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Presented by: Texas Precious Metals


The Money Project is an ongoing collaboration between Visual Capitalist and Texas Precious Metals that seeks to use intuitive visualizations to explore the origins, nature, and use of money.

Only a few days after Trump’s inauguration ceremony, the U.S. National Debt will creep across the important psychological barrier of $20 trillion.

It’s a problem that’s been passed down to him, but it certainly puts the incoming administration in a difficult place. The debt is burdensome by pretty much any metric, and the rate of borrowing has exceeded economic growth pretty much since the late 1970s.

How Trump deals with this escalating constraint will be a deciding factor in whether his administration crashes and burns – or ends up re-positioning America for greatness.

Donald Trump’s $20 Trillion Problem

Partisans will squabble about who added what to the mounting debt, but the reality is that none of that really matters. Both parties have kicked the can down the road for the last 40 years, and that has culminated in the current situation:
Debt incurred under each President

Back in 1979, the debt-to-GDP ratio was a modest 31.8%, and the federal government only had an outstanding tab of $826 billion. Fast forward to today, and the perpetual borrowing has added up.

The debt-to-GDP is now 104.2%, with the total debt burden nearing the $20 trillion mark.

US government debt to GDP

In absolute terms, the debt is the highest it has ever been. Using the common measure of debt-to-GDP, the debt is the highest it’s been in 70 years. The last time it soared past the 100% mark was during the final year of WWII.

Granted, the situation isn’t as bad as Greece, Cyprus, or Japan – but it’s getting there:

Debt to GDP

In terms of debt-to-revenue, a measure that compares the national debt to the amount of taxes taken in by the federal government, the U.S. has the 2nd highest debt out of 34 OECD countries:

Debt to Revenue

On a “per person” basis, each person in the U.S. owes $61,300 – the second highest in the world. Per taxpayer, however, that amount balloons to $167,000.

Changing Rhetoric

So what does Trump think of all this debt business? It’s hard to say, because his rhetoric has changed.

At the start of his campaign, he made it clear that debt would be a top issue for his administration. In February 2016, Trump said that the U.S. was becoming a “large-scale version of Greece” and that tackling the debt would be “easy” with a more dynamic economy. In April 2016, he said he could pay off the debt after eight years in office.

This rhetoric aligns with the official GOP platform, which says that the national debt has “placed a significant burden on future generations”, calling for a “strong economy” and “spending restraint” to pay it down.

But since then, Trump’s views may have changed.

His most recent economic plans include $1 trillion in infrastructure and $5 trillion in tax cuts – and they could increase debt by anywhere from $5.3 to $11.5 trillion. He’s also said that the U.S. will never have to default because it can simply “print money”.

How Trump will choose to deal with the debt is a big question – and only time will tell if his actions will make America great again.

About the Money Project

The Money Project aims to use intuitive visualizations to explore ideas around the very concept of money itself. Founded in 2015 by Visual Capitalist and Texas Precious Metals, the Money Project will look at the evolving nature of money, and will try to answer the difficult questions that prevent us from truly understanding the role that money plays in finance, investments, and accumulating wealth.

us-national-debt-share

Presented by: Texas Precious Metals

Visualizing the Size of the U.S. National Debt

Visualizing the Size of the U.S. National Debt

The Money Project is an ongoing collaboration between Visual Capitalist and Texas Precious Metals that seeks to use intuitive visualizations to explore the origins, nature, and use of money.

When numbers get into the billions or trillions, they start to lose context.

The U.S. national debt is one of those numbers. It currently sits at $19.5 trillion, which is actually such a large number that it is truly difficult for the average person to comprehend.

How big is the U.S. National Debt?

The best way to understand these large numbers? We believe it is to represent them visually, by plotting the data with comparable numbers that are easier to grasp.

Today’s data visualization plots the U.S. National Debt against everything from the assets managed by the world’s largest money managers, to the annual value of gold production.

1. The U.S. national debt is larger than the 500 largest public companies in America.
The S&P 500 is a stock market index that tracks the value of the 500 largest U.S. companies by market capitalization. It includes giant companies like Apple, Exxon Mobil, Microsoft, Alphabet, Facebook, Johnson & Johnson, and many others. In summer of 2016, the value of all of these 500 companies together added to $19.1 trillion – just short of the debt total.

2. The U.S. national debt is larger than all assets managed by the world’s top seven money managers.
The world’s largest money managers – companies like Blackrock, Vanguard, or Fidelity – manage trillions of investor assets in stocks, bonds, mutual funds, ETFs, and more. However, if we take the top seven of these companies and add all of their assets under management (AUM) together, it adds up to only $18.9 trillion.

