In the 1900's, there were stock market crashes, like in 1929 and 1987, because stocks were overpriced. The cause of the October 2008 financial collapse was different. The cause was too much debt. The Fed's lending rate was 5.25% in 2008, so the Federal Reserve Bank ("Fed") lowered their interest rate to 0% to encourage money lending to large banks to in turn encourage spending, hiring and re-lending. Simultaneous with ZIRP (i.e. the Fed's Zero Interest Rate Policy), the US Treasury Department printed 4.5 trillion dollars in exchange for $4.5 trillion in US Treasury Bonds (IOU's), so that there would be $4.5 trillion more money for large banks to borrow. This $4.5 trillion in money printing was called Quantitative Easing (QE) and occurred in 3 rounds, QE1, QE2 and QE3, from December 2008 to October 2014. The Fed Funds interest rate has been 0% since December 2008.
The US Federal government kicked the debt collapse can down the road with ZIRP & QE. The 7 years of plenty (plenty of no interest loans & plenty of freshly printed money) that began in December 2008 will end shortly.
Debt is money that has to be paid. The amount of money that the government in the USA has to pay is larger than the $18.5 trillion Federal government debt figure mentioned in the corporate media, just as the US Gross Domestic Product (GDP) is lower than the $16.98 trillion figure also cited in the corporate media.
The $18.5 trillion government debt figure often cited is $13.5 trillion in US Treasury Bonds (IOU's) plus $5 trillion in money borrowed by the US Federal government from US Federal government trust funds like the Social Security trust fund. The 50 US states owe $0.7 trillion for state bonds they issued. The US municipal (e.g. cities, counties) bond market is $3.7 trillion. Fannie Mae and Freddie Mac, two government authorities, still owe $1.97 trillion, mostly for bad mortgages from years gone by. Other debts listed in the March 2015 Financial Accounts of the US report (www.federalreserve.gov/releases/z1/current/z1.pdf) include $6.23 trillion owed by government authorities (aka "government sponsored entities ") other than Fannie Mae and Freddie Mac, $1.04 trillion in loans taken out by the US Federal government (e.g. government credit card balances, short term loans) and $0.63 trillion in loans owed by government authorities (e.g. their credit card balances, short term loans). The total of these debts owed by government in the USA is $32.77 trillion, as of March 2015.
When US government people claim $18.5 trillion in government debt, they are neglecting to tell us about their loans, their government credit card balances, the debts of the 50 states, the debts of 3,033 US counties, thousands of towns and cities plus thousands of government authorities like the Tennessee Valley Authority and the New York City Metropolitan Transit Authority.
There's more. "Unfunded liabilities" ". Unfunded liabilities mean money that they owe, but they don't have. There are thousands of US government pension plans (e.g. Teachers, Police, Counties, Cities, etc.). Many of these pension plans don't have enough money to pay the pensions that were promised to government employees. The 50 states now have $4.7 trillion in "unfunded pension liabilities" ", money that they owe, but they don't have (click here). The Federal Employees Pension Plan is now short $1.9 trillion in money that the government will have to pay. The largest government pension plan in Puerto Rico became insolvent (lost all it's money) in 2012. Now the government has to pay $20.5 billion for that. In total, there is currently $6.62 trillion that the government in the USA has to pay for pensions. Pension contributions into pension plans have been less than what pension plans pay out to retirees, which is why the government in the US is short by $6.62 trillion for government pensions as of March 2015.
Pension plans that do have some money left tend to invest that money on wall street. $6.32 trillion of pension plan money was invested in stocks and bonds as of March 2015. The stock market has gone down 10% as of August 21, 2015 which means $0.632 trillion in pension fund money was lost on wall street this summer. Now, the government has to pay $0.632 trillion more to replace the pension money that was lost on wall street this summer. The government in the USA owes $7.252 trillion in unfunded pension liabilities as of August 21, 2015.
Tobin's q is a measure of how much the stock market will fall. Currently, Tobin's q shows the stock market will lose 86% of it's value. Which means there will be an additional $4.89 trillion that pension funds will lose on wall street by 2019, which means another $4.89 trillion in unfunded pension liabilities, which means the government will have another $4.89 trillion to pay for pensions by 2019.
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