Ben Bernanke: U.S. Debt at Unsustainable Level


While the official debt is sitting at $15.66 trillion, the additional amount of unfunded liabilities owed by the United States government is a mind-numbing $115.49 trillion, bringing the total debt level to $131 trillion . Even Ben Bernanke is finally warning Congress that things aren't as rosy as the Federal Reserve boss has tried to paint them.

Bernanke's words to the Budget Committee are ominous, to say the least: "By definition, the unsustainable trajectories of deficits and debt that the CBO outlines cannot actually happen, because creditors would never be willing to lend to a government with debt, relative to national income, that is rising without limit."

Considering that it would take more than two years of the entire world's GDP to pay off all of the U.S. government's current outlays and liabilities, it's a wonder that America's debt rating has only been downgraded once. Additionally, the federal deficit for the first half of FY 2012 alone is greater than the entire GDP of Indonesia. Amazingly, politicians don't seem intent on actually doing anything about this.

Contrary to modern economic assumptions, devaluing a currency has proved through history to be the undoing of many an empire or nation. For instance, the collapse of the Roman Empire can be traced through their monetary inflation and onerous tax burdens used to sustain the "panem et circenses" (bread and circuses) public warfare/welfare programs that keeps the inhabitants of Rome content enough to not revolt.

As is often mentioned by Austrian economists, intentional inflation — whether by decreasing the amount of precious metals in coinage or simply infusing more fiat money into an economy — is a tax on individuals, as it allows the government to spend more(social programs, military adventurism, or debt payments) while it simultaneously devalues the currency already in circulation. Artificial inflation penalizes individuals who choose to save their money, as it diminishes the amount of return on investment (ROI). Further, when the Federal Reserve keeps interest rates at historic lows as it currently is, the ROI is lower than the official inflation rate (supposedly around 1.8% annually), meaning that instead of making money at the bank on deposits, investors are currently losing the value of their savings.

Whatever one's economic position is, it is amazingly clear that $1 trillion plus deficits and increased spending are unsustainable, and as $5.5 trillion of U.S. debt matures over the next three years, and interest rates on Treasury Certificates (U.S. government bonds) are too low to entice investors, it's unlikely that the government will find many foreign investors willing to purchase more U.S. debt. The only options are for the Fed to continue buying Treasuries and cause domestic inflation to shoot through the roof, or for the government to default, leading to an uncertain economic future for what was once the wealthiest, most productive nation on the planet.

Ben gets it. Why can't Congress?