Posted on 07/15/2006 9:54:37 AM PDT by Babu
The United States is heading for bankruptcy, according to an extraordinary paper published by one of the key members of the country's central bank.
A ballooning budget deficit and a pensions and welfare timebomb could send the economic superpower into insolvency, according to research by Professor Laurence Kotlikoff for the Federal Reserve Bank of St Louis, a leading constituent of the US Federal Reserve.
Prof Kotlikoff said that, by some measures, the US is already bankrupt. "To paraphrase the Oxford English Dictionary, is the United States at the end of its resources, exhausted, stripped bare, destitute, bereft, wanting in property, or wrecked in consequence of failure to pay its creditors," he asked.
According to his central analysis, "the US government is, indeed, bankrupt, insofar as it will be unable to pay its creditors, who, in this context, are current and future generations to whom it has explicitly or implicitly promised future net payments of various kinds''.
The budget deficit in the US is not massive. The Bush administration this week cut its forecasts for the fiscal shortfall this year by almost a third, saying it will come in at 2.3pc of gross domestic product. This is smaller than most European countries - including the UK - which have deficits north of 3pc of GDP.
Prof Kotlikoff, who teaches at Boston University, says: "The proper way to consider a country's solvency is to examine the lifetime fiscal burdens facing current and future generations. If these burdens exceed the resources of those generations, get close to doing so, or simply get so high as to preclude their full collection, the country's policy will be unsustainable and can constitute or lead to national bankruptcy.
"Does the United States fit this bill? No one knows for sure, but there are strong reasons to believe the United States may be going broke."
Experts have calculated that the country's long-term "fiscal gap" between all future government spending and all future receipts will widen immensely as the Baby Boomer generation retires, and as the amount the state will have to spend on healthcare and pensions soars. The total fiscal gap could be an almost incomprehensible $65.9 trillion, according to a study by Professors Gokhale and Smetters.
The figure is massive because President George W Bush has made major tax cuts in recent years, and because the bill for Medicare, which provides health insurance for the elderly, and Medicaid, which does likewise for the poor, will increase greatly due to demographics.
Prof Kotlikoff said: "This figure is more than five times US GDP and almost twice the size of national wealth. One way to wrap one's head around $65.9trillion is to ask what fiscal adjustments are needed to eliminate this red hole. The answers are terrifying. One solution is an immediate and permanent doubling of personal and corporate income taxes. Another is an immediate and permanent two-thirds cut in Social Security and Medicare benefits. A third alternative, were it feasible, would be to immediately and permanently cut all federal discretionary spending by 143pc."
The scenario has serious implications for the dollar. If investors lose confidence in the US's future, and suspect the country may at some point allow inflation to erode away its debts, they may reduce their holdings of US Treasury bonds.
Prof Kotlikoff said: "The United States has experienced high rates of inflation in the past and appears to be running the same type of fiscal policies that engendered hyperinflations in 20 countries over the past century."
Paul Ashworth, of Capital Economics, was more sanguine about the coming retirement of the Baby Boomer generation. "For a start, the expected deterioration in the Federal budget owes more to rising per capita spending on health care than to changing demographics," he said.
"This can be contained if the political will is there. Similarly, the expected increase in social security spending can be controlled by reducing the growth rate of benefits. Expecting a fix now is probably asking too much of short-sighted politicians who have no incentives to do so. But a fix, or at least a succession of patches, will come when the problem becomes more pressing."
"I wish that the author would explain how every European nation keeps it's head above water the way that they spend money for their socialist paradise."
You are beginnning to see through the mist. You are lucky. Not many do.
Think unfunded gubbermint worker pensions on Federal state county levels and unfunded liabilities such as Social Security
Exactly. You can look anywhere in our government and find treason to support global control.
JOHN CLEESE'S ADDRESS TO THE US CITIZENS
In light of your failure to elect a competent President of the USA and thus to govern yourselves, we hereby give notice of the revocation of your independence, effective immediately. Her Sovereign Majesty Queen Elizabeth II will resume monarchical duties over all states, commonwealths, and territories (excepting Kansas, which she does not fancy).
