* This post was written before Mr. Roche founded Monetary Realism, which was formed due to several disagreements Mr. Roche and many other former MMT proponents had with the school of thought.  For more info on the difference in views please see here.  For more on MR’s views please see here.

It’s nice to see some mainstream economists making logical arguments with regards to America’s financial position.  In a recent research piece Credit Suisse shows that America is far from being broke.  Of course, anyone who understands MMT and the actual workings of a modern fiat monetary system knows this is a preposterous notion to begin with, but CS is using a traditional framework and their evidence counters much of what we so often hear from fear mongerers and politicians:

“Some of our senior politicians and market pundits say it every day: “America is broke.”

We wonder if this is meant to be a joke. America is not even close to being broke. Household net worth is $57T. Public government debt – including the state and local sector – is about $12T. If we consolidate balance sheets to reflect the fact that the household sector is ultimately responsible for repaying this debt we arrive at a household net worth of $45T or 303% of GDP. This is at the high-end of the historical norm of 250- to 300% since the data began in 1952. The current level was surpassed only in the recent tech stock and housing bubbles.

No doubt policymakers have a lot of work to do in terms of agreeing on a politically palatable way to adjust current laws to reduce the unprecedented intergenerational transfer of wealth associated with old entitlement programs and a wave of new retirees. But, ultimately, the resources are there and as we are increasingly finding out, so too is the political will.”

Source: Credit Suisse

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

More Posts - Website

Follow Me:


  1. Oh yes the US is broke in the sense that it can’t repay it’s debt. And since 1971 it never intended to repay its debts either. source: Yes, the US can try to print its way back to prosperity but the flipside of that is (high) inflation. (Not Hyper-inflation). And then interest rates will go through the roof (again, like in the late 1970s)

    But neither can other countries repay their current debts.

  2. CS makes – IMO – the mistake that it assumes that the US owes that debt to itself. And that’s baloney. Because then why is there debt in the first place if the US owes that debt to itself ?

    A second mistakes is to assume that the total US net worth is (about) $ 57 Trillion. That net worth is going/will be going down by about 90% like the situation in Japan and then the total net worth would be “”only”” about $ 6 trillion. We’re in a deflationary environment, remember ?

    That’s the blind spot of TPC and CS.

    • Debt is a gold standard relic that serves only as a reserve drain. It funds nothing. When the USA stops spending it stops funding projects that the govt has previously deemed necessary. Now, we could likely do without much of our current spending, but there is no such thing as paying back the debt. You don’t just stop spending money on healthcare and defense because you want to “pay it back”. We have egregious healthcare and defense costs because our citizens have deemed them necessary….There’s no such thing as paying back the debt. We do it owe it ourselves because the “debts” represent programs that past generations have deemed necessary….If you want to reduce spending on certain programs then fine, but there is no such thing as paying it back….the concept simply doesn’t even apply. Unless that is, you want to stop sending medicare payments, stop policing the streets, stop defending the country, etc etc….

    • No blind spot :-) You just haven’t grasped the concept that the USA is not a corporation or household….And it’s clear from many readers here that they haven’t either….

      • Yes, the US is not a household or a corporation. Yes, the US can print al the money it needs but when all the banks are going “”belly up”” then where’s the transmission mechanism to extend credit in(to) the economy ? And banks going belly up is therefore VERY deflationary. No matter how much money the FED injects into the economy. Even when Benny Bernanke starts dropping dollar notes out of helicopters then that won’t help. First (nearly) all credit has be destroyed. Then and only then “”printing money”” or “”increasing bankreserves”” would make a difference for EVEN the USA.

        The MMT is a load of BS. I believe more in the “”Money Circuit Theory”” developed by mr. Steve Keen. That theory makes much more sense.

  3. I think Credit Suisse and S&P are talking about two very different things, and we need to be careful about “who” is broke.

    Credit Suisse is right that America as a whole, its economy and society, are not broke. S&P and others are talking about the US federal government being broke, and that’s right, or soon will be. There’s no contradiction between the two. The government may be approaching insolvency and a liquidity crunch. America as a whole is far from that.

    That’s why I’m pessimistic about our politics in the next few years, but not about the American economy in general, in the long run. It will survive and prosper. Society will force major changes on the political class, and the nature and direction of US government will change in a major way.

