Mobile Home Park Mastery: Episode 330

The $100 Trillion Deficit Disorder

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If you think the current $35 trillion U.S. deficit is a problem, just wait until 2050 when it hits $100 trillion. In this Mobile Home Park Mastery podcast we discuss  past, present and future of the deficit and exactly what the ramifications might be for mobile home parks when the government finally ceases to make payments on its crushing debt load.

Episode 330: The $100 Trillion Deficit Disorder Transcript

Elon Musk and former President Bill Clinton recently got in an argument over the pending 100 trillion US deficit. This is Frank Rolfe, the Mobile Home Park Mastery Podcast. We're gonna discuss that deficit, what the future of that deficit holds, and how that will impact the mobile home park industry.

Now, we know right now that Congress seemingly has no desire to fix our American insatiable desire to spend more than we take in in tax revenue. And what's scary is if you try and explore this topic, which I urge you to do, and you go to Google and you put in such items as a historical chart of deficits, everything must've redirect you to the Treasury Department. And in the Treasury Department's website, they don't really identify the deficit as being much of a problem. I encourage you to do this to see exactly what you're up against in America today, because the government doesn't see deficits apparently as a very big deal. In fact, they try and block you from getting the real information you want to know, like when will the US deficit hit $100 trillion? So apparently people in the government are trying to manipulate and control the information flow on this one topic, and this topic is in fact the 800-pound gorilla in the room in America today.

If you can imagine a worker at Taco Bell who has a $500,000 credit card bill, and then instead is complaining about such issues as better ways to fix the brakes on his car, or how to get discounts on Dairy Queen sundaes, you'd say, "Well, that guy's not being realistic. What's he talking about? He's gonna go bankrupt with his $500,000 credit card bill." And those topics really don't mean much by comparison, but yet that's where we're at in America today. So let's just look at the deficit to begin with.

Now, the last time we hit a surplus, which the Treasury Department website is more than happy to tell you, was in 2001. Yes, we hit a surplus in 2001. It was a whopping $160 billion, a fairly meaningless number in the world of American deficits. But that's what everyone wants to focus on is, "Hey, we're not doing that bad. Heck, we were making a... And we had a positive only 23 years ago." But I urge you to dig deeper 'cause you'll find the last time the US had no debt obligations at all was in 1835. Nearly 200 years have passed since the country was able to pay its bills without incurring debt. Now, our current debt level is $34 trillion, but we're on schedule right now by 2033 to hit $50 trillion. And if you can cut through all the malarkey on the internet and get to some actual data from actual statisticians, you'll see that we should be hitting the 100 trillion mark by 2050.

And when you hit 100 trillion of debt in America, that's pretty much game over. Think about it for a moment. At our current $35 trillion of debt, that equates roughly about $100,000 for every man, woman, and child in the United States. We have about 300 million people who live here in America, and our current debt as a government is about $100,000 for each of those 300 million people. Now if you expand that to $100 trillion, you'll be at about $300,000 for every person in the United States. And for every household of four people, that comes out to about $1.2 million that you owe via your good old country's government here in America.

Now that's not sustainable, right? This is a country in which 70% of our population doesn't even have $1000. And the average net worth in America, well you can't obtain that data 'cause again the government shields it; it wants to tell you the median net worth is $160,000 per household. But that's not average, and obviously that number is hugely modified by the wealthiest Americans. So it's completely ridiculous for anyone to imagine that as a country we will be able to sustain $1.2 million or to service it per household. So then what does America do? If we have all this debt, and we can't make the payments clearly, then where do we go from here? And you know the answer. The answer is the same as the guy at Taco Bell with a $500,000 in credit card debt. You stop paying it. You just stop paying the debt. You go into basically bankruptcy and you erase the debt, the same thing that millions of Americans and millions of businesses have been doing now for years and years.

