Sometimes you hear something that changes your whole point of view.
Epiphany is a great thing and would make a great name for a daughter.
On second thoughts perhaps not, but child naming aside, Epiphany is just what you need when you invest.
And I just had one, care of Japan.
Japan has debt. The Japanese national debt to GDP is huge! Some say its over 250% of GDP, but its less if you start to cancel out debt between different bits of the government.
This is something the Fed could do of course now it has bought back all that national debt. Fzzzt, it could just be cancelled.
However right now, the US has $18 trillion in debt.
That’s a lot. Its from here to the moon in dollar bills or around the world as many times as you like if you laid 18 trillion out in quarters. You’ve seen the infographics. 18 trillion, that’s like 1000 Whatsaps.
18 trillion dollars is a lot of money.
No one likes the debt.
Everyone see this debt as a bad thing, a monster like Godzilla that can’t be overcome and can only ultimately wreck devastation.
But wait a bit.
The Japanese government just admitted its national debt was high and stated….
“We pretty much owe every citizen $100,000”
Huh??? What was that they said? Your national debt is money owed to your citizens???
Wait, Japan owes it as a nation; doesn’t that mean each citizen owes $100,000 a head not the other way around?
Well actually in the US everyone moaning and groaning about the national debt is saying exactly that if the government owes it, de facto the people are on the hook for it.
In their “we all owe the national debt” model every citizen owes 18,000 billion divided by 319 million. That is going to get my Excel switching into scientific notation, but roughly, doing the figures on our fingers or toes, that’s say $50,000 a head or there about.
Therefore, every American, man woman and child, able body or infirm, young or old is in hock to the tune of 50 grand.
But wait the Japanese said actually the government owes their nation debt to the citizens of Japan.
While the state might be in debt up to its eyeballs, the citizens aren’t in debt, in fact they are the creditors. The government owes them the money.
So are Americans rich creditors of the US government too?
Yes it is the same dynamic in the US, except whereas most of Japan sovereign debt is owed to their citizen, that is less the case in the US, but the US government still owe its citizenry trillions.
Only a third of US debt is owed to foreign entities and another third or more is owed by the government to itself, so the remaining third is actually owed to American citizens and their proxies.
Sadly its not equally owed to everyone, but the key is an American is not in debt for a slice of the US government debt as many pundits would have you believe, dooming your grandchildren to debt serfdom.
If of course a country does borrow its needs from abroad like Greece, a country and its citizens will end up broke but if a government ends up borrowing from its own citizens it’s a whole different situation.
Lets face it, if you are happy like the Japanese to lend your government money for basically nothing its utterly sustainable, after all, in most developed countries the citizens that earn are happy to just hand over around half of their earning because they’re asked to. Why not lend the excess for nothing, that seems to work just fine in everyone’s head from Tokyo to Paris to New York.
So lets learn to love the US national debt, you’re a creditor too!