  4. Cullen,

    Your comment: “Public government debt – including the state and local sector – is about $12T. If we consolidate balance sheets to reflect the fact that the household sector is ultimately responsible for repaying this debt we arrive at a household net worth of $45T or 303% of GDP” is not correct. The household sector (aka taxpayers) does not pay the debt or the deficit.

    Federal government spending is not constrained by taxes. The government services its debt (aka T-securities) simply by crediting the checking accounts of T-security holders, which it can do forever — no tax money involved. In fact, the government could eliminate all debt tomorrow, simply by exchanging one form of money (dollars) for another form of money (T-securities).

    You might wish to review Monetary Sovereignty

  5. At times it is clear that the focus in these threads digresses into arguments about symantics. Words like “bankruptcy” and “broke” and “insolvent” are clearly not applicable to a soveriegn nation with a hold on the world’s reserve currency. But somehow, the discussion often gets bogged down with these terms, and the real issues get sidelined. Sure, terms such as: inflation, malinvestment, transfer payments, income distribution, wealth distribution, standard of living, prosperity, productivity, ideology, deflation, deleveraging, and the like are symatically correct, but I like “Broke”. It sums it all up in one word.

    The private sector analog to default, when applied to the US monetary and fiscal stewards, is inflation. Insolvency, bankruptcy, etc., for the US amounts to rapid currency devaluation, inflation yada, yada.

    Are we “broke”? Hell yes. If the average current Medicare recipient has “paid in” about $150K (I get it, don’t hammer me on “paid-in” you know what I mean, it’s just easier to say it that way), and the same recipient will receive a private sector value of $450K in health care assistance, then we are broke. How inflationary is that? A huge proportion of those health care services will be funded with new fed money, since the transfer payment base is not sufficient. The new fed money will find its way into bank accounts, and the fractional resevere currency system will do it’s work to generate huge amounts of inflation. If congress thinks it can control this inflation by increasing taxes, they are f’ing idiots (actually they are anyways), or if the fed thinks it can do the same by raising short term rates, or selling their longer dated treasuries, they are dumber than dirt too.

    The reason all this “broke” talk is going around, is because the only conceivable way for the government to fulfill the promises of dead and/or nearly dead politicians, is to devalue the hell out of our currency. In my book, becuase I am a saver, and I don’t want to have to speculate to survive, that’s a “broke” government stealing the remnants of my prosperity.

  6. To: Cullen. Sorry for misunderstanding your position.

    To: MS. You said, “The reason all this “broke” talk is going around, is because the only conceivable way for the government to fulfill the promises of dead and/or nearly dead politicians, is to devalue the hell out of our currency.” And yet, despite massive deficits over the past few years, I don’t see the inflation you predict. Actually, since we went off the gold standard in 1971, there has been no relationship between deficit spending and inflation. What is related to inflation? Oil prices.

    Also, you said, ” Sure, terms such as: inflation, malinvestment, transfer payments, income distribution, wealth distribution, standard of living, prosperity, productivity, ideology, deflation, deleveraging, and the like are symatically correct, but I like “Broke”. It sums it all up in one word.” Using the wrong word is exactly what has caused the confusion we now suffer. In science, it’s important to use the correct word.

    Rodger Malcolm Mitchell

  7. “We have egregious healthcare and defense costs because our citizens have deemed them necessary”

    We (the citizens), don’t live in a democracy. We have an “elastic” currency “aided and abetted” by “elastic” legislators. We have perennial Walter Wriston caricatures pressuring the House Committee on Financial Services & the U.S. Senate Committee on Banking, Housing, and Urban Affairs. We have a conspiratorial organization that goes by the name of the American Bankers Association – with its well funded lobbyists.

    “MMT is just a description of a modern fiat monetary system”

    And WE do not have a fiat currency system. A fiat system is where the volume of currency issued is dictated by the deficit-financing requirements of the issuing government. In contrast, the essence of our managed-currency system, is a system in which the volume of currency in circulation is impersonally determined by the total effective demands of the public or the amount which meets most closely the needs of trade. Treasury-Federal Reserve collaboration exists in its present state, because whenever in the past (during this country’s history), the FED’s responsibilities were subordinate to the Treasury’s, this country experienced intolerable rates of inflation.

    • It would really be worth your time learning about MMT and a fiat currency because the FED does not control the money supply and is subordinate to the treasury regardless of the pomp and circumstance.

