Trillions and Trillions

It appears that as a society we have moved beyond discussing economics in terms of billions and now the new paradigm is to discuss the overall economic picture in terms of TRILLIONS.  Considering that the US debt is now over $13 trillion, we cannot be surprised that the use of this word has become common in economics and society.  Since most of us have probably never seen a trillion dollars, I thought I might give you perspective on a trillion dollars and some examples of what it means to be $13 trillion in debt. 

What is a TRILLION Dollars?

Below are two examples of a trillion dollars that might help you gain perspective on the size of this number.

The first example is relative to time:

• One million seconds = 11.5 days
• One billion seconds = 32 years
• One trillion seconds = 32,000 years

The second example is relative to money (source: Google Sketchbook):

We’ll start with a $100 bill. Currently the largest U.S. denomination in general circulation. Most everyone has seen them, slightly fewer have owned them. Guaranteed to make friends wherever they go.

A packet of one hundred $100 bills is less than 1/2″ thick and contains $10,000.  Fits in your pocket easily and is more than enough for a week or two of shamefully decadent fun.

Believe it or not, this next little pile is $1 million (100 packets of $10,000).   You could stuff that into a grocery bag and walk around with it.

While a measly $1 million looked a little unimpressive, $100 million is a little more respectable. It fits neatly on a standard pallet…

And $1 BILLION dollars… now we’re really getting somewhere…

Next we’ll look at ONE TRILLION dollars. This is that number we’ve been hearing so much about. What is a trillion dollars? Well, it’s a million million. It’s a thousand billion. It’s a one followed by 12 zeros.

You ready for this? It’s pretty surprising.  Go ahead… Keep reading…

Ladies and gentlemen… I give you $1 trillion dollars (and notice those pallets are double stacked)…

So the next time you hear someone toss around the phrase “trillion dollars”… that’s what they’re talking about.

Getting a perspective of $13 trillion?

Right now our current debt to GDP (total value of the goods and services in our country) is 59%.  By 2012, the debt is expected to be greater than the entire GDP.  Currently our debt is at $13.057 trillion which is about $42,195 per citizen (adults and children).  As of April, our national savings rate was 3.6% (this has been going up).  With a median personal income of $41,056 (based on the average income for men and woman working full time), it would take the country’s 139 million workers 76 years to pay off the $13 trillion in debt if everyone put aside 3% of their income a year.

Did you know?…  Individuals can voluntarily help pay down this debt through a program with the Treasury.  In 2009, the Treasury received $3.063 million in debt-reduction contributions.  At that pace, it would take Americans approximately 5 million years to pay off the $13 trillion.  Keep in mind that this is only if debt remained at its current level.  The simple truth is that debt is actually increasing.  There is a KEY OBSERVATION in this data that I’d like to highlight.  That observation is that the main source of paying off this debt in the future will be additional taxes.  As I heard in a C-Span presentation from Congress a couple weeks ago, there is NO WAY for the economy to grow its way out of the current mess.  In other words, additional taxes and fees WILL be a reality for all of us.

Here is an interesting perspective on what $13 trillion could buy (taken from a recent Smart Money report):
1.  4 years at Yale including room, board and other costs is approximately $190K.  For $13 trillion, 68 million students could get a 4 year free education at Yale.

2. Every person in the US could buy one item from the McDonald’s dollar menu everyday for the next 115 years.  If you did the same thing with every person in the world, the money would last a little over 5 years.

3. As of April, the average home in the US costs $198,400.  With $13 trillion, 65 million families could get a new home.

4. For $13 trillion, every person in the US could see a movie every day for the next 14 years.

5. According to data from the Concierge Medicine Research Collective, $13 trillion could buy 10 years of round-the-clock medical care for more than 928 million people – or the entire population of the US for 30 years.

6. BP estimates the Gulf Coast Oil Spill will cost approximately $40 billion.  $13 trillion could pay the whole tab 326 times over.

7. A Disney Premiere Passport gives the bearer unlimited admissions to Disneyland and Disney World for one year.  For $13 trillion, the entire US population could spend the next 60 years at these parks.

What does this mean to all of us?

Public debt has been a part of our economic model for a long-time.  Clearly that model has been copied around the world.  However, there are two important questions to ask as it pertains to debt.  First, when do you have too much debt?  Second, if you have too much debt, how do you fix that problem?

I do not think that anyone feels the world has too little debt.  On the contrary, most economists feel the world is moving toward a “de-leveraging” process (paying down on debt).  Think about how much our lives are impacted by the ability to borrow money.  Clearly, as the debt becomes less of a tool to drive economic growth, it will impact all areas of society.  Consumers will learn to live within their means because using debt to enhance lifestyle will be difficult as society goes through this deleveraging period.  Businesses who depend on debt will suffer and many will end up failing.  That is why the “right business model” in this “New Economy” will NOT require (1) borrowing or (2) outside investments.  As entrepreneurs, you should align yourself with a business model that works as society goes through the deleveraging process.  Clearly business contraction will lead to higher unemployment.  I think many already understand this reality which is why the pursuit for entrepreneurship is at an all time high and growing.  Governments will default and things we take for granted will change.

As for fixing the problem, it begins with controlling spending.  As the old adage goes, you cannot borrow yourself out of debt.  Just as consumers have embraced the need to pay down their debt and increase their savings, governments also have to learn to live within their means.  If the future is defined by more overspending and the printing of additional money, I suspect the deleveraging process that is inevitable will just be more painful and longer.  Second, you MUST take control of your financial future.  Start a business.  Increase your value to the marketplace so you can keep (or get) a job.  Work harder to drive income and stay ahead of the increase in expenses that are out of your control (taxes, fees and inflation).  Finally, try to simply your life.  Learn to appreciate the simpler aspects of life and embrace this process.  While money might be a vehicle to happiness for many, there are things that are much more important.  As society changes, you have to change with it.  The simple fact is that for those that understand and embrace change, the future can be great.  Given the extent of the problems our society is facing, it is the wrong time and strategy to stick your head in the sand and hope this all works out.