Amazingly large numbers

I am going to express several amazingly large numbers in terms of how many millions they represent. I believe most of us can relate to the concept of millions, millionaires, etc. But we have a very hard time relating to a billion (it’s 1,000 million) and we are essentially unable to conceptualize what a trillion means (it’s 1,000,000 million). So, let’s make millions our benchmark.As I write this column, Apple Computer is selling for about $629 per share. It is now the most valuable publicly held company in the world — not just now — ever. Its market capitalization, the value of all its shares times $629, is approximately $587 billion ($587,000 million). ExxonMobil, the second highest valued entity, is at $404 billion. What’s perhaps more amazing about Apple is that, at their last reporting date in December 2011, they had a hoard of cash and investments of over $97.5 billion. Try that on for size. That’s $97,500 million of liquid assets. These giant figures set a context for even more amazingly large numbers.The US of A’s spending (there’s no budget because the Senate has not passed one in more than 1,000 days) per annum is north of $3 trillion ($3,000,000 million. Not a misprint!). But our taxes and other sources of revenue are over $1 trillion short and have been for each of the last three years. We’ve added more than $5 trillion to our primary debt since the start of 2009, to a level of about $16 trillion, and are projecting, at current levels of spending, to keep piling new debt up at a rate of a trillion or so per year for the foreseeable future. One trillion is 10 times in one year what it took the world’s most valuable company 35 years to accumulate. Sixteen trillion is 164 times the size of Apple’s cash hoard. And that is just the primary debt.In addition to our primary debt, we have north of $50 trillion (50,000,000 million. Yes that’s right – 50,000,000 million) of unfunded liabilities for Social Security, Medicare and Medicaid. And still counting. That’s 512 times the size of Apple’s cash pile. We have piled up the largest debt pile in the history of the world without including the unfunded entitlement liabilities. Including the entitlement liabilities, our debts are totally mind boggling. Nearly $70 trillion. No company, no government, no entity on earth has that kind of money. About the only thing that is keeping our economy from going from weak growth into a huge tailspin is that the U.S. dollar is still the reserve currency for many cross-border transactions.u u uThese debt numbers are not politically motivated, not Democratic, not Republican, not Independent. They just are facts. We can keep refinancing the primary debt as long as someone is willing to keep lending to us. Keep in mind, however, that if interest rates were to climb, the cost of servicing the debt would climb by about $160 billion ($160,000 million) per year for each 1 percent rise in rates. Predictably, at some level of debt, the market will conclude that the United States has such a high debt relative to its overall economic output that no more lending will be forthcoming.And yet, incredibly, the current administration proposed a budget that dealt with none of these fundamental budget-busting overspending issues. That budget was voted down unanimously in the U.S. House of Representatives, 417 to 0. For the first time in several years a budget was proffered that contains a bi-partisan plan, for Medicare reform, which was coauthored by Wisconsin Rep. Paul Ryan (R) and Oregon Sen. Ron Wyden (D), which does begin to tackle the difficult issues which are baked into the debt and entitlement numbers I’ve discussed above. That budget passed in the House of Representatives, but will not be brought to the floor of the Senate for a vote by Senate leader Harry Reid (D) of Nevada.I have read several critiques of the Ryan/Wyden Medicare plan, including a scathing critique from President Obama, that claimed it would send Medicare into a death spiral, reduce college aid, chop funds to autistic kids, etc. And I thought: That’s impossible. Medicare’s already in a financial death spiral. We are overspending on so many fronts. It’s not true that cutting spending will cause all these horrific results. What is certain is that it is a numerical lock that by not becoming more efficient in how we help the poor, the sick, the elderly, the college students, our kids, that we foreordain suffering on all these groups. We need to makes substantive changes to pull back from that otherwise numerically predetermined fate.In Hemingway’s “The Sun Also Rises”, someone asks Mike Campbell (played in the movie adaptation by Errol Flynn, for you old movie buffs): “How did you go bankrupt?” Comes his reply: “Two ways. Gradually, then suddenly.” The United States is in the gradual stage of going bankrupt. Check out Greece for the sudden stage. It is not too late to pull back. But our amazingly large debt numbers (nearly $70 trillion or $70 million million or $70,000,000,000,000) cannot be ignored. We need to ask candidates of both parties in the 2012 election where they stand on our numerically certain debt crisis. Are they part of the ongoing problem or active participants in the solution?Richard Shanley, CPA, is a retired audit partner of the accounting firm of Deloitte & Touche. He lives in Salisbury.