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."
... and many people consider Dr. Kotlikoff to be an incredible optimist ... mainly because, among other things, he hasn't counted the $1,300 trillion in derivative exposure by the too-big-to-fail banks, the enormous additional spending burden imposed by masses of unemployed and starving resulting from this country's economic collapse, the enormous drop in tax receipts resulting from the death of the middle class, and the cost of inevitable civil unrest and wars!
There should be a “Lock Box” for funds to pay down the debt! (/s)
Any positive news?
We could put it right beside the Social Security lock box! /s
Just do not open the lock box Hillary keeps in her closet
Dr. Kotlikoff is an optimist,
40% reduction in every dollar spent is still 25% too little, we need 53% cuts in every dollar spent,
66% increase in tax rates/collections is still too little, we would need 83% tax increases,
Illinois, New Jersey, New York are teetering on fiscal collapse, already beyond the point of return but not yet fallen over the abyss. Once one of them go, the domino effect will begin.
I doubt there is enough wealth on the entire planet to pay off our debt.
I do not think that we will get any positive economic news that is true... ever again.
LLS
I’m still wondering how there is enough wealth on the planet to generate that kind of debt in the first place.
PING.
What comes after Trillion?
Lemme see now:
A.) Shut down the non-essential, spendaholic Federal Government until the sorry spendaholic Federal politicians give up; or
B.) Shut down and destroy America by approving the funding of America’s death knell Obamacare; or
C.) Be very, very fearful of what the Democrat’s Liberal Agenda Media MIGHT say and write about old-style Republicans who have always before caved in to Democrats?
Think, think, think - - - - .
2014 is going to be SO much fun for the New Republican Party!
Bttt
What comes after Trillion?
Quadrillion ... and unfortunately, you're going to use it a lot before this is over.
“”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.” “
I have never understood this future accounting method people use to say crap like that. If it is $211 T then I am sure it is not in one year, but they never say over what period of time, and if it is something like Social Security then it is far more over a longer period of time.
They determine the liability using Generally Accepted Accounting Principles (GAAP). Under GAAP, you take all of the estimated liabilities, based on reasonable actuarial estimates of life expectancies, medical costs, etc. and then discount them (opposite of compounding) back to a present value using a reasonable rate of interest. You then calculate the estimated tax receipts assuming a reasonable rate of economic growth and then discount those amounts back to a present value using a reasonable rate of interest. The liability is the difference between the two numbers.
Bottom Line: It's a SWAG (Scientific Wild-Assed Guess) that is subject to incredible amounts of manipulation by economists, bureaucrats and others. Hence the debate between the GAO's estimate of a 70 trillion debt (increasing at 5-7 trillion per year by the way), and Professor Kotlikoff's estimate of 211 trillion, and others who put the amount north of 250 trillion.
About the only thing that you can say for sure is that there is no way in hell that this country can ever fulfill more than a meager portion of its obligations. If you are younger than age 55 and count on any meaningful amount of retirement benefits, health care benefits, veterans benefits, housing subsidies, or pension benefits from the government, then you will be very disappointed.
I understand all that, but over what TIME PERIOD? SS is not due to close out so how can anyone claim a total value for it since it is perpetual?
You're right, unfortunately.
Then, there's also the GSE's (Government Sponsored Enterprises - alphabet soup agencies with funny sounding nicknames like Fanny, Freddy, Sally and Vinnie that have handed out government guarantees like candy), and quasi-government agencies that haven't exactly guaranteed things but are nevertheless expected to make good in the event of economic necessity (e.g. FDIC, FSLIC, SIPC, and PBGC). And we have made massive promises to international agencies like the IMF and BIS.
As explained in the above post, we don't have any idea how much we're on tap for ... but we can say for certain that there's absolutely, positively no way we can ever make good on even more than a small portion of the total amount.
These IOUs written to ourselves mean nothing. Collapse is inevitable.
I prefer default to hyper-inflation.
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.
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