  8. Deficits throughout our history have been driven by many different factors. Deficits are not be inherently inflationary in the short-term, agreed. In some cases howevery, even in your plots, you will find periods of time in which there is a high correlation between inflation and deficits, if you account for the time lag necessary to create inflation. Segment your data in 5-10 year rolling blocks, and do your correlation study on future inflation (5-10 years out), and the R^2 values will get very high in some cases.

    The current deficits are of a nature that will almost certainly lead to massive inflation in 5-10 years. The current deficits are largely driven by an escalating proportion of outlays dedicated to transfer payments. My contention (and I am not alone), is that these transfer payments engender terribly inneficient capital allocation, which eventually leads to inflation.

    If deficits were invested wisely into productive assets, we could run huge deficits for a very long time, and experience ever increasing standards of living. In fact, in such a case, when capital is allocated prudently, the deficits would eventually shrink, becausse the returns from such effective capital allocation would generate huge tax efficiency, which would lead to a positive feedback mechanism involving growth the real economy, and increasing government revenue.

    The transfer payment model, for a country with the world’s reserve currency, is a disaster. The US is not Japan.

    In our situation, the long-term effects of ever-increasing transfer payments will be inflationary. Wealth will explode for the very rich becuase they are in a position of power and can simultaneously hedge and game the system effectively, the middle class carries the burden of the transfer payments and is destroyed through inflation as real wages stagnate, and the poorest get crushed both financially and sociologically by becoming wholly dependent on the state; their incentive structure is dismantled, and their opportunities are ruined as the infrastructure surrounding them crumbles.

    You won’t find this on a month to month chart correlating deficits to inflation. You’ll need to dig a bit deeper than that.

    Also, inflation should correlate with inflation. When prices go up, prices go up. Of course Oil prices correlate with inflation, they are inflation.

    If my tone is a bit sardonic, it’s not directed at you. I’m among the very, very frustrated class, who is watching our congress sytematically fetter away the hard work of Americans. I don’t believe that congress is carrying out the will of the people. I think they have become ever more effective at fear and deception, and that the vast majority of Americans, who spend most of their time working and trying to make ends meet for their families, can’t concievably be expected to micromanage their local congressmen. For our republic to work, we have to be able to trust the people we elect to behave prudently, and in our best interest. But they don’t. They do a darn good job of deceiving us though, and that is what all this ranting is about, at least for me.

    Most of the folks I know don’t know the first thing about monetary policy, fiscal policy, or deficit spending. They know that they have to pay taxes, and that the cost of their tires, groceries, gas, diapers, water, electricity, and beer is crushing them. They have no savings to speak of, and they are worrying about sending their kids to college.

    I pin this entire mess on our Wall-Street Government. They work to appease the masses by promising what is not theirs to promise, while stealing us blind, and paying their crony partners in crime with our sweat and worry, laughing all the way to the bank.

    Anyways, Good day friend.

    • Current deficits are a by product of the non-government sectors desire to save…

      Net Government Spending MUST EQUAL Net Savings of the Non-Government Sector (by accounting identity)

      Net Savings of the Private Sector PLUS Net Savings of the Foreign Sector (inverse of the trade deficit) = Net Savings of the Non-Government Sector.

      Inflation is caused by excess aggregate demand, and it may or may not be induced by the government.

      Ideally, if the government must spend it should spend to meet the basic needs of its nation (full employment) and invest in the FUTURE productivity of its society.

  9. Congress can spend money that has not been created yet. How can it be savings if it has not even been created.

    Congress deficit spends money into existence, and they add to net assets, if you want to call the new fed money an asset, it’s paper after all.

    from Cullen

    “When the government “spends,” the Treasury disburses the funds by crediting bank accounts. Settlement involves transferring reserves from the Treasury’s account at the Fed to the recipient’s bank. The resulting increase in the recipient’s deposit account has no corresponding liability in the banking system. This creation is called “vertical,” or exogenous to the banking system. Since there is no corresponding liability in the banking system, this results in an increase of non-government net financial assets.”

    Accounting identities notwithstanding, congress creates money, and eventually, since there is more of it, it’s worth less.

    • You miss a very important point. Money is not “worth less” it is worthless! Money serves only the purpose of providing someone with the means of accessing goods and services in the economy. If you have a stack of money 10 foot high it has just as much value as a stack 10 miles high if you have no economy. The value is derived in what it can allow you to access in the real economy.

      As for being an asset, well that’s where it sits on you balance sheet – as an asset.