Do you know how to calculate your net worth?
To calculate your net worth, simply subtract the value of your total liabilities (credit card debt, mortgages, student loans) from the value of your total assets (cash, investments, cars, houses).
For example, if you have assets worth $500 thousand and liabilities worth $300,000, your net worth is $200,000.
Using this simple formula – assets minus liabilities – you can calculate the net worth of individuals, companies, and even governments.
Financial statements
In order to determine a company’s or governments financial condition or net worth, the first thing you will need is their financial statements.
For publicly traded companies, obtaining financial statements is fairly easy. They are usually posted on the company’s website in the Investor Relations area. There, you can usually find the company’s quarterly and annual report in html or pdf format.
Obtaining the annual report for the United States government is also easy.
Around the middle of February of each year, the United States Treasury Department releases an annual report of the federal government’s financial condition.
It’s called the Financial Report of the US Government… and it looks a lot like an annual report that you might see filed by any publicly traded company.
The United States Annual Report is absolutely horrifying
Unlike well-managed fortune 100 companies, the US government’s annual report is absolutely horrifying.
The 2018 annual report is no exception.
Released in March (one month late), the report shows just how bad the financial condition of the US has become.
If you would like to read the report for yourself, you can download it here.
If you don’t have time to read the full report, here are a few highlights–
In Fiscal Year 2018, the government’s total net loss was $1.16 TRILLION.
The Federal government collected $3.4 trillion in tax revenue in FY18. But it spent over $4.5 trillion.
Of the $4.5 trillion spent, nearly HALF went to Social Security and Medicare. (They also spent a record $523 billion just on interest payments on the national debt!)
This is astonishing given that the Social Security and Medicare trust funds are set to run out of money by 2034.
In other words, despite spending almost HALF the federal budget on Social Security and Medicare, both programs are effectively insolvent.
On page 10 of the report, the government estimates Social Security’s long-term funding gap to be a mind-blowing $53.8 TRILLION (which is approximately 70% of the entire world economy).
That’s how bad the Social Security funding gap is.
If you are smart, don’t let Social Security be your primary income source during your golden years.
But the news gets worse.
As part of the report, the federal government also totals its assets and liabilities, just like any individual or company would do.
The government has assets as well: a total of $3.8 trillion. The single largest component of that– $1.08 trillion– is STUDENT DEBT.
In other words, the government’s #1 asset is the debt owed to it by student loan borrowers.
This is really sad. I’ve already reported that student loan debt is killing the American dream.
The next biggest asset is what accountants call “property, plant, and equipment”, or PP&E. That’s the sum total of all the land, government buildings, tanks, aircraft carriers, military bases, etc.
For Fiscal Year 2018, the government reported $581 billion in equipment (mostly military), and about $500 billion in real estate.
In total, the government’s $3.8 trillion in assets sounds really good. Who wouldn’t want to own $3.8 trillion worth of stuff?
The United States’ liabilities exceed its assets
The problem is, the government’s liabilities, i.e. the national debt, etc., totaled more than $25 trillion.
That makes the United States’ net worth an eye-popping NEGATIVE $21.5 TRILLION.
And that’s a lot worse than the government’s negative net worth of -20.3 trillion in 2017, -19.3 trillion in 2016, -18.2 trillion in 2015, -17.7 trillion in 2014…
Notice the trend? The negative net worth keeps increasing each year.
This is just taking into consideration all funded liabilities.
If you add their own estimate of Social Security’s unfunded liability, Uncle Sam’s total net worth is NEGATIVE $75 TRILLION… which is almost precisely the size of the entire global economy.
How is this not front page news in every newspaper in America?
No problem, right? Nothing to see here.
But let’s be real for a moment: these numbers are beyond dreadful. If a company reported figures as appalling as this you would be dumping the stock.
The problem for Uncle Sam is that the numbers get worse every year.
So, it would be completely absurd to believe that this can continue to happen without any negative consequences. Never in history has this happened.
Too much spending and too much debt leads to demise
Throughout history, there has never been any nation or empire that has been immune to the basic financial laws of the universe. Egypt, Rome, the Ottoman Empire… they all suffered the same fate. They collapsed.
The definition of insanity is when you continue to do the same thing over-and-over again and expect different results.
It’s pure insanity to believe that this time, for the US, things will be different… that we’re special… that we’re immune to what happened to every country that accumulated too much debt.
It’s time for plan B
The Social Security Administration has already warned you that the trust funds will run out of money in 2034, at which point they will have no choice but to slash benefits.
They published a report in black and white for anyone in the world to read.
Knowing this information and having an idea what to expect, doesn’t it make sense to independently set aside money for your own retirement?
Knowing that the national debt is $22 trillion (and is still growing) doesn’t it make sense to diversify your assets and savings, perhaps even out of the US?
Doesn’t it make sense to have another source of income during retirement other than Social Security?