Posted on 11/05/2012 9:42:10 AM PST by whitedog57
From the U.S. to Germany and even Japan, where the bond market is twice the size of the economy, investors can’t get enough government securities even though rising debt loads are blamed for curbing global growth.
This comes as hourly wage income in the US slowed dramatically after January 31, 2009.
To counter the economic malaise, benchmark interest rates are close to zero in the U.S. and Japan and are a record low 0.75 percent in Europe.
Investors remain jittery about economic prospects in the US, Europe and Japan. And the mode of US Treasury debt comes due in 2013.
US households are taking on less debt while the US government is running trillion dollar + deficits and growing their debt. That is, the Federal government is borrowing and spending on your behalf.
According to US Debt Clock. each US taxpayer’s responsibility for the US debt is $141,600 each. That is chump change next to taxpayer liability for unfunded entitlement liabilities of $1,058,193 per taxpayer!
Of course, the debt and entitlements are unsustainable. But The Fed enables Federal government spending by their willingness to purchase Treasury debt. So, the fiscal Titanic increases speed towards the iceberg field.
(Excerpt) Read more at confoundedinterest.wordpress.com ...
“The Maastricht Treaty was fundamentally flawed. The architects of the euro recognized that it was an incomplete construct: it had a common central bank but it lacked a common treasury that could issue bonds that would be obligations of all the member states.” - George Soros
http://www.georgesoros.com/articles-essays/entry/the_tragedy_of_the_european_union/
“The Maastricht Treaty was fundamentally flawed. The architects of the euro recognized that it was an incomplete construct: it had a common central bank but it lacked a common treasury that could issue bonds that would be obligations of all the member states.” - George Soros
http://www.georgesoros.com/articles-essays/entry/the_tragedy_of_the_european_union/
A vote for Obama is a vote for inflation and bad government checks, I couldn’t give them everything I own and my earnings until retirement and pay off $1,058,193.
Unfunded liabilities are ordinarily imputed given some preset long term interest condition ~ so, what is it? This article doesn’t tell you, but if it’s ZERO PERCENT it will be far different than if it’s EIGHT PERCENT. There are numerous present value calculators on the net ~ here’s one to play with ~ http://www.timevalue.com/products/tcalc-financial-calculators/present-value-calculator.aspx
Unfunded liabilities are ordinarily imputed given some preset long term interest condition ~ so, what is it? This article doesn’t tell you, but if it’s ZERO PERCENT it will be far different than if it’s EIGHT PERCENT. There are numerous present value calculators on the net ~ here’s one to play with ~ http://www.timevalue.com/products/tcalc-financial-calculators/present-value-calculator.aspx
“Unfunded liabilities are ordinarily imputed given some preset long term interest condition ~ so, what is it?”
Social Security and Medicare trustees use a real (inflation-adjusted) interest rate of 2.9% over the long term since that’s been the average amount of interest paid on long-term U.S. Treasury bills.
The U.S. Debt Clock is a national treasure, but it only tells half the story. The actual amount of U.S. unfunded liabilities is $222T http://www.bloomberg.com/news/2012-08-08/blink-u-s-debt-just-grew-by-11-trillion.html. The clock only accounts for the unfunded liabilities related to Medicare and Social Security, which currently amount to $121T.
The $222T figure represents ALL unfunded liabilities being incurred by Uncle Sam over the next 75 years. For example, Obamacare alone added $17T in unfunded liabilities related to Medicaid and new Exchange subsidies. http://budget.senate.gov/republican/public/index.cfm/budget-background?ID=1d79552a-2560-4dab-ab3f-d40c2da00b28
Add to that $16.2T in national debt (which is reported at the Debt Clock but is not part of the $121T in unfunded liabilities).
Now add another $38T in state and local unfunded liabilities, according to Niall Ferguson. http://www.bbc.co.uk/news/world-18456131
So the grand total in government debt already incurred plus unfunded promises amounts to $266T. This amounts to roughly $3 million per family (U.S. Debt clock shows 85 million families).
This election is between a candidate who believes this is no big deal and is perfectly content to add trillions more to our existing debts and a candidate running with an extremely knowledgeable and talented budget expert who will be tasked with getting entitlements under control. The choice couldn’t be more clear.
The U.S. Debt Clock is a national treasure, but it only tells half the story. The actual amount of U.S. unfunded liabilities is $222T http://www.bloomberg.com/news/2012-08-08/blink-u-s-debt-just-grew-by-11-trillion.html. The clock only accounts for the unfunded liabilities related to Medicare and Social Security, which currently amount to $121T.
The $222T figure represents ALL unfunded liabilities being incurred by Uncle Sam over the next 75 years. For example, Obamacare alone added $17T in unfunded liabilities related to Medicaid and new Exchange subsidies. http://budget.senate.gov/republican/public/index.cfm/budget-background?ID=1d79552a-2560-4dab-ab3f-d40c2da00b28
Add to that $16.2T in national debt (which is reported at the Debt Clock but is not part of the $121T in unfunded liabilities).
Now add another $38T in state and local unfunded liabilities, according to Niall Ferguson. http://www.bbc.co.uk/news/world-18456131
So the grand total in government debt already incurred plus unfunded promises amounts to $266T. This amounts to roughly $3 million per family (U.S. Debt clock shows 85 million families).
