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The $44 trillion hole?
CNN Money ^ | 5/29/2003 | Mark Gongloff

Posted on 05/30/2003 9:54:00 AM PDT by Recovering Republican

Edited on 04/29/2004 2:02:36 AM PDT by Jim Robinson. [history]

NEW YORK (CNN/Money) - Many economists worry that the U.S. federal budget deficit could approach a record $500 billion this year.

Few, however, have grasped that the fiscal problems facing the United States could make an itty bitty $500 billion deficit look like pocket change.


(Excerpt) Read more at money.cnn.com ...


TOPICS: Business/Economy; Government
KEYWORDS: 44trilliondeficit; congress; deficits; liabilities; socialsecurity; unfunded
Gokhale's and Smetters' papers can be downloaded from: http://www.aei.org/events/eventID.301/event_detail.asp Gokhale worked at the Federal Reserve and Smetters at the US Treasury. Clearly they have access to meaningful data and have credible backgrounds. For comparison, the current total estimated liabilities for all US businesses, individuals, and governments of every level are $32-34 trillion depending on the source. It is especially noteworthy to review the rapid escalation of the unfunded liabilities that would be caused by delaying the time until we effectively deal with the problem. Waiting just five years could add 25% or one full year of GDP.

Does anybody believe that politicians are going to deal with this problem in a meaningful way? Or even within a meaningful time frame, since there is always an election coming up?

No one can predict the ultimate magnitude of these unfunded liabilities. But I am willing to predict that it is not politically or economically possible to fund these unfunded liabilities. Is anyone willing to project the financial, economical, and political consequences of not dealing with this problem?

I will make these two predictions: the dollar will depreciate until nobody in their right mind will want their wealth denominated in dollars. And two that the United States will be able to sell bonds, but at interest rates that taxpayers will not be willing to honor. When the United States does not have a viable currency and the full faith and credit of the United States are worthless, the United States will be bankrupt or the economic equivalent of Argentina.

How do you plan to ensure that you have a financially secure retirement? Are your children going to better off than you or your parents were? Do you believe that your children and grandchildren will sacrifice their own security and retirement to support yours?

1 posted on 05/30/2003 9:54:00 AM PDT by Recovering Republican
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To: Recovering Republican
guess we should STOP SPENDING HUH?????????????????
2 posted on 05/30/2003 9:57:07 AM PDT by Mr. K (crunchy frog?)
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To: Recovering Republican
I wish the Feds would bankrupt themselves, but the debt bomb is a myth. The government owns 33% of the land and need only sell its assets or put it to work. No, even the debt will not bring an end to a corrupt ruling elite.
3 posted on 05/30/2003 10:00:19 AM PDT by JohnGalt (They're All Lying)
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To: Recovering Republican
zot alert aisle 44 trillion
4 posted on 05/30/2003 10:09:08 AM PDT by ctlpdad (note the small "l" in CT lp DAD!)
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To: ctlpdad
They are busy little boogers today, aren't they?
5 posted on 05/30/2003 10:10:17 AM PDT by Paul Atreides
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To: Paul Atreides
i just got back from lunch and saw 2 right off the bat. where is the new zotmeister zavien doombringer?
6 posted on 05/30/2003 10:12:03 AM PDT by ctlpdad (note the small "l" in CT lp DAD!)
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To: *Social Security
http://www.freerepublic.com/perl/bump-list
7 posted on 05/30/2003 10:25:25 AM PDT by Libertarianize the GOP (Ideas have consequences)
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To: Recovering Republican
I understand the article but, what's your point?
8 posted on 05/30/2003 10:29:06 AM PDT by Psycho_Bunny
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To: Recovering Republican
I will make these two predictions: the dollar will depreciate until nobody in their right mind will want their wealth denominated in dollars

Since the dollar started rallying back a couple days ago, you're already wrong from the get-go & you're obviously amongst those gloom & doomers so absurdly foolish it's not even worth taking the time to lead you through Econ 101 because, obviously, you FAILED!

9 posted on 05/30/2003 10:30:51 AM PDT by Steven W.
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To: Recovering Republican
cutting non-Social Security and non-Medicare spending 56 percent

AND

prviate Social Security Accounts.
10 posted on 05/30/2003 10:31:47 AM PDT by finnman69 (!)
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To: Recovering Republican
Welcome to Free Republic. The problem isn't so difficult to solve if everyone would just turn their attention to the elephant over there: Social Security itself. You can't just stop that gravy train on a dime, but you can certainly phase it out. I'm in for starting right now.
11 posted on 05/30/2003 10:36:30 AM PDT by Mr. Bird
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To: Mr. K
"guess we should STOP SPENDING HUH?????????????????"

Geez! I just had the same radical thought. Do you think I should do some sort of penance?

12 posted on 05/30/2003 10:37:15 AM PDT by davisfh
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To: Recovering Republican
Good post. No politican will deal with the problem if he wants to stay in office. All they do is buy votes, stuff their own pockets and the pockets of their friends with the money they are looting, and try to keep the can kicked down the road for someone else to deal with. By the time the political games end, it will be too late for us all. Some kind of "leadship" isn't it?

Richard W.

13 posted on 05/30/2003 10:37:48 AM PDT by arete (Greenspan is a ruling class elitist and closet socialist who is destroying the economy)
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To: JohnGalt
No question that the land has value. The problem with the government selling assets is that the government never does anything well. Governments always get things backwards, like central banks selling gold while the price of gold is declining. And as the price of gold continues to rise, central banks will become progressively tempted to become buyers of gold. So it would be with land sales. When, not if, the government begins to sell the land, it will drive the price of land progressively lower with the result that government will sell even more land to realize progressively smaller returns. At the same time, government will be destroying the net worth of any citizen who has acquired real estate. Only foreigners holding our debts that were used for consumption will