Do you know how big a trillion dollars is?
By Joe Lafiandra
With the passage of the $1.9 trillion dollar stimulus and the current $28 trillion national debt, don’t you think it would be important to really understand how much a trillion dollars is and why it is important to understand what these numbers mean?
A trillion dollars is a lot of money by anybody’s standards but, do you know how much money it really is? By the same token, the United States’ national debt of 28 trillion dollars, how big is it, really?
One of the best ways you can visualize it is by stacking $100 bills and see how high they go. $100 bills can be easily imagined because most of us have seen one during. The paper that all U.S. currency is printed on is 0.0043” thick. The $1,400 Stimulus cash you received, if stacked in $100 bills, is 0.06” high or a little less than a 1/16”. Not much. Using simple arithmetic, one million dollars in $100 bills is 43” in height, less than 4 feet, again not much space taken and easily visualized.
Now let’s talk now about dollar numbers that the government is used to dealing in, billions and trillions. One billion in $100 bills would stack 3,583 feet high or 0.68 of a mile and $1 trillion in $100 bills would be 679 miles high. The current $28 trillion U.S. National debt would be over
19,000 miles high.
This article is not meant to be a lesson in finance, but you should know some basic facts. So who owns the U.S. national debt? It turns out that 78 percent of the debt is owed to the public and foreign countries. The rest is owed to the Social Security Fund, and other government retirement funds including Medicare. Foreign nations like Japan and China own about one third of the public debt. Other nations, like China, want to hold on to U.S. debt to keep the dollar value high compared to their own currency so that their exports cost less.
So why is the size of the national debt important? The current national debt exceeds the value of all the goods and services generated annually in the U.S. In fact, the current national debt of $28 trillion exceeds the U.S. Gross Domestic Product by $6 trillion or by 27 percent. This is the largest it has been since WWII. History has shown that stable currencies never exceed 75 percent of the GDP, we are now at 127 percent. Incidentally, Russia’s national debt is 20 percent of their GDP.
So, who cares, why not let the national debt go to $50 or $100 trillion? One problem with that scenario is the people who are owed the debt start to get nervous about whether their money is safe and will they ever be paid back. There are no assets like gold or silver to back the debt. The debt is supported only by the faith in the United States to pay it back.
One problem with a high national debt is the annual interest payments that must be paid to the holders of the debt, currently about $400 billion. These payments are relatively low because of the current 1.5 to 2 percent interest rates. These rates are being kept low by the government but may have to go up say to 3 percent or higher due to inflation. We are now seeing rising gas, lumber and home prices that don’t bode well for the economy or the national debt.
Where does the government get the trillion or more dollars to pay the interest? They print it. Unfortunately this action will increase the debt even more and start a vicious cycle of printing money. This vicious cycle has occurred in other countries like Germany in the 1930’s, Greece in 1990’s and is currently in effect in Venezuela. Wheel barrels of German Marks were needed to buy a loaf of bread and personal savings were wiped out in the 1930’s.
Don’t laugh but, the Venezuelan government is currently issuing a one million Bolivar Soberano bill to use in every day transactions. The bill is colorful and conversation piece. I asked my Venezuelan born sister-in-law to get me some. They are worth 53 cents. There is a true story about a bank robbery in Venezuela. The robbers broke in and went right to the safety deposit boxes for jewelry and gold. They also stole the computers and furniture but left the cash.
You don’t think it can happen here, don’t bet on it. Excess spending and the negative effect of Covid-19 on business activity has pushed the nation’s debt ratio to heights that threaten the stability of the economy. A severe crisis like another pandemic, major terrorist attack, multiple natural disasters, or military conflict can push it over. Printing more money for “shovel ready jobs” or a $3 trillion infrastructure stimulus won’t solve the problem either, remember FDR’s WPA programs of the 1930’s?
There are solutions to the debt problem that include reducing government spending, reducing taxes to individuals and businesses to expand business activity and developing valuable national resources, none of which we are doing. But, we could also get lucky like Norway by discovering a valuable natural resource, oil and gas, off shore. Because of these discoveries, their population of 5.5 million are all now technically millionaires.
What about us, didn’t we discover how to get more oil out of the ground in the early 2000’s and became an exporter of oil and gas in 2011? Yes, we did. We were smart enough to develop fracking to make us energy independent. Money coming into the county to pay for the oil and gas developed rather than going out, helped reduce the national debt. But wait, didn’t we ban fracking in the U.S.? I guess we can’t use that technology to reduce the national debt or inflation any more.