Here's an article explaining the $53 trillion dollars of debt:

http://mwhodges.home.att.net/nat-debt/debt-nat-a.htm#component

Of the $53 trillion, federal, state, and local account for $11.4 trillion. The $11.4 trillion does NOT account for about $64.7 trillion in unfunded federal, state, and local pension and health plans. If that were added in, the total 'public' debt would be over $75 trillion.

The private sector debt includes the household sector, the business sector, and the financial sector $13.8, $10.1, and $15.8 trillion respectively. That totals conservatively $42 trillion. Unaccounted for are unfunded pensions and health benefits for employees. Also unaccounted for are $trillions in derivitives, and off balance sheet debts.

What is accounted for is about $53 trillion. If we were to add in the 'unfunded' items we would be closer to $117 trillion in debt!

As would be expected, the area of most dramatic growth is the financial sector (lots of new financial products for the unwary!). Troubling also is the growth of the household sector  - 10 million families/individuals paying $100,000 more for a house than can be reasonably accounted for equals $1 trillion. Greed, spin, and outright deception has co-signed those mortgages.

Also troubling is the recent upsurge in town sector debt (folks want new schools, parks, services (hey, it's a service economy, right?), infrastructure, etc., etc.) And all those things are bonded - in addition to the swelling payrolls and unfunded retiree pensions and benefits.

I'd also like to know where all this will lead.

can the FED keep the debt vs GNP graph going up exponentially? No.

 I think the party of debt growth can be kept going longer (say years) unless some exogenous event (like oil prices going up to say $200/barrel maybe) hits hard.  It appears the only discipline that will limit the debt growth is the value of the US dollar. The dollar falls as it becomes obvious the US is economically irresponsible. 
 

The only way I can get my mind around what is happening to the economy is  to think of the  family that has wealth built up by a smart/wise/lucky business founder.  This wealth is left behind for the family that lives beyond their means, borrowing against assets every year to support the life style of yachts, summer homes, parties etc.  Eventually the assets are gone and the family is poor.  Like the wealthy family we have inherited tremendous wealth in the US.   The wealth we have inherited in the  US is breath taking.  These numbers won't be exact but the US accounts for some 25-30% of the economic activity (GDP) of the world with 6% of the population.  This generation is living off the tremendous wealth built up over the life time of the country.  Every year we consume more than we produce.  It is exactly like the wealthy family that borrows against  the capital built up by the founder to support their life style.   Now we don't save, we consume more than we make at a rate of some $2 billion per day (that is the approximate amount of our balance of payments deficit or net dollars we ship over seas daily).   The end result of this over consumption is that US dollars are built up in foreign countries in the trillions of dollars.  In the end the the US will end up as a share cropper, just as the wealthy family from inherited wealth will end up destitute with out assets when they live beyond their income.  With the trillions of dollars over seas the foreigners will (are) start buying up the US companies, land, resoruses.  Either foreigners will buy up huge quantities of US assets or the dollar will become worthless.  Those are the only choices.  The end result is that the US will become share croppers working for foreigners. 

So the  result of borrowing to consume, over consumption, not saving is that you end  up poor without assets whether you are the previously wealthy family or the US.  The results will be the same.   But I do think the party can go for years, before the debt growth stops.  The economy of the US is vast, rich and has power not easily destroyed, but as a country we are doing our best to destroy it.

Cutting dividends is just one part (not small if you are involved) of the battle to preserve debt growth, financial engineering, deficit spending, the something for nothing mentality that has infused our economy.  It is interesting now you see the stock market going up largely IMHO in response to the government efforts (don't fight the FED), while the bond market and banks continues to show signs of stress.   The dollar continues to suffer and the debts just keep growing.  So party on, it might get better, or it might not.  But either way the US will continue to consume lots of stuff (it appears to be government policy) we probably don't really need and all the time the debt bomb just keeps growing. 

garyp:

I'd also like to know where all this will lead.

To much higher stock market prices a year from now. I'm not as pessimistic and don't believe in "The Sky is falling" view most have displayed here the last few weeks, and the market has clearly spoken. With all the bad news, the Bear debacle, the record foreclosures, the layoffs mounting, the market has not fallen apart. Quiet the contrary...

