Posted on 09/23/2013 12:17:25 PM PDT by Zakeet
... When Standard & Poor's reduced the U.S.’s credit rating from AAA to AA-plus, it was the first time the U.S. ever suffered a downgrade to its credit rating. The S&P took this action despite the plan Congress passed last week to raise the debt limit.
The downgrade, S&P said, "reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics."
It's those medium- and long-term debt problems that also worry economics professor Laurence J. Kotlikoff, who served as a senior economist on President Reagan's Council of Economic Advisers. He says the national debt, which the U.S. Treasury has accounted at about $14 trillion, is just the tip of the iceberg.
"We have all these unofficial debts that are massive compared to the official debt," Kotlikoff tells David Greene, guest host of weekends on All Things Considered. "We're focused just on the official debt, so we're trying to balance the wrong books."
Kotlikoff explains that America's "unofficial" payment obligations — like Social Security, Medicare and Medicaid benefits — jack up the debt figure substantially.
"If you add up all the promises that have been made for spending obligations, including defense expenditures, and you subtract all the taxes that we expect to collect, the difference is $211 trillion. That's the fiscal gap," he says. "That's our true indebtedness."
We don't hear more about this enormous number, Kotlikoff says, because politicians have chosen their language carefully to keep most of the problem off the books.
"Why are these guys thinking about balancing the budget?" he says. "They should try and think about our long-term fiscal problems."
According to Kotlikoff, one of the biggest fiscal problems Congress should focus on is America's obligation to make Social Security payments to future generations of the elderly.
"We've got 78 million baby boomers who are poised to collect, in about 15 to 20 years, about $40,000 per person. Multiply 78 million by $40,000 — you're talking about more than $3 trillion a year just to give to a portion of the population," he says. "That's an enormous bill that's overhanging our heads, and Congress isn't focused on it."
"We've consistently done too little too late, looked too short-term, said the future would take care of itself, we'll deal with that tomorrow," he says. "Well, guess what? You can't keep putting off these problems."
To eliminate the fiscal gap, Kotlikoff says, the U.S. would have to have tax increases and spending reductions far beyond what's being negotiated right now in Washington.
"What you have to do is either immediately and permanently raise taxes by about two-thirds, or immediately and permanently cut every dollar of spending by 40 percent forever. The [Congressional Budget Office's] numbers say we have an absolutely enormous problem facing us."
The estimates that I have seen assume an arbitrary cutoff - say, at 2050. That said, it doesn't much matter what they do since the future value beyond about 30 years is so small and the total liability is so absurdly large.
Inflation / hyperinflation is a form of default.
Debt repudiation (the technical term for debt default) almost always leads to hyperinflation. Reinhart and Rogoff argue that external debt repudiation (to foreigners only) causes chronic (banana republic) hyperinflation while internal debt repudiation (to citizens as well) causes acute (Weimar Republic or Zimbabwe) hyperinflation. Either way, the outcome is tragic.
This will mean the end of SS. Families will survive in multi-generational homes. The clan will be the means of survival, and the best defense against the government.
Governments typically collapse in these circumstances, and the clan becomes the best defense against total anarchy. Therefore, in a broad sense, you are right.
The one future budget number I find reasonable, and scary, is the expected federal income at current tax rates versus the future estimated expenses. Those numbers are all over the place but they suggest we won’t be viable in a few short years. Our rate of freebie expense growth is outpacing our income growth by a large margin.
Current GAAP calculations show annual deficits running in the range of $6-7 trillion.
Most of the people I respect believe we could face a systemic failure of the financial system as soon as next year, or possibly even later this year.
The coming crash will destroy every nation.
You're too coy and reluctant to spell it out. Mass starvation and anarchy will prevail. There, now that should wake people up.
What’s $211 trillion between friends?
Even at our 5 year average of over $1 T/yr is unsustainable. An average number is that we borrow an additional 40 cents for every 60 cents spent.
Every debt is owned by someone.
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