Your new prime minister, Tony Blair, will appoint a governor for America without the need for further elections. Congress and the Senate will be disbanded. A questionnaire may be circulated next year to determine whether any of you noticed. To aid in the transition to a British Crown Dependency, the following rules are introduced with immediate effect:
You should look up "revocation" in the Oxford English Dictionary. Then look up aluminium, and check the pronunciation guide. You will be amazed at just how wrongly you have been pronouncing it. The letter 'U' will be reinstated in words such as 'favour' and 'neighbour.' Likewise, you will learn to spell 'doughnut' without skipping half the letters and the suffix ‘ize’ will be replaced by the suffix ‘ise’. Generally, you will be expected to raise your vocabulary to acceptable levels. (look up vocabulary).
Using the same twenty-seven words interspersed with filler noises such as "like" and "you know" is an unacceptable and inefficient form of communication. There is no such thing as US English. We will let Microsoft know on your behalf. The Microsoft spell-checker will be adjusted to take account of the reinstated letter 'u' and the elimination of ‘-ize’. You will relearn your original national anthem, God Save the Queen.
July 4th will no longer be celebrated as a holiday.
You will learn to resolve personal issues without using guns, lawyers, or therapists. The fact that you need so many lawyers and therapists shows that you're not adult enough to be independent. Guns should only be handled by adults. If you're not adult enough to sort things out without suing someone or speaking to a therapist then you're not grown up enough to handle a gun. Therefore, you will no longer be allowed to own or carry anything more dangerous than a vegetable peeler. A permit will be required if you wish to carry a vegetable peeler in public.
All American cars are hereby banned. They are crap and this is for your own good. When we show you German cars, you will understand what we mean. All intersections will be replaced with roundabouts, and you will start driving on the left with immediate effect. At the same time, you will go metric with immediate effect and without the benefit of conversion tables. Both roundabouts and metrication will help you understand the British sense of humour.
The former USA will adopt UK prices on petrol (which you have been calling gasoline)-roughly $6/US gallon. Get used to it. You will learn to make real chips. Those things you call French fries are not real chips, and those things you insist on calling potato chips are properly called crisps. Real chips are thick cut, fried in animal fat, and dressed not with catsup but with vinegar.
The cold tasteless stuff you insist on calling beer is not actually beer at all. Henceforth, only proper British Bitter will be referred to as beer, and European brews of known and accepted provenance will be referred to as Lager. American beers will be referred to as Near-Frozen Gnat's Urine, so that all can be sold without risk of further confusion.
Hollywood will be required occasionally to cast English actors as Good Guys. Hollywood will also be required to cast English actors to play English characters. Watching Andie MacDowell attempt English dialogue in Four Weddings and a Funeral was an experience akin to having one's ears removed with a cheese grater.
You will cease playing American football. There is only one kind of proper football; you call it soccer. Those of you brave enough will, in time, be allowed to play rugby (which has some similarities to American football, but does not involve stopping for a rest every twenty seconds or wearing full kevlar body armour like a bunch of nancies).
Further, you will stop playing baseball. It is not reasonable to host an event called the World Series for a game which is not played outside of America . Since only 2.1% of you are aware that there is a world beyond your borders, your error is understandable.
You must tell us who killed JFK. It's been driving us mad.
An internal revenue agent (i.e. tax collector) from Her Majesty's Government will be with you shortly to ensure the acquisition of all monies due (backdated to 1776).
Thank you for your co-operation.
The counties are bankrupting themselves because unsavory politicians are voting themselves the treasury for their pension plans.
