It’s unavoidable! Day in and day out since the financial crisis in 2008 and 2009 we have been hearing and reading about the budget deficit, stimulus packages and repeated extensions of unemployment insurance. These programs are no longer expressed in millions or billions of dollars. In fact, they seem to have skipped the billion-dollar mark without notice and we are now hearing and reading about trillions of dollars of spending and deficits.
When I was a young man, the estimable Sen. Everett Dirksen of Illinois was Senate Minority Leader and something of a budget hawk. One of his best remembered (if possibly apocryphal) quips was, “A billion here, a billion there, pretty soon, you’re talking real money.” If a billion was “real” money back in the 60s, what does that make a trillion now? Can anyone get their heads around that number? It’s not easy.
I decided to do some math to help us understand the magnitude of that number. Most people comprehend time. After all, we converted space-travel time into light years to help us grasp just how immense space is and how long it would take us to traverse any meaningful distances. For example, the speed of light is 186,000 miles per second. At that speed it would take about 1.3 seconds to reach the Moon, which is 238,857 miles from Earth, and about 8.3 minutes (500 seconds) to reach the Sun. But rather than provide an astronomy lesson, the point is that conceiving of a trillion anything requires a similar adjustment in our frame of reference.
So let’s look at how long it takes for one-million seconds to pass:
Since there are 60 seconds in a minute, and 60 minutes in an hour and 24 hours in a day, we can calculate that there are 86,400 seconds in a day. If we divide one-million seconds by 86,400 seconds in a day, we get 11.57 days. So, one million seconds passes in 11.57 days.
Now let’s look at how long it would take for one billion seconds to pass:
Well that’s easy since one billion is a thousand times a million, we can just add three zeros to 11.57 days and we get 11,570 days. So, one billion seconds passes in 11,570 days. Divide that by 365 days in a year and we get 31.7 years.
Now let’s look at how long one trillion seconds would take to pass:
Again, since one-trillion is one billion times 1,000, we can just add three zeros and we arrive at 11,570,000 days. So, one-trillion seconds takes 11,570,000 days to pass. Divide that by 365 days in a year and we get 31,699 years.
Okay, this still is not working for me. So I figure out that if the average person lives 80 years and there are 365 days per year, then the person would live an average of 29,200 days. So, 29,200 days is an average lifetime. If one trillion seconds takes 11,570,000 days to pass, that’s about 396 lifetimes. You would have to live 80 years 396 times for a trillion seconds to pass.
Now that’s helping my brain deal with a trillion. So in summary:
So the next time you hear a trillion here and a trillion there, think about how many life times that equates to. Then ask yourself, how long will that amount of borrowing take to pay back? Unfortunately, we are talking about much more than one trillion dollars. Here are some of the real numbers:
Borrowing to finance the deficit (that is, essentially selling Treasury bonds, mostly to foreigner countries, which now account for about 30% of all U.S. government securities) grew 22.7% in 2009 to $7.8 trillion. That is about $25,299 per U.S. citizen. That is the largest annual increase in dollar terms and was a direct consequence of the Treasury’s extraordinary efforts to stabilize the financial markets. The total national debt is now approximately $12.6 trillion, which equates to about $41,200 per citizen.
The U.S. Consumer
The Federal Reserve recently reported that in 2009 U.S. household debt (mortgages, credit cards, and loans) amounted to $13.5 trillion. That’s about $43,874 per U.S. citizen. That’s a reduction of 1.7% from 2008, the first annual decrease since the Fed started tracking household borrowing in 1946. Most of the drop can be attributed to defaults, but there’s not doubt most consumer are making a greater effort to pay down their debts.
Financial insecurity is part of the picture, but so is the very real diminution of household wealth caused by falling stock and real estate prices. According to the Federal Reserve Bank of St. Louis, the net worth of U.S. households declined by a little more than $17 trillion, or roughly 27%, between the second quarter of 2007 and the first quarter of 2009. At the end of 2009, the average U.S. citizens’ net worth (assets minus liabilities) was $175,600, well below the peak $218,650 in the second quarter of 2009.
We also began to save again. The most current savings rate was 4.2% at the end of 2009. While we’re still far removed from the roughly 10% savings rate that prevailed from the 50s through the early 80s, that’s up from 1.3% in early 2008 and up from the 0-2% range of most of the first decade of the new millennium. Paying down debt and saving for the future are the new rage in the U.S. In the short term, that won’t help the recovery, but longer term it will improve productivity, increase investment and facilitate higher real incomes.
Add the sum the government borrowed last year to the average household debt and you get $21.3 trillion, or $69,173 for every U.S. citizen. This gives us an idea of how much we have borrowed and how much we need to pay back.
Just Write a Check!
So here is how you solve the current economic crisis. Get out your checkbook, and send the U.S. government a check for $25,299 and enclose a note to pay off your portion of the debt to the U.S. Treasury. Then use the other $43,874 to pay down your personal debt. Voila! A balanced budget for every resident and the government. Remember, these numbers are just for you. If you have a spouse and children just multiply these numbers by the number in your family. For a family of four it’s $101,196 to the government and $175,496 to your creditors for a total of $276,692.
Do you know what comes after a trillion? I have been testing people and most of them answer a zillion. That’s not right. After a trillion we encounter a quadrillion. And, in case you were wondering, after a quadrillion comes a quintillion. That’s the number 1 followed by 18 zeros. Does anyone sell a calculator that can handle these numbers? I’m a little rusty on my “to the powers” calculations.