NIA 2015 U.S. Debt Crisis Report

The U.S. is quickly headed straight towards a debt crisis that NIA expects to begin in 2015. The official U.S. national debt comprised of Federal Debt Held by the Public plus intergovernmental debt, is about to surpass $18 trillion and is now equal to 102% of U.S. GDP. Exactly ten years ago, it was only $7.379 trillion or 59% of U.S. GDP. The last time America’s national debt/GDP ratio was north of 100% was in 1947, after the end of World War II.

Note: click on any chart below to zoom in.usnationaldebtgdp Despite the U.S. reporting a fiscal 2014 headline budget deficit of only $483.4 billion, the official national debt still grew by $1.086 trillion or 6.49% vs. nominal GDP growth of 3.19%. Growth of the U.S. national debt has exceeded nominal GDP growth for the last 13 consecutive years – one year short of the record of 14 consecutive years, which occurred from 1982-1995. usdebtvsgdpgrowth Over the last seven years, the U.S. has had an average headline budget deficit of $960 billion, but the official national debt has averaged growth during those same years of $1.26 trillion. The national debt has been averaging an annual increase that’s $300 billion more than the average reported headline deficit. The national debt has grown over the last seven years by $2.1 trillion more than the deficits have indicated. usdeficitvsdebtincreases World War II lasted from 1939-1945 and during this time period – the national debt grew 567%, from $37.1 billion or 42.55% of GDP in 1938, to $269.4 billion or 118.28% of GDP in 1946. In addition, the Fed engaged in its only other major period of quantitative easing. Between 1940 and 1945, the Fed increased its holdings of U.S. Treasuries by 1,013%. The Fed’s U.S. treasury holdings increased from $2.18 billion or 2.1% of GDP in 1940, to a peak of $24.26 billion or 10.6% of GDP in 1945. fedtreasuries This compares to the Fed today having U.S. treasury holdings of $2.46 trillion or 14.03% of GDP. fedtreasurieslt Take a look at America’s historical headline budget surpluses/deficits as a percentage of GDP. The Fed had massive budget deficits during World War II that it needed to partly monetize, just like the Fed has been monetizing a large part of America’s recent huge budget deficits. ussurplusesdeficitstogdp To help it monetize the debt, during both World War II and these past few years – the Federal Reserve held the Fed Funds Rate near 0%, to coincide with its purchases of U.S. Treasury Securities. fedfundsratevstreasuryholdings Because of the Fed’s massive monetary inflation – the U.S. from 1946-1948 had a three year period where annual price inflation averaged 11%, with annual price inflation reaching a peak in 1947 of 14.4%. Years later, the Federal Reserve needed to increase the Fed Funds Rate to a peak of 19%, in order to prevent hyperinflation. priceinflationvsfedfundsrate Many people predicted that the end of World War II would put the U.S. through another Great Depression, due to the government spending slowdown that would occur. However, between 1944-1948, despite national defense spending declining 78.4% from $97.3 billion to only $21 billion – U.S. GDP grew from $224.5 billion to $274.7 billion, an increase of 22.4%. gdpcomponents1929to1950 The ending of the war and reduction in government spending actually caused the economy to boom. In 1948 when the government spending portion of GDP declined to only 16%, its lowest level of the past 74 years – the U.S. achieved a budget surplus equal to 4.29% of GDP – its highest surplus as a percentage of GDP in history! sharesofgdp In NIA’s opinion, the best way to measure the true strength of America’s economy is to take year-over-year real GDP growth, subtract 1/2 of that year’s national debt growth as a percentage of GDP, and then subtract half of that year’s unemployment rate. NIA calls this measure the “NIA Real Economic Strength Indicator”. It has now been in negative territory for 14 straight years – its longest ever streak of consecutive negative years in history. niarealeconomicstrength Not included in the U.S. national debt, even though it should be – are U.S. liabilities for veterans compensation, federal employee pensions, and post-retirement health benefits. Currently, this total stands at $6.538 trillion and has been increasing by an average of $275 billion per year. veteransandfedpensionliabilities

Also not included in the national debt is America’s unfunded liabilities for entitlement programs social security, medicare, and medicaid. Since America’s last budget surplus in 2000, annual U.S. entitlement spending has increased from $724.4 billion to $1.673 trillion – an increase of 131%. Entitlement spending has increased from being 7.04% of GDP in 2000, to 9.54% of GDP today.


U.S. entitlement spending since 2000 has been growing at a compound annual growth rate of 6.16% vs. nominal U.S. GDP growing at a compound annual growth rate of only 3.89%.


While entitlement spending has increased by 131% since 2000, total government receipts have only increased by 48.2%. Entitlement spending as a percentage of total government receipts has increased from 35.77% in 2000 to 55.75% in 2014.


The biggest threat facing the U.S. economy moving forward are the unfunded liabilities for Social Security and Medicare. Unfunded liabilities are the difference between the total present value of future expenditures that are scheduled for future benefits over the next 75 years – in excess of future revenues. Officially, the U.S. at the end of fiscal year 2013 had unfunded liabilities of $53.974 trillion. However, the U.S. government has recently manipulated its financials by making false assumptions – for the purpose of under-reporting its true level of unfunded liabilities.

In 2010, America’s official unfunded liabilities declined by $9.088 trillion – as a result of a one-time $12.4 trillion reduction that was reported following the passage of the Patient Protection and Affordable Care Act that was signed into law by President Obama. The Treasury made misleading assumptions that the Affordable Care Act’s R&D program will increase healthcare productivity and reduce Medicare costs in the future. However, NIA believes that the Affordable Care Act  is likely to drive private healthcare innovation overseas – and unlikely to improve healthcare productivity in any way. Therefore, NIA has decided to use the Government Accountability Office (GAO)’s Illustrative Alternative Scenario, by adding in the “alternative differential” between their numbers and the Treasury’s – in an attempt to provide a realistic measure of unfunded liabilities based on consistent accounting. NIA added in an additional adjustment for 2013 based on further unrealistic positive changes that the Treasury made to its economic/demographic assumptions in its 2013 report. NIA has also estimated the fiscal 2014 and early fiscal 2015 increase in unfunded liabilities. Total U.S. unfunded liabilities are now $72.027 trillion.


Total U.S. Debt Obligations now exceed $103 trillion.


America’s Total Debt Obligations are now equal to a stunning 590% of U.S. GDP.


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