Every so often we stumble across something so moving and so compelling that we feel we MUST share it with those around us. Well that is exactly what has happened to me over the past week. In today’s show I want to share a documentary done by the Peter G. Peterson Foundation titled “I.O.U.S.A”.
I originally found this while scanning through documentaries on Netflix. The actual documentary is about an hour and a half, however if you visit the website, www.iousathemovie.com, you will find the 30-minute version. Whether you are a Republican, Democrat, young, or old, you NEED to watch this documentary. I honestly believe that every American needs to watch this and should understand the gravity of this problem we have.
This documentary, “I.O.U.S.A: One Nation. Under Stress. In Debt”, chronicles the growing debt problem of the United States. It expresses the federal deficit as a percentage of Gross Domestic Product (GDP is the overall size of the economy). A good way to think of this from an individual standpoint is to think of GDP as the nations “net worth”. In February of 2007 (this documentary was produced in 2008), the federal deficit was 64% of GDP. Essentially, we were carrying debt equivalent to 64% of our Net Worth.
To give you an idea of how deep this is, on September 30th of 2007, including the unfunded promises of Social Security and Medicare, our Federal Debt was $53 trillion! This number (before the current administration) was increasing at about $2 – $3 trillion per year.
The documentary does a great job of not only showing where we are currently, but it goes all the way back to the beginning of the country to show just exactly how we got here. This is a wonderful way to look at our situation because our Federal Debt is really just the combined total of each year’s budget surplus/deficit. On the very first day of our government in 1789, our Federal Debt was $75 million (40% of GDP due to our war for independence). This literally scared our fore-fathers to death. So much so that by 1835, they had completely paid the deficit down to ZERO! This is the only time in the history that this has happened.
To give you a better perspective, here are some historical debt/GDP ratios to compare to our levels today:
- Civil War (1861-1965) 33% of GDP
- WWI (1935) 44% of GDP
- WWII (1939-1945) 122% of GDP (0% foreign ownership. We owed to ourselves.)
- End of Reagan Era 64% of GDP
- End of Clinton Era 57% of GDP
So if you remember above, I said that in February of 2007 we were at 64% of GDP. Imagine, however, where that number is now considering the horrid events of 2008.
As you listen to the show I will walk through each of these eras and explain what was going on and how we were able to handle it then. I will also explain how this time it is different. The documentary does a wonderful job of breaking down our real economic problem into four areas: Budget, Savings, Trade, and Leadership. PLEASE, PLEASE, PLEASE go watch this video. Once you’ve watched it, come back and leave comments. Let’s get a discussion started here. You’ve heard my thoughts, now I would like to hear yours!
Bradley Martin says
September 4, 2009 at 12:04 pmHi Brian! I reviewed the docmentary when it first came out. I love it and own it. I am a money map/budget coach in my local church and plan on incorporating this documentary into our financial ministry. I work in government right now and after watching this documentary, reviewing your podcast, and reading lots of books, I have decided to devote myself to becoming a financial planner. I know a lot of critics have blasted the documentary because the film is not prescriptive in providing answers. I know another site says the documentary is propaganda from rich people. I disagree and think the documentary is neutral. The decision to raise taxes, cut spending, cut entitlement benefits or all three is up to our elected officials.
Reed Davis says
September 6, 2009 at 4:08 amI saw the movie I.O.U.S.A. right after it came out and share your concern. In fact, I’ve been following this issue since 1992. If you want to see something really frightening, look at the first graph at http://usbudget.blogspot.com/2009/08/long-run-budget-outlook.html . This shows the government’s own projections of where the debt is headed. As you can see, it’s projected to reach at least 275% of GDP by 2080.
By the way, these projections are for the “debt held by the public” whereas the ones you give are for the somewhat larger “gross federal debt”. I actually think that the gross federal debt is the more important measure for the reasons given at http://usbudget.blogspot.com/2008/02/debt-outlook.html . In any event, both measures are projected to skyrocket by 2080.
I’ve looked at a few of the other figures that you mentioned from I.O.U.S.A. A breakdown of the $53 trillion figure that you mention can be found in the table at http://usbudget.blogspot.com/2008/07/what-is-real-national-debt.html . The table also shows a 65.5% of GDP figure for the gross federal debt, very close to the 64% of GDP figure you mentioned. Anyhow, thanks for raising this issue. I haven’t had a chance to listen to your podcast on the issue yet but will do so tomorrow.
Greg Milette says
September 9, 2009 at 10:47 amNice show, and well stated. You mentioned a podcast by the person who runs PIMCO, can you provide a link to that?
Brian Preston says
September 11, 2009 at 12:16 pmThat individual is Bill Gross. As I mentioned in the show, he is like the “Warren Buffet” of the bond marketplace. If you go to the iTunes store and search for “Bill Gross” or for “PIMCO Investment Outlook”, you can access his monthly market commentary podcast.
Reed Davis says
September 13, 2009 at 2:25 amI agree that it was a very good podcast. For example, I liked that you gave the historical debt/GDP ratios over the entire history of the U.S. Some people look back just as far as 1940 (which is how far back the U.S. Budget Historical Tables go) and point out that the debt/GDP ratio was higher after World War II. However, this was the highest ratio in the entire history of our country and was due strictly to the war. The deficit dropped back down close to zero once the war ended and the debt/GDP ratio began a long decline. We have no similar prospects now.
I also liked that you pointed out the rise in the foreign debt ownership and the prospect of financial warfare such as what the U.S. threatened to get our allies to pull back from the Suez Canal. One other difference about foreign ownership is that the interest earned by U.S bondholders is chiefly spent in this country. The interest earned by foreign bondholders, however, is much more likely to be spent in their home countries.
Regarding Bill Gross’s podcast I did find that one can also download the MP3 file for his monthly podcast at http://www.learnoutloud.com/Podcast-Directory/Business/Investing-and-Finance/PIMCO-Investment-Outlook-Podcast/18865 .
Oscar Perez says
September 13, 2009 at 11:50 pmHi Brian. I just hosted a viewing at my home so my friends can watch this documentary. It is a true eye opener.