3. The U.S. national debt is 25x larger than all global oil exports in 2015.
Yes, countries such as Saudi Arabia, Kuwait, and Russia make a killing off of selling their oil around the world. However, the numbers behind these exports are paltry in comparison to the debt. For example, you’d need the Saudis to donate the next 146 years of revenue from their oil exports to fully pay down the debt.

4. The U.S. national debt is 155x larger than all gold mined globally in a year.
Gold has symbolized money and wealth for a long time – but even the world’s annual production of roughly 3,000 tonnes (96 million oz) of the yellow metal barely puts a dent in the debt total. At market prices today, you’d need to somehow mine 155 years worth of gold at today’s rate to equal the debt.

5. In fact, the national debt is larger than all of the world’s physical currency, gold, silver, and bitcoin combined.
That’s right, if you rounded up every single dollar, euro, yen, pound, yuan, and any other global physical currency note or coin in existence, it only amounts to a measly $5 trillion. Adding the world’s physical gold ($7.7 trillion), silver ($20 billion), and cryptocurrencies ($11 billion) on top of that, you get to a total of $12.73 trillion. That’s equal to about 65% of the U.S. national debt.

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The World's Most Famous Case of Deflation (Part 1 of 2)

The World’s Most Famous Case of Deflation (Part 1 of 2)

The Money Project is an ongoing collaboration between Visual Capitalist and Texas Precious Metals that seeks to use intuitive visualizations to explore the origins, nature, and use of money.

The Great Depression was the most severe economic depression ever experienced by the Western world.

It was during this troubled time that the world’s most famous case of deflation also happened. The resulting aftermath was so bad that economic policy since has been chiefly designed to prevent deflation at all costs.

Setting the Stage

The transition from wartime to peacetime created a bumpy economic road after World War I.

Growth has hard to come by in the first years after the war, and by 1920-21 the economy fell into a brief deflationary depression. Prices dropped -18%, and unemployment jumped up to 11.7% in 1921.

However, the troubles wouldn’t last. During the “Roaring Twenties”, economic growth picked up as the new technologies like the automobile, household appliances, and other mass-produced products led to a vibrant consumer culture and growth in the economy.

More than half of the automobiles in the nation were sold on credit by the end of the 1920s. Consumer debt more than doubled during the decade.

While GDP growth during this period was extremely strong, the Roaring Twenties also had a dark side. Income inequality during this era was the highest in American history. By 1929, the income of the top 1% had increased by 75%. Income for the rest of people (99%) increased by only 9%.

The Roaring Twenties ended with a bang. On Black Thursday (Oct 24, 1929), the Dow Jones Industrial Average plunged 11% at the open in very heavy volume, precipitating the Wall Street crash of 1929 and the subsequent Great Depression of the 1930s.

The Cause of the Great Depression

Economists continue to debate to this day on the cause of the Great Depression. Here’s perspectives from three different economic schools:

Keynesian:

John Maynard Keynes saw the causes of the Great Depression hinge upon a lack of aggregate demand. This later became the subject of his most influential work, The General Theory of Employment, Interest, and Money, which was published in 1936.

Keynes argued that the solution was to stimulate the economy through some combination of two approaches:
1. A reduction in interest rates (monetary policy), and
2. Government investment in infrastructure (fiscal policy).

“The difficulty lies not so much in developing new ideas as in escaping from old ones.” – John Maynard Keynes

Monetarist:

Monetarists such as Milton Friedman viewed the cause of the Great Depression as a fall in the money supply.

Friedman and Schwartz argue that people wanted to hold more money than the Federal Reserve was supplying. As a result, people hoarded money by consuming less. This caused a contraction in employment and production since prices were not flexible enough to immediately fall.

“The Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than by any inherent instability of the private economy.” ― Milton Friedman

Austrian:

Austrian economists argue that the Great Depression was the inevitable outcome of the monetary policies of the Federal Reserve during the 1920s.

In their opinion, the central bank’s policy was an “easy credit policy” which led to an unsustainable credit-driven boom.

“Any increase in the relative size of government in the economy, therefore, shifts the societal consumption-investment ratio in favor of consumption, and prolongs the depression.” – Murray Rothbard

The Great Depression and Deflation

Between 1929 and 1932, worldwide GDP fell by an estimated 15%.

Deflation hit.

Personal income, tax revenue, profits and prices plunged. International trade fell by more than 50%. Unemployment in the U.S. rose to 25% and in some countries rose as high as 33%.

These statistics were only the tip of the iceberg. Learn about the full effects, the stories, and the recovery from the Great Depression in Part 2.

About the Money Project

The Money Project aims to use intuitive visualizations to explore ideas around the very concept of money itself. Founded in 2015 by Visual Capitalist and Texas Precious Metals, the Money Project will look at the evolving nature of money, and will try to answer the difficult questions that prevent us from truly understanding the role that money plays in finance, investments, and accumulating wealth.

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