Monday, July 11, 2011

Global Money Supply and Debt

A couple of years ago I clipped a little piece about economics that I hadn’t known before. This was a question in the “Ask Marilyn” column, in the Parade section that comes in the Sunday paper. Here is the question, followed by the answer by Marilyn vos Savant, who writes the Q&A column: 

Q: If all the money in the world were redistributed so that everyone had the same amount, what would it be? 

A: The global money supply is about $60 trillion. (Economists call this figure the M3 value; it includes much more than currency.) Say that we take it all—which means that you and Bill Gates would have nothing in the bank—and then distribute it equally among every individual in the world, about 6.8 billion people. Each man, woman, and child would receive about $9000. So, if your household now has less than $9000 per person, you would gain. If you have more, you would lose. 

The idea that struck me was not “how do we redistribute equally?” but “how much is there?” I just hadn’t thought about total global wealth as a number before. And the surprising thing was how big our debt is in comparison to global wealth. 

M3 is specifically defined as coins, plus current accounts, plus notes, plus deposit accounts transferable by check, plus certificates of deposit, plus all private-sector bank deposits. In other words, it is essentially the amount of money (plus things easily exchanged as money) in circulation, including both domestic and foreign money. Total wealth could be greater, because it would include non-liquid assets (if I’m understanding this correctly), such as a fully owned home or vehicle. 

You’ll notice that the measurement, at least for us in the US, is in dollars. So if the value of the dollar changes (because of inflation), it could appear that M3 has risen when its value has actually gone down. So, economics continues to be challenging for the lay person. I have seen greater M3 numbers recently, closer to around $75 trillion. Because of the fluid, continuous nature of exchange, it may be difficult to get a specific snapshot. 

But the important detail to remember is that there is a finite amount of money worldwide.  

The current budget debate is about the raising of the debt limit above $14.3 trillion. The debt of the US is right now approximately ¼ of all the money in the entire world. And there are people (our president, the Democrats in the House and Senate, and their minions) who believe we just haven’t borrowed enough. So the question is, what portion of the entire amount of money in the world does it take for the government to fulfill its Constitutionally-required duties? At least that’s the question I’m asking. 

Another question is, what portion of US annual income—GDP—is appropriate for US debt? GDP for 2010 was approximately $14.7 trillion. So, if Obama et al. want to raise the debt limit, is their aim to have the US owe absolutely every dollar that all of the workers in the entire country can produce in a year, plus anyone doing business here from around the world, to be applied to our debt? 

And that’s just to keep up now. What if they continue to spend in a way that increases the debt, so that pretty soon we’re not paying just for all that accumulation up till now, but an equivalent amount of what these Washington types say must be spent now and in the future?  

Worldwide, our GDP remains fairly constant around 26% of worldwide GDP. Coincidentally our debt is also very close to that percentage of global money supply. 

Here’s another detail to add: The $14.3 trillion doesn’t include all the debt. There is also state and local debt (another $2-3 trillion), and government pensions (another $3 trillion) future obligations of programs that are not solvent, namely Social Security, Medicare, and Medicaid (another $106 trillion). A good summary of this can be found in this piece from June 2010). Here’s a scary paragraph: 

The debt numbers start to get really hairy when you add in liabilities under Social Security and Medicare—in other words, when you account for the present value of those future payments in the same way that businesses have to account for the obligations they incur. Start with the entitlements and those numbers get run-for-the-hills ugly in a hurry: a combined $106 trillion in libilities for Social Security and Medicare, or more than five times the total federal, state, and local debt we’ve totaled up so far. In real terms, what that means is that we’d need $106 trillion in real, investable capital, earning 6 percent a year, on hand, today, to meet the obligations we have under those entitlement programs. For perspective, that’s about twice the total private net worth of the United States. (A little more, in fact.) 

The total actual debt according to Kevin D. Williamson, who wrote that piece? $130 trillion. In other words, about double the total amount of money accumulated by civilization in the entire world. This isn’t a matter of the wealthy not giving their fair share; this is a matter of government enslaving all the workers of the world for its own ends. 

Any compromise in debt ceiling talks has to be about how much to cut and how fast—with commitments to cut more and more into the foreseeable future. There can be no talk of increasing debt or tax obligations on an overburdened people. End of subject.


  1. That was a very concise and understandable explanation. If you don't mind I will pass that on to those on my mailing list. By the way, you mention that the US total debt is about $14 trillion dolllars; that $14.3 trillion is arbitrary. doesn't the government derive that number by using the annual debt and arbitrarily taking it out ten years? ie, 10 x 1.4 = 14 trillion.

    But there is no logical reason to stop at ten years is there? Mortgages routinely run out to 30 years and when one looks at their indebtedness they include the entire value of their mortgage, not just ten years worth. Yes, I know that we consider only the current value but if we pay the house out over the 30 years we owe the 30 years worth. How about the social security obligations? Those are open ended aren't they. Many people will live beyond the 10 year time frame and we are obligated to pay thse out for their lifetime. In fact, some people will collect SSI for more than 30 years. We don't account for the government's debt beyond ten years and knowing the congress like I do there must be a disingenious reason.

  2. Horatio, Yes by all means pass the info along. I'll attempt to address some of your comments about debt in my next blog.