You're correct that there's no SS trust fund, and that could be a good or bad thing. If the SS trust fund actually existed, it would have to be invested somewhere. The US government would immediately become the biggest investor in the US stock market. How long would it be before Archer-Daniels, for example, started bribing, er, I mean making contributions to congressmen to have them effectively bid up the price of their stock by investing in it for kickback reasons, rather than because it's a good investment? Also, how long would it be before Maxine Waters, for example, demanded the government divest itself of Walmart because they don't pay a high enough minimum wage? It would be ANOTHER back door to unconstitutional federal controls. Maxine and others might not be able to push their unfunded mandates through congress, but you can bet they'd scream racist loud and long enough that enough Pubbies would cave to economic blackmail.
BTW, the system I'm talking about was EXACTLY what Al Gore wanted. Bush, OTOH, wanted private accounts controlled by the individual. The leftists wanted no part of that, because they wouldn't control the purse strings.
I'm sure they'd also figure out a way to fund the smoking police and congressional pensions.
Bankrupt?
No way – all our “esteemed” representatives have to do is raise taxes.
You are exactly correct, sir.
Brilliant. Destroy the credit rating of the United States. Yes, what a wonderful solution to the problem.
/sarcasm
I like Dennis Miller, but when he starts talking about finance, he's an idiot.
Brilliant. Destroy the credit rating of the United States. Yes, what a wonderful solution to the problem.
/sarcasm
I like Dennis Miller, but when he starts talking about finance, he's an idiot.
Bush's tax cuts did not increase the deficit. The President's tax cuts brought in more revenue, not less. However, his complete unwillingness to say no to any spending bill has certainly increased the deficit.
You obviously do not understand history or the Laffer curve. Yes, sometimes a cut in taxes will result in revenues that are higher than they otherwise would have been, but not always. Usually, this only happens when tax rates are extremely high, at over the 60% range.
No serious economist, however, will argue that a cutting taxes from 40% to 33% is going to increase revenue. That's just plain loony. The Bush tax cuts did not increase revenue, and neither did the Reagan tax cuts. Not that these taxes weren't a good idea; they were, and I support them wholeheartedly. But mouthing ideological nonsense in favor of them isn't going to get you anywhere.
I see, so according to you, the Bush tax cuts caused the deficit to shrink.
The revenues balloned and the deficit dissapeared after the Clinton tax increases. Did tax increases cause that?
No, they'll simply refuse to lend to us, or they will demand a much higher interest rate.
Destroying a credit rating is a bad idea for individuals, corporations, and nations.
Famous last words.
a) is inevitable. b) would be highly counter-productive, but I am afraid politicians would do it.
We need to stop talking about "saving social security" and medicare and thinking about ways of killing them. The article has some flaws, but it is correct in asserting that if we don't kill these programs, or severely curtail them, we will be bankrupt.
BS. What's your evidence?
However, his complete unwillingness to say no to any spending bill has certainly increased the deficit.
That too.
BTW, I support the Bush tax cuts. But don't delude yourself into thinking they increased revenue. That's pure nonsense. Tax cuts can increase revenue sometimes, but only when taxes are extremely high to begin with, over the 60% range. Prior to Bush, taxes were not even close to the point at which the Laffer curve starts to slope downward.
Otherwise, Clinton's tax increases would have caused a reduction in revenue, but revenues actually increased and wiped out the deficit within 4 years of passage.
Perhaps you should read any of the business publications from earlier this week. The deficit is shrinking IN SPITE OF the increased spending and the war spending under GWB. The increased revenues (shrinkage of deficit) can only be attributed to the tax cuts. Do you have a better explanation than the experts?
Even the UK is aware of it:
http://business.guardian.co.uk/story/0,,1818237,00.html
Excerpt:
The US government yesterday slashed its estimate of its 2006 budget deficit by $127 billion due to much stronger than expected tax receipts from both businesses and individuals.
The Bush White House had originally forecast in February a budget shortfall of $423bn for the 2006 fiscal year but now sees it shrinking to $296bn. The deficit came in at $318bn in 2005 after hitting a record $413 bn in 2004.
The windfall of tax receipts, due largely to robust economic growth in the first half of the year, easily outweighed extra spending on the Iraq war and reconstruction after Hurricane Katrina.
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