Now who's gonna get hurt if America stops paying on its debt? Which it clearly has to; there's no way this can continue on. Well, the public holds 74% of the federal deficit, and foreign governments and foreign individuals hold 26%. So if you really think about it, if they just stopped paying on the debt and the debt went to zero, it wouldn't really impact the government much. It doesn't really care. It gets in roughly about $4 trillion a year in tax receipts. And if it didn't have to pay the debt payment, well, that's even more money for raises and to hire more government bureaucrats. So the problem is that's what they're gonna do. They're just going to have to stop paying it eventually because there's no way it can ever be solved.

You're seeing the dysfunction right now in the government where they can't even agree to anything. It's disheartening that the Republicans, for example, refuse to shut down the government or take any draconian steps to even try and wake people up just as a show of strength to try and get people thinking, "Hey, maybe we need to cut this deficit down." It will never happen. Nobody cares. In fact, the people in government, they wanna actually make the deficit worse. Right now, there's a grassroots campaign by people in Congress saying they want a higher wage. The average congressperson receives about 175,000 a year. They say it's not enough to live on; they want more. And beyond that, they also want more for their staff. So clearly, there's absolutely no concern over this issue. And as a result, it will never be fixed. And as it grows and grows by leaps and bounds, eventually the truth will finally set in. The bill just can't be paid.

So then what happens? What would happen if the US just stopped paying on that currently 35 trillion, soon to be 50 trillion and then soon to be 100 trillion of debt? Well the first thing would be the interest rates would go up because, of course, the US credit rating would go to zero. Right now, we don't have perfect credit, we're not a AAA borrower, but we would be as bad as you can get if we let everything go down, if we just walked it. So if we had our credit rating destroyed, obviously for the US government to borrow more money, which it would need to because it can never live within its means, that would come at quite a price. Because we'd have to pay a very, very high interest rate to attract anyone to make ever again any investments in America in the form of debt.

Now remember, they could use that amount that they currently use to service the interest, which is currently as much as defense, to help pay the bills. So maybe they could break even for a while. It's possible. And if they start taking on debt, even though it's with a very high interest rate, well, they wouldn't have that much debt to be servicing at that time. But also if they stopped making payments, well then the economy would clearly collapse. Because 74% of the people who hold that debt live right here in the US, and they would be, in fact, wiped out. So what you end up with is classic stagflation: High interest rates, high inflation rates, and a crashed economy. Something we all became familiar with under President Carter, and yet it would be like that only on steroids.

So then what would happen to mobile home parks in that unhappy ending? Well, obviously mobile home parks are in a great position to be able to adjust their rents based on the rates of inflation and interest, because we are the ridiculously cheap cousin of all forms of housing. Our lot rents, as I've noted many a time, are just stupid cheap. An average US lot rent of $300 a month makes no sense, never will, never did. So there's plenty of room to move that rent up in the event that we go into a horrific period of stagflation on a turbocharger. Also, as America completely collapses, you will have an even greater demand for affordable housing. So that demand would be skyrocketing in that event.

But then again, every other investments type, whether it's a stock or bond or any of those luxury forms of real estate, things you don't really need, office, retail, self-storage, those would of course all be completely destroyed. The only thing that would be working going forward in that apocalyptic ending of the deficit would be necessity investing. And when it comes to necessity investing, the best is mobile home parks. The other survivor of course would be inexpensive apartments. Those would be the two groups that could walk away even from a walk-off from the federal deficit unscathed. Now, will this really happen? Will we really, when we hit 100 trillion of debt, throw in the towel? Well, I would urge you, if you have a better alternative view, let me know. Tell me your vision. Because I don't see how any of this works out in the end.

America is willing to make no change to its amount of spending, regardless of its income. And as things unfold going forward, the disparity will only grow in size. Mobile home parks continue to be the only type of investment that's on the correct side of every mega trend, including this apocalyptic mega trend of the federal debt. Now, it's a sad world we live in today, there's no question of that. Every day, every time you turn on the news, it's more depressing than the day before. But it's somewhat reassuring if you can at least be in investment arenas that are properly positioned for all that bad news.

This is Frank Rolfe, the Mobile Home Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.