And contrary to what many believe here, Cramer called the bottom correctly couple of weeks ago. Today I look idiotic to many here because I side for Cramer call, let's talk again a year from now, and let's see who looks more idiotic between I and many here who has criticized me.

My view is that we'll go higher from here; probably we'll revisit the lows a few weeks/months from now, and then off to new highs in 2009. I'm on record saying that here, and the only one with a bullish outlook

 

 

Ran across this Buffett sighting in Fortune Magazine taken from a meeting with WArton business school students

How does the current turmoil stack up against past crises? .

Buffett: "Well, that's hard to say. Every one has so many variables in it. But there's no question that this time there's extreme leveraging and in some cases the extreme prices of residential housing or buyouts. You've got $20 trillion of residential real estate and you've got $11 trillion of mortgages, and a lot of that does not have a problem, but a lot of it does. In 2006 you had $330 billion of cash taken out in mortgage refinancings in the United States. That's a hell of a lot - I mean, we talk about having $150 billion of stimulus now, but that was $330 billion of stimulus. And that's just from prime mortgages. That's not from subprime mortgages. So leveraging up was one hell of a stimulus for the economy."

Question: If that was one hell of a stimulus, do you think the $150 billion government stimulus plan will make an impact?

Buffett: "Well, it's $150 billion more than we'd have otherwise. But it's not like we haven't had stimulus. And then the simultaneous, more or less, LBO boom, which was called private equity this time. The abuses keep coming back - and the terms got terrible and all that. You've got a banking system that's hung up with lots of that. You've got a mortgage industry that's deleveraging, and it's going to be painful."

Question: The scenario you're describing suggests we're a long way from turning a corner.

Buffett: "I think so. I mean, it seems everybody says it'll be short and shallow, but it looks like it's just the opposite. You know, deleveraging by its nature takes a lot of time, a lot of pain. And the consequences kind of roll through in different ways. Now, I don't invest a dime based on macro forecasts, so I don't think people should sell stocks because of that. I also don't think they should buy stocks because of that."

On a different subject (CDO's);

Do you find it striking that banks keep looking into their investments and not knowing what they have?

I read a few prospectuses for residential-mortgage-backed securities - mortgages, thousands of mortgages backing them, and then those all tranched into maybe 30 slices. You create a CDO by taking one of the lower tranches of that one and 50 others like it. Now if you're going to understand that CDO, you've got 50-times-300 pages to read, it's 15,000. If you take one of the lower tranches of the CDO and take 50 of those and create a CDO squared, you're now up to 750,000 pages to read to understand one security. I mean, it can't be done. When you start buying tranches of other instruments, nobody knows what the hell they're doing. It's ridiculous.

 

 

 As usual Buffett has a good perspective on what is going on.  The man continues to amaze.

The full article is here:
http://money.cnn.com/2008/04/11/...rtune/ index.htm

farmera1:

As usual Buffett has a good perspective on what is going on.  The man continues to amaze.

Farmera,

I also read an Buffet interview article a week or so ago where Buffet said the economy will pull through this crises just fine and he sees much nicer valuation in the stock market today than a few months ago. As the old Wall Street adage goes "Buy when there's blood on the street". I don't have the link of that article anymore. I did not wanted to bother to post it here, considering I was getting hammered by the usual posters about my bullish outlook and Cramer view on the other thread. So even Buffet does not see the sky is falling as many see here

I don't believe the sky is falling. The rain, however, is coming down pretty rough in some areas.

Keep your powder dry. 

Agree with the Eagle....the 24/7 business news cycle and talking heads anxious to entice YOU to buy secuirities have trained us to somehow believe a recession beginning Tuesday will end in recovery by Thursday.  I think it's important to remember that the ECRI LEADING indicators just predicted recession a month ago....in all likelihood, the economic weakness is just beginning and the trajectory will be down for 3-6 more months.  Modest recovery could begin in Q4...but more likely in Q109.

EagleTed:

I don't believe the sky is falling. The rain, however, is coming down pretty rough in some areas.

Keep your powder dry. 

The S&P if I'm not mistaken is down about 5% ytd. If you think 5% is bad, I guess you have not seen a REAL bear market in your lifetime. You guys can think bearish, while the market is giving the fingers to all the bears and keeps going higher