt. And neither are children. Now you may say "aha, but children will grow up to be workers, so the debt will fall on them"... this is true, but as children become workers, workers become retired people (approximately). So the burden of debt is always on the workers.

So lets do the math for American government debt. I'm guessing that about half the population are workers at any one time. Assuming 11 trillion debt and 300 million population (=150 million workers) then the debt per worker is 11,000,000,000,000/150,000,000 = $73,333.

Now lets have a look at how much would need to be paid in interest alone on
$73,333.... of course the interest rates could change at any time, so I'll make a table...

So, if the interest rate on the money is the figure on the left then each worker in the U.S. will be paying the figure on the right just to pay the interest.... that's before even paying pack one cent of the actual debt itself. And of course this is totally separate from the tax you have to pay the government for its "ordinary" expenditure.

So to start properly paying this money back - the government will have to raise enough taxes to pay for all their (non-debt related) expenditure. Then add the figure on the right. Then add another chunk to start reducing the debt (how about $2000 per year?).... Is Obama brave enough to do that?... or will the U.S. just decide to default? It's got to be one or the other eventually.

No comments:

Post a Comment