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"The bond market doesn't see it."

My guess is that when the Asians quit buying treasuries, the bond market will see a lot more than they are seeing now. When the price of bonds drop, stock market investors will start seeing things differently as well.

And when the dollar starts sliding again, maybe you will be able to see it, too.

"Do you see something they don't?"

As a matter of fact, I do. Do you remember that one day Enron was the world's most admired company and that a month later, its off-balance sheet liabilities began to be revealed and two days later, Enron was virtually worthless? Gokhale and Smetters calculated the off balance sheet unfunded liabilities of Social Security and Medicare. Depending on the growth rates that were assumed, the net present value of those unfunded liabilities was estimated at somewhere between $34 and $77 trillion dollars with their best estimate being around $55 trillion. And for each year that we fail to deal with the problem, the estimate is that the unfunded liabilities will increase at an annual rate of $1.5 trillion. If the off balance sheet liabilities are included, that $49 trillion net worth you were describing vanishes or is even negative. Countries and economies that are doing things right do not have negative cash flows and zero or negative net worths.

The Comptroller of the Currency has already concluded that no nation in history has ever had sufficient economic growth to cover the unfunded liabilities as estimated by Gokhale-Smetters. The United States is faced with three choices: bankruptcy, hyperinflation or selling the public lands of the West to liquidate the liabilities that cannot be funded from income. At present rates, without the unfunded liabilities, the people of the United States are spending $2 billion dollars a day more than they earn. If you factor in the $1.5 trillion, we are actually consuming $6 billion a day more than we produce. And by 2012, it will rise to more than $10 billion a day. Why, in no time at all, we'll all be rich.

Borrowing to increase productivity can raise income. What do you see? Does this graph look like borrowing to increase consumption or borrowing to increase income?

My guess is that when the Asians quit buying treasuries, the bond market will see a lot more than they are seeing now

So you think China and Japan are all of a sudden going to change from export driven economies by stimulating domestic consumption? I hope you're right. In the meantime though, what do you think they'll be doing with all those dollars we send them for cheap stuff at Wal-Mart, cars and electronics? Where else will they invest those dollars? What will the Chinese buy to maintain the Yuan peg?

When the price of bonds drop, stock market investors will start seeing things differently as well.

Are you saying that when bond prices fall the stock market always follows? What will cause the bond market to drop, rising interest rates? Are higher interest rates going to hurt both the bond and stock markets? How do you know?

And when the dollar starts sliding again, maybe you will be able to see it, too.

The dollar will start sliding again vs. what other currency, the Euro? In dollar terms the Euro was first offered at about $1.17. It then dropped as low as 80 cents, shot up as high as almost $1.40, and is now around $1.21. Or, are you talking about other currencies?

From Kudlow:
The dollar, in actuality, isn’t really weak. A broader dollar index of 26 currencies published by the Federal Reserve paints a much stronger picture. Since February 2002, the dollar has fallen 14 percent from a greatly overvalued position that deflated the U.S. economy into recession. However, over the last 10 years, this broad-dollar index is basically unchanged. The dollar is at nearly the same point today as it was in 1994. During this period the average inflation rate in the U.S. was 1.8 percent.

Larry Kudlow

You are correct when you state that household net worth is $49 trillion dollars. If the government defaults on it's unfunded liabilities or raises my taxes to pay for it, how does that affect household net worth? It doesn't. How does it affect the value of the dollar? Again, it doesn't.

That chart you posted only considers liabilities and not assets. If I only counted my liabilities and not my assets, I'd be losing sleep too.

As clearly pointed out by expat_panama here (post #278) the federal debt as a percentage of family wealth has shrunk substantially since 1994.

Thanks again for the chart but within the proper context it really isn't as scary as you want to make it. Maybe you'll start sleeping better now.

Depending on the growth rates that were assumed, the net present value of those unfunded liabilities was estimated at somewhere between $34 and $77 trillion dollars with their best estimate being around $55 trillion. And for each year that we fail to deal with the problem, the estimate is that the unfunded liabilities will increase at an annual rate of $1.5 trillion. If the off balance sheet liabilities are included, that $49 trillion net worth you were describing vanishes or is even negative.

Sounds like you don't understand the difference between external debt and unfunded liabilities. Or how either one impacts household net worth.

At present rates, without the unfunded liabilities, the people of the United States are spending $2 billion dollars a day more than they earn.

You don't understand this either. America's GDP is $12 trillion a year. How do you figure we're spending more than we earn? We are spending money we've earned. The foreign holders of these dollars we've spent need to do something with their dollars. They've decided to invest them in our debt and equity securities. Doesn't mean we haven't earned the money we've spent.

Maybe read a book on economics? You'll make fewer embarrassing mistakes in your posts. Or not.