The budget problem that the country faces isn’t merely big. Posted on 04/07/2011 5:17:38 AM PDT by Kaslin
The budget problem that the country faces isn’t merely big.
It isn’t even really, really big.
It’s much bigger, and more dangerous, in actual fact, than politicians are willing to acknowledge.
Think of the biggest number you can.
Yeah. It’s bigger than that.
The Congressional Budget Office says that if we continue at our current rate spending, we’ll “chalk up nearly $7 trillion in red ink over the next 10 years,” according to Reuters.
Yawn. Think bigger than that.
Because that number’s not even close to the size of the real problem we have. $7 trillion is just a fraction of the liabilities of the government as it doesn’t take into account all the “off-the-book” items.
You might remember “off-the-book” accounting. It made a stunning debut in the Enron scandal.
Oh.
You thought politicians fixed that problem? They did. The “fix” doesn’t apply to government accounting; it just applies to the rest of us.
While experts usually peg the unfunded portion of pension liabilities at around $1 trillion, that number is based on reports from public pension managers who are anxious to downplay the size of the gap in pension liabilities.
If real-world accounting methods are used to gauge the pension gap- you know, the methods that private pension managers have to use to stay out of prison- the states owe about $3 trillion to pension funds that they don’t have.
But, hey, what $2 trillion more or less.
Because, still, our problem is much bigger than that.
The IMF yesterday called upon the U.S. government to “make explicit its guarantees of the housing-finance market and bring them fully onto the government balance sheet.”
The IMF has this silly notion that the government should stand by loans it’s guaranteed and add the bill to the balance sheet.
Forbes’ Bill Bonner reckons the “total bailout bill…may exceed $20 trillion.”
The IMF stated the obvious by saying that government-guaranteed, easy credit helped drive prices up and create a real estate bubble in the first place.
So far that’s $7, plus $3, plus $20 trillion.
But wait. It gets worse.
Bill Gross, the manager of the world’s largest mutual fund, did calculations that includes all the liabilities of the government he could think of- Social Security, Medicaid, Medicare- and figured a deficit of around $75 trillion more or less.
Gross “has been selling Treasuries because they have little value within the context of a $75 trillion total debt burden,” he said, as reported in Bloomberg.
“This country appears to have an off- balance-sheet, unrecorded debt burden of close to 500 percent of GDP. We are out-Greeking the Greeks,” Gross concluded, referring to the debt crisis which has Greece teetering on bankruptcy.
Fellow investor Warren Buffet agrees with Gross. He’s told investors to stay away from U.S. government securities.
"If you ask me if the U.S. Dollar is going to hold its purchasing power fully at the level of 2011, 5 years, 10 years or 20 years from now, I would tell you it will not," Buffet said to overseas investors in March.
It’s not clear if we’re supposed to add the $20 trillion in mortgage obligations that the IMF is counting on to Gross’ estimate of $75 trillion.
$75 trillion is a number that would stagger even the late Carl Sagan.
Written out it's $75,000,000,000,000.00 if you are keeping box-score at home.
So, what’s a measly $2 or $3 trillion more or less, in a figure like that?
Just the pension problem, that’s what.
Our real problem, unfortunately, is much bigger than that.
I am not a financial guru(I mean that in every possible way) but common sense tells me that even if stocks drop like they did before, they will bounce back quicker than the dollar. I have been reading some dire forcasts for May ( not sure exactly why) but if you are worried, cash out high (like now) and if the market takes a hit you can re-buy low. That is what I am doing. I am also buying some silver (just in case). If there are any financial gurus with better advice or just want to tell me why I am off base please let me know. I would much appreciate it!
Welcome to the Dark Ages.
“But whats stopping the powers that be from pulling an FDR, confiscating Gold (and silver, platinum and maybe copper) ?”
They can only steal that which they know about.
Maybe on the black market items are able to be traded or sold, but gold as a currency we be virtually useless. There would be no more (legal) gold traders, to sell gold bullion for cash to buy items.
Gold is valuable today, outside of jewelry, as a commodity that can openly be traded. People are hedging gold against greenbacks, because they can, and thats whats driving the price of gold and silver up. Take away the ability to use it as a hedge and its value drops.
If gold ownership(and possibly other forms of tangible wealth) is outlawed, then I predict a huge black market. While I can’t predict the relative value of gold in such a world, I’m sure it will still be more coveted than worthless bundles of hyperinflated funny money. Just don’t leave your wheelbarrow unattended outside the state-run store while you buy that rancid loaf of bread with your pile of paper money.
I know, right.
Someone will take the wheelbarrow and leave all the money.
(Actually happened in Weimar Germany)
(actually, it was a basket taken)
I’d be careful about over-romanticizing Gold. In many ways it’s actually the ultimate so-called “fiat” currency. It has no intrinsic value. You can’t eat it or even really make anything useful out of it. It’s only value is that it’s a pretty metal that is easy to shape and it doesn’t rust... so it’s great to make coins out of. Beyond jewelry and some industrial applications it isn’t really very useful for anything else.
But beyond that its only worth what somebody is willing to give you for it... because they ~believe~ that somebody else down the road will also trade something for it. That, in a nutshell, is what “fiat” currency means. It’s a medium of exchange based on belief that its value is transferable to someone else.
Now, don’t get me wrong... it works really ~well~ as a currency. But it doesn’t survive a “total” collapse any more than paper money or a box full of quarters. In a total collapse, trade tends to revert to barter. Something useful, traded for something useful. A side of beef for a crate of ammunition. A bottle of whiskey for some hours labor... whatever.
I can’t be overdrawn! I still have checks!
Gold has had value since the earliest recorded histories. But you’re right, you cannot eat gold.
All I have is 5,000 years of history to go on, which is why I figure some people will still want the stuff. The best survival strategy is to diversify and not put all of your eggs in one basket.
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