We Have Borrowed the Difference

The income that Americans reported to the government shrank for two consecutive years after 2000, according to the latest data from the Internal Revenue Service (IRS). Total adjusted gross income on US tax returns fell 5.1 percent to slightly more than $US 6 TRILLION in 2002 from $US 6.35 TRILLION in 2000. Adjusted for inflation, the income of all Americans fell 9.2 percent from 2000 to 2002 according to the very latest IRS data.

Americans compensated for that fall in income by massive personal borrowings, assisted by the Fed's interest rates cuts. But now, the writing is on the wall. The US consumer/borrower is tapped out and is being hit by climbing prices on everything from oil to imports of all descriptions.

The US consumer Price Index (CPI) for June was up 0.3 percent, more than expected. Consumer prices have been rising at an annual rate of 4.9 percent in the last six months. Since wages have been rising at only 2.6 percent, it's not surprising that retail sales were weak in June.

Here comes the economic clincher. Total US credit market debt (government, corporate, and individual) is $37.1 TRILLION. Debt is over 300% of GDP and still growing. Total credit market debt had reached 260% of GDP in 1929 on the eve of the Great Depression. Today, US total credit market debt has doubled over the past five years. The US Treasury Department has reported that there is $44 TRILLION in unfunded liabilities in the "Entitlement Programs". That alone is more than the net worth in the country. Added up, funded and unfunded US liabilities come to $US 81.1 TRILLION. The US net international debt position to the rest of the world stood as of March 31 at $US 5.2 TRILLION. Clearly, the USA is tapped out. It is running on empty momentum. . .

Combined, the US budget deficit plus the US external deficit comes to about 12 percent of US GDP. To re-balance both would subtract that 12 percent from the US economy. That would, all by itself, cause a national economic recession to be remembered in all the history books.

Broke - Armed To The Teeth - And Aggressive:

That is how the rest of the world currently looks at the USA. The rest of the world, and especially the major nations in the rest of the world, know the US is woefully strategically over-extended - there are not enough boots on the ground in Iraq. These other major nations also know that the US is even more financially and economically over-extended.