It’s a pretty simple concept in economics. Debt has to be repaid at some point. Someone, somewhere holds the bag. So if the FedGov is in massive debt that means we are ALL in massive debt. That means ALL of us have to pay it back. We will not have prosperity at these debt levels. In fact these levels act as a brake on the economy. I won’t go into the boring details of why, but they do.
Short of total economic collapse and a reset of the debt markets, we will be paying for this for a good 30-40 years. Of course, if we really grow the economy and boost GDP that makes this task of repayment far easier. Lets look at a graph here before we get into the article. This is Debt as a % of GDP since WW2. Debt can never bee seen as standing alone, it has to be seen as a percentage of something. In the case of the FedGov, as a % of GDP. So, GDP is also a determinant in how painful the debt is. a 16Trillion debt would be a joke if GDP were 3 times what it is now. A payment on a super expensive property would take 100% of my family income. That same payment for a wealthy individual might be the same % as I pay for my normal everyday house right now.
Debt ‘pain’ is, and is always, relative to GDP.
This is going to be an eye opener to some of the Obama voters:
FABER, MARKETS, DOOM, GLOOM, EURO ZONE, FISCAL CLIFF, DELEVERAGINGPosted By: Holly Ellyatt | Assistant News EditorCNBC.com| 13 Nov 2012 | 07:54 AM ET
The markets are going to go into meltdown soon, so expect stocks to lose 20 percent of their value, Marc Faber, author of the Gloom, Boom and Doom report told CNBC on Tuesday.
“I don’t think markets are going down because of Greece, I don’t think markets are going down because of the ‘fiscal cliff’ — because there won’t be a ‘fiscal cliff,’ ” Faber told CNBC’s “Squawk Box.” “The market is going down because corporate profits will begin to disappoint, the global economy will hardly grow next year or even contract, and that is the reason why stocks, from the highs of September of 1,470 on the S&P, will drop at least 20 percent, in my view.”
Faber, who is known for his bearish views, cited tech giant Apple , a company whose disappointing earnings have caused its stock to fall 20 percent from its September highs and 14 percent in the past month.
Faber argued that the “fiscal cliff,” a rise in taxes and automatic spending cuts, would actually involve some minor tax increases in “five years’ time” and some spending cuts “in 100 years.”
What the U.S. needed was some pain, he said, aptly demonstrated by the euro zone’s austerity measures that are attempting, with a mixed measure of success, to curb gaping budget deficits.
“There will be pain and there will be very substantial pain. The question is do we take less pain now through austerity or risk a complete collapse of society in five to 10 years’ time?” he said, adding that there was a lack of political will to tackle the U.S. budget.
(Read More: Forget Mayans, Be Afraid of US Budget Armageddon)
Faber added: “In a democracy, they’re not going to take the pain, they’re going to kick down the problems and they’re going to get bigger and bigger.”
Faber identified several issues curbing an economic recovery, such as the real estate market, which he said had never been so “overbuilt.” He also said there was lots more deleveraging ahead.
“In the Western world, including Japan, the problem we have is one of too much debt and that debt now will have to be somewhere, somehow repaid or it will slow down economic growth,” Faber said. “I think we lived beyond our means from 1980 to 2007, and now it’s payback period.”
(Read More: Greece Needs Another 80 Billion Euros)
Faber told CNBC that central bank stimulus was useless and the implosion of markets was the only way to restructure the financial system.
“I think the whole global financial system will have to be reset and it won’t be reset by central bankers but by imploding markets — either the currency [markets, debt market or stock markets,” he said. “It will happen — it will happen one day and then we’ll be lucky if we still have 50 percent of the asset values that we have today.”