Economics and Finance, The 21st

Trillion Dollar Questions

Making true sense of mind-boggling figures.

Let me present you with a trillion dollar question:

Over the past ten years, the real amount of student debt owed by American households more than doubled, from about $450 billion to more than $1.1 trillion.

$3 trillion question:

The third objection is that defending the RMB is unsustainable because at some point China will run out of foreign exchange reserves. The pace at which China has been drawing down reserves — an average of $37 billion per month over the past year-and-a-half — has some people alarmed. But with roughly $3.3 trillion left, Beijing could keep selling its reserves at twice that rate for almost four years without running out.

The $13 trillion question:

Everyone talks about the size of the U.S. national debt: now at $13 trillion and climbing, but few talk about how the U.S. Treasury does the borrowing—even though it is one of the world’s largest borrowers.

Global assets under management? $64 trillion. Total annual world output? $76 billion. Taking someone’s kids away? Priceless.

More and more these days, we’re having to confront our problems in terms of trillions of dollars, so much that a $1-2 billion here or there seems chump change to me. Even though the number does matter to us–everyone wants to be a billionaire, and in 1916 there was just one (Rockefeller), while in 2015, there were 1,800 (with a total wealth of $7 trillion). Even a new show has its plot and title centered on the number.

I spent the better part of today in a high school classroom talking to students about how to invest our money in savings accounts that might yield 0.1%, cutting down on $2 coffee, and earning $8 an hour at part-time jobs. And for a day, I was not dealing with amounts in billions. I was working with ordinary people trying to get by.

Ordinary people, in total in the United States, had $12.2 trillion in real disposable personal income in 2015. Personal savings fell short of a trillion. With a paltry 5% savings rate, we’re not saving up enough for retirement…even with social security income. This prescient Economist piece from 2005 reminds that a low savings rate contributes to America’s low investment rate, and thus its slowing productivity. Furthermore, as one argument goes, “Thanks to high returns from shares and, more recently, from house prices, people can achieve their financial goals with less discretionary saving.” Ten years later, how’d that work out for you?

Here’s what I’m getting at. I know we dream of individually having a billion dollars, but my hope is that when we confront these questions of trillions of dollars, we consider the problems we collectively share. The figures are mind-boggling because the problems they describe are even more so. Taking steps to fix them might save you a penny or a million.

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2 thoughts on “Trillion Dollar Questions”

    1. It’s true that more saving does not necessarily mean more investment; even if people just hold that extra money in bank accounts, and banks just sit on the cash (or inflate the stock market), there is no increase in business and infrastructure investment. However, because there are less savings than would otherwise be the case, investment could (again, could) be higher.
      In addition, in terms of the market for funds, the U.S. in the aggregate relies on savings from abroad (e.g. China) to fund the government and various private sector activity. There is a benefit to relying on other people’s savings but of course this increases the current account deficit to perhaps unsustainable levels.
      In any case, it’s not a straightforward relationship but there is an influence.

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