This election is between a candidate who believes this is no big deal and is perfectly content to add trillions more to our existing debts and a candidate running with an extremely knowledgeable and talented budget expert who will be tasked with getting entitlements under control. The choice couldn’t be more clear.
Fiscal Cliff: Liability for unfunded liabilities equals $1,058,193 per taxpayer!
No problem the Fed will just print money so fast that it cost $10,000 for a gallon of gas or $5,000 for a loaf of bread. Then we can pay all our bills, with INTREST!
sarcaism off/
Germany is paying NEGATIVE INTEREST ~ so that means their unfunded liabilities are good to have since they make money on them, right? (using that as example of why present value analysis, although sending a message, isn't really all that truthful).
btt
The U.S. Debt Clock is a national treasure, but it only tells half the story. The actual amount of U.S. unfunded liabilities is $222T http://www.bloomberg.com/news/2012-08-08/blink-u-s-debt-just-grew-by-11-trillion.html. The clock only accounts for the unfunded liabilities related to Medicare and Social Security, which currently amount to $121T.
The $222T figure represents ALL unfunded liabilities being incurred by Uncle Sam over the next 75 years. For example, Obamacare alone added $17T in unfunded liabilities related to Medicaid and new Exchange subsidies. http://budget.senate.gov/republican/public/index.cfm/budget-background?ID=1d79552a-2560-4dab-ab3f-d40c2da00b28
Add to that $16.2T in national debt (which is reported at the Debt Clock but is not part of the $121T in unfunded liabilities).
Now add another $38T in state and local unfunded liabilities, according to Niall Ferguson. http://www.bbc.co.uk/news/world-18456131
So the grand total in government debt already incurred plus unfunded promises amounts to $266T. This amounts to roughly $3 million per family (U.S. Debt clock shows 85 million families).
This election is between a candidate who believes this is no big deal and is perfectly content to add trillions more to our existing debts and a candidate running with an extremely knowledgeable and talented budget expert who will be tasked with getting entitlements under control. The choice couldn’t be more clear.
“At the same time SS is not an unfunded liability.”
Errrr....yes it is. The calculation that the actuary does is to accumulate 75 years worth of projected outlays, discounted to a present value using 2.9% real rate of interest and compare this to 75 years worth of projected payroll tax revenues assuming no changes in current law. The difference is the amount of SS promises that are “unfunded.”
Note that if the assumed interest rate is 0, this actually makes matters worse since the disconnect between outlays and revenues is larger 75 years from now than it is next year etc. (see Table III.B15.—Estimated HI Income Rates, Cost Rates, and Actuarial Balances,
Based on Intermediate Estimates with Various Real-Interest Assumptions at http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2012.pdf)
And, we aren’t paying that much interest ~ we have, in fact, been paying what amounts to 0% interest on some of our more recent bonds.
Right, but a) 0 percent surely is not a reasonable estimate for the expected interest rate Uncle Sam will have to pay on long term bonds in order to keep convincing China, Japan and others to keep lending to us; and b) even if it were zero, it would actually make matters worse since both costs and revenues are discounted using the same rate. So treating future dollars at the same value as today’s dollar (which is what a 0 discount rate implies) massively balloons the size of both projected outlays and projected revenues, but also increasing the size of the net present value of the difference between these 2 streams.
However, the real use of present value is the same as the computation of return on investment ~ to compare alternatives ~ not to estimate actual costs at some future period.
It's one of those things that's nice to use in the middle but not at the lims ~ where it leads to unrealistic expectations. E.g. Deutschland will not make a profit on increasing it's debt simply because they can charge a negative interest rate ~ nor will not go bankrupt because someone for the sake of analysis has decided to extend a higher interest rate 100 years into the future.
Same here ~ plus, we have assets, and as long as you have marketable assets you are not bankrupt.
“0% interest is as reasonable as 2% or 3% or 25% ~ if you were around under JimmuKKKatuh you know 25% wasn’t farfetched at all.”
Well, the long-run real rate of interest on U.S. Treasuries measured over many decades is far closer to 3% than 0% or 25%. So unless you can explain why people are going to keep lending to an irresponsible federal government that keeps on piling on liabilities, then 2.9% is FAR more reasonable as a long-term estimate than 0%.
Conversely, recall that Jimmuh was tossed out of office ASAP and long term interest rates were quickly dialed down to far more reasonable levels once adults were put back in charge. The notion that we would put up with 75 years worth of such presidential incompetence seems implausible to me. So 25% doesn’t seem as reasonable as 2.9% either.
“plus, we have assets, and as long as you have marketable assets you are not bankrupt.”
Our grand total assets including private, government, business etc., amount to $87.4T. Can you imagine any bank giving a mortgage to someone trying to borrow an amount that was 250% of the market value of their home? I realize that it’s not an exact apples-to-apples comparison, since we have not yet incurred those unfunded liabilities. They simply are promises at this point, but the problem is, hundreds of millions of Americans are planning their lives around those promises. So it’s not going to be easy to unwind those promises and get them down to more fiscally manageable levels.
And it would be immoral, in my view, to simply break those promises on the eve of someone’s retirement when they have little capacity to adjust to the shock of the loss of a large income stream they had counted upon. Piling on even more debt to pay for brand new promises is roughly the equivalent of buying your kid a new car knowing that by doing so, you will end up being unable to afford sending him to college as you’d long ago promised.
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