Economist Calls Entitlements A Massive Ponzi Scheme And Says US Is Actually $211 Trillion In Debt

TBI ^ | Simone Foxman

[blam]

Image: Yahoo!

In an interview with NPR, former Reagan economic adviser Laurence Kotlikoff said the U.S.'s "true indebtedness" amounts to $211 trillion.

That's more than 15 times the $14 trillion official figure.

"We're focused just on the official debt, so we're trying to balance the wrong books," Kotlikoff said, naming Social Security, Medicare, and Medicaid for the skyrocketing unofficial figure.

[Go_Raiders]

You are absolutely right. Entitlements probably only account for 95% of the problem.

We definitely should work hard on completely solving that other 5% first. After all, by the time that is done the overhang will only be $300 trillion or so. No biggy.

[EyeGuy]

“To quote the liberals that have been writing to the local paper, “The US economic problems are all because of the tea party”.”

####

That is the same diseased logic as blaming the illness on the Dr. who diagnoses, and wants to treat it.

[NVDave]

Exactly so.

There is NO CONTRACT. The US Congress reserves to themselves the power to make changes to the Social Security Act, and I quote from the text of the SS Act directly:

“RESERVATION OF POWER

SEC. 1104. The right to alter, amend, or repeal any provision of this Act is hereby reserved to the Congress.”

Right there is the solution to all entitlement issues.

[DrC]

“He does need to break this down.”

He’s using official government figures for SS and Medicare which assumes “present law” i.e., no further changes in retirement age beyond those that were included in the 1983 Reagan agreement. SS actuaries also project life expectancy based on changes in death rates using a pretty sophisticated model.

See the bottom boxes here:
http://www.usdebtclock.org/
They show that combined unfunded liabilities just for Medicare and SS are $115T. Kotlikoff adds to this total U.S. debt (not just the “public” portion) of $14.7T and I think he also includes total personal debt of $16T (on grounds that those on the hook for the latter by definition have $16T less resources with which to handle the former). He also includes all state/local debt plus unfunded pension/health liabilities for retirees, which I think is probably another $5T or so.

I believe the remaining $61T is the result of rolling in the interest required to bankroll all the borrowing we have to do because revenues don’t match expenditures and also projecting the estimated 2085 fiscal gap for “everything else” into perpetuity.

The point is that the single greatest share is due to entitlements since they account for $115T directly and also are responsible for a good chunk of the tens of billions of interest payments rolled into his figures. Solving our fiscal problem without solving entitlements is literally impossible.

[Go_Raiders]

The Baby Boomers have just started to retire, so the problem is only starting to grow. His calculation is based on when all of them have retired.

So he didn’t screw up that calculation, and his is not the first time I’ve seen this number.

Heck even the http://www.usdebtclock.org/ shows liabilities into the hundreds of trillions.

[DManA]

What “interest income”?

[achilles2000]

I’d like my taxes back too. But what is the point? You know you will never get any tax money back. So, are you advocating continuing a vicious program of intergenerational theft so you can collect even though it will also completely destroy the economy along with the lives of our children, grandchildren, and children unborn? Or are you trying to make a different point?

FICA is a tax just like any other. It doesn’t go into a lockbox or a trust fund. It is money in and money out. FDR wanted to create a separate tax category from the income tax for this program because he knew it would create a sense of entitlement and make it easier to sell lies about the nature of SS.

[proxy_user]

Of course, there is the practical difficulty and the probable voter reaction. Don’t hold your breath.

[NVDave]

Demographers place the “boomer” years as 1946 to 1964, because the birthrate dropped below 4 million/year after ‘64.

Politically, I (personally) group them differently. The boomers who were of draft age (18) before the end of the draft are politically and philosophically very different than the boomers who are at the tail end of the boom (eg, 60 to ‘64). Most people I know who were born in the 60’s look and listen to the “protest era boomers” and wonder “WTF? When will these clowns get *over* themselves?”

The people born between ‘45 and ‘55 are, without a doubt, some of the most self-obsessed humans to have ever walked the planet.

[DannyTN]

"He also needs to figure in the $2.5 Trillion that is owed SS. They seem to forget that small fact."

He's probably netting that part out of the $210 trillion, since the Treasury owes it, but SSA claims it as an asset. He's probably netting that to $0, and just focusing on the unpaid liability that will have to be paid eventually by the treasury.

The debt owed to the SSA trust fund and Medicare trust funds are counted as part of the $14 Trillion in debt. Source

"They should also figure in the idea of not letting the government borrow future SS funds to use in the general fund."

I don't get hung up on the fact that the treasury borrows the money from SSA. SSA has to invest somewhere and treasuries are still considered the safest place. In my opinion, treasuries are the place SSA should invest.

