That said, it seems that we are headed for a major financial reckoning. Individuals have responded to the markets and their personal portfolio losses by deleveraging, but government remains levered up and in many cases is increasing its leverage, especially at the federal level. We might grow our way out of the debt as in the past, but at the same time that our national government is piling on new spending it is adamantly refusing to cut tax rates or otherwise improve incentives for economic growth. This situation is unsustainable, and the Obama administration acts like a national version of a municipal government that responds to complaints about profligate spending by threatening to cut police and fire service.

If we are lucky, the markets or political intervention by the voters will force the federal government to change its behavior before there is a huge blowup.

It is problematic whether or not the US could maintain its economic and military position in the world in the face of what will amount to national bankruptcy.

The only consolation is that our major opponents are even more corrupt, vulnerable, and mismanaged than we are.

I imagine, though, that that fact will be cold comfort indeed when the house of cards all the “experts” have constructed collapses in upon itself.

Pardon my pessimism, but I am afraid the current regime appears to be Carter cubed, and I do not see any coherent, credible opposition which could muster the political and social strength to avert the implosion.

While I agree with him that the ratings agencies have done an awful job and should not be given much credibility, I’m not very impressed with the rest of his analysis.

Slightly offsetting the understatements of debt that you reference, there may be some overstatements as well…to the extent that debt was incurred to loan money to banks that are actually going to pay it back in some finite time period, some of this might be temporary. But I’m pretty sure that the understatement elements of debt vastly outweigh the overstatement elements. (I doubt, for example, if the underfunding of state & local pension funds is fully recognized in the Moody’s analysis)

The ratio is worse than stated in the quote above. Fannie Mae and Freddie Mac were not on the Federal budget, because, they were investor owned corporations. In summer 2008, they were placed in conservatorship by the Treasury, their non-government stockholders were wiped out, and Treasury has kept them alive with several hundred billion in cash. They should be on budget.

If their obligations were added to the total debt, which should happen, it would add something like 5 T$ to the total, about 35% of GDP.

We are so boned.