Posted on 09/14/2008 10:45:28 PM PDT by TigerLikesRooster
Is the U.S. Going Broke?
Laurence J. Kotlikoff 09.29.08, 12:00 AM ET
Now that the federal government has bailed out Fannie and Freddie, who's going to bail out the federal government? The federal government's takeover of Fannie Mae and Freddie Mac represents a huge financial tremor. These two institutions now issue 70% of Americans' mortgages. Their failure would have triggered a complete meltdown in housing and financial markets. So now Uncle Sam is on the hook for $5 trillion, consisting of corporate debt owed by those two institutions and mortgage debt guaranteed by them.
If only the government's total debt were that low. Uncle Sam, for all his righteous indignation, is, in fact, the father of all deceptive accounting. The government has arranged its budgeting to keep the great bulk of its liabilities off the books and out of sight.
The real liability facing our government is $70 trillion. This represents the present value difference between all the government's projected future spending obligations and all its projected future tax receipts. This fiscal gap takes into account Uncle Sam's need to service official debt--outstanding U.S. government bonds. But it also recognizes all our government's unofficial debts, including its obligation to the soon-to-be-retired baby boomers to pay their Social Security and Medicare benefits.
Given current policies, each of the 78 million boomers can expect, on average, to receive $50,000, in today's dollars, from these programs in each and every year of retirement. Multiply 78 million boomers by a $50,000 annual payment and you get close to $4 trillion per year. This helps you see why our nation's true indebtedness is so extraordinarily high.
(Excerpt) Read more at forbes.com ...
Healthcare. #1 over the past 5 years.
Manhattan condo prices this spring were at records. I suspect that will soon no longer be the case.
Do not forget Greenspan's role in this. In April 2004 he urged Americans to switch to ARMs to "take advantage of lower rates" (which he subsequently raised 14 times). He also pressured lenders to relax standard to increase the number of home loans (we saw how well that worked out).
Wow, great article. Thanks.
Very striking Roubini thinks that GS and JPM won’t survive and will have to be absorbed by commercial banks. I thought they might be healthy and survive. That is a shocker. At least he doesn’t have to worry about Merrill anymore...
What I can’t figure out is why has gold been falling? Should be going the other way.
The only reason I can see is because the dollar had gained.
Anyways, I can’t see anything to terrible happening because there isn’t a single country in the world save Canada that isn’t running up huge deficits and have next to zero growth.
I guess the super rich like Soros and Oprah are going to have to start spending that money. Use it or loose it.
Brought to you by Republican Senator Phil Gramm and Republican Congressman Jim Leach. And yet, somehow, so many here think it was all some kind of a Soros-lead Rat conspiracy, or that only Clinton is to blame.
Entitlements will destroy our government. If serious changes (cuts) are not made to entitlements we will go broke. That is the truth and few of our politicians admit it but most of them know it.
There is not one answer to fix it all but the “Balanced Budget Amendment” would be a great start.
May as well, they print Euro’s like crazy. Seems to be the socialist thing to do. Gotta keep up with the Jones’s :o)
I’m in Orange County and was able to enjoy a front row seat for all the craziness. In fact I’m still enjoying a front row seat, since the meltdown has plenty of room to go. My neighborhood is down 38% from the peak and I’m expecting a drop of at least another 28%. More if the pendulum swings beyond traditional lending ratios.
Greenspan was giving very poor advice and adding fuel to the fire. But the problem never could have grown to the enormous size that it achieved without the financial innovations that repeal of Glass-Steagall enabled.
Seriously, what has to happen, and it isn’t going to be easy, people have to cut back on spending credit and start saving, paying down debt.
Seriously, what has to happen, and it isn’t going to be easy, people have to cut back on spending credit and start saving, paying down debt.
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I agree 100%. Government, business, and individuals need to get out of debt. If we could do this the future would be brighter for our children.
You’re quite right Phil Gramm was up to his eyeballs in creating this legislation. And his wife was employed by one of the exchanges that securitized the debt that his legislation promoted. I’m not saying there was anything unethical there, just that it looks bad. I think Gramm’s problem isn’t ethics it’s more of an ideological rigidity. His ideology ignored the fact that markets can be gamed for short term profit at the expense of the very survival of that market.
Next question?
Heaven help those who are up their eyeballs in debt and barely eeking by from paycheck to paycheck if the RATS get in power. The chunk of their paychecks Obama is going to take in taxes will put an awful lot of people into bankruptcy.
Yet those same people will probably vote for him, hoping for a handout.
“What I can’t figure out is why has gold been falling? “
It’s a sign of deflation. Gold gets sold in order to raise cash. All asset classes fall in price in a deflation.
The Federal US government has blown apart the economy at least four times. At the Revolution, the Civil War, the Depression and Jimmy Carter.
Deflation? For the average blue collar worker, there’s nothing but inflation everywhere. Their buck just doesn’t go as far as it used to.
It’s the huge hike in oil markets that have screwed things up. Oil companies are sucking all the cash out of the economy and driving up consumer prices at the same time.
Inflation and deflation at the same time? Other metals have soared, so I don’t know if that’s it. unless its the government selling gold.
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