If SSA was a standalone agency, not part of the federal government, nobody would be claiming that SSA doesn't have an asset in the trust fund.

Instead the focus would be on:

• The fact that the Trust Fund is not nearly large enough for the unfunded liability, and
• that congress is borrowing and spending entirely too much.

I'd love to see SSA have to invest in non-treasuries because Congress lost it's appetite for debt and just isn't issuing enough to meet SSA's needs. But as long as Congress is issuing, and as long as it is considered the safest place. It is where SSA should invest.

[Steel Wolf]

Gen X generally starts in 1965 or so, running up to 1981 or so. Boomers would tend to run 1946 to 1964. A ‘generation’ isn’t an exact figure, but these are the rough delimitations.

[Go_Raiders]

In order to manage and regulate SSA, Disability Insurance, Survivor’s insurance, and Medicare like an insurance company, they have to be privatized.

The Federal Government has no mechanism to invest trust fund assets, so there is no way to have trust fund programs of this magitude without bankrupting the country. This has been mathematical certitude since Day One.

Until people realize this, there is no hope that the US will survive as a free nation.

[ex-snook]

So make SS an insurance retirement system. Set appropriate rates and take out payments for other than retirement. Keep the dollars constant so inflation does not distort payins and payouts.

[NVDave]

Oh, I agree. As Pogo famously said “We have met the enemy and he is us.”

I just like pointing out facts, and the hard fact is that there is NO CONTRACT to pay Social Security or Medicare funds out. The Congress has all the power necessary to divest the US of these “obligations” any time they want.

Legislating away “entitlement” benefits would not cause a “default” or anything close to it.

I keep hammering on this because the left likes to spout such twaddle as “Social Security is a CONTRACT between generations,” and “failure to pay Social Security benefits would be a default...”

No, it isn’t, and no it won’t. It is a social welfare/insurance scheme that takes money from those who are working and pays those who are not. That’s it. I want people to strip away all this mythology that has arisen surrounding Social Security and Medicare. They’re nothing more or less than social welfare schemes. There is no contract, there is no obligation written in stone, there is no “debt” that consists of future programs’ projected payouts to eligible classes of people. This projected spending is not in any way a “debt” or anything like a “debt” upon which we will be in “default” if we don’t pay it.

[RC2]

If they only work on a small part of the problem, then yes, the debt will increase. They need to work on the whole thing at one time. They need too be able to walk and chew gum at the same time. If they can’t do that, then we need to get rid of them.

[OpusatFR]

“Or are you trying to make a different point?”

You can’t be that stupid can you?

[Praxeologue]

More detail:

http://www.bloomberg.com/news/2011-06-29/stop-the-fiscal-war-against-our-children-now-laurence-kotlikoff.html

The methodology behind the $211 trillion is bullet-proof.

[politicianslie]

To quote the liberals that have been writing to the local paper, “The US economic problems are all because of the tea party”.

The politicians have gotten away with this because they think collectively, Americans are stupid. We have to change their mind one way or another.

We don't have to hang all of them for treason, we just have to hang the worse offenders and vote the rest out. Then the future politicians will remember the lesson for about one generation, then WE THE PEOPLE may have to do it again.

[jimmango]

What “interest income”?

That is where it is in your best interest to have some income until the day you die. Even with a small pension and 401K, I can't see myself being able to retire when I hit 65-67.

[businessprofessor]

To paraphrase Mish Shedlock, "What cannot be paid out WILL not be paid out."

At this point, no politician can suggest the bitter medicine required to stop the train wreck. Even Paul Ryan and other fiscal conservatives indicate that benefits will not be reduced (or reduced much) for the retired and near retired. Fiscal conservatives including most Republicans are aware that strong medicine is required. I do not see how fiscal conservatives can gain control of the government to enact the necessary reforms.

Democrats are still under the illusion of free government spending. The strength of the US economy and the dollar's role as the reserve currency has created this fiction. The era of free government spending is over although most do not realize it yet. The surge in commodity prices and recent extreme volatility in the stock market are clear signals that the era of free government spending are over. However, the political process may never recognize the end of this era because free money buys votes. More than half the country is heavily dependent on government. This group will never vote to reduce their benefits. Moreover, the baby boom generation has paid large levels of payroll taxes (unlike the greatest generation) providing justification for their entitlement benefits.

Economic gravity exists so the benefits will not be paid in a currency that will provide the expected purchasing power. A Greek type failure is coming with the fall of the dollar. No one wants to start the terrible adjustment required for a highly devalued dollar but the dollar's decline is inevitable, probably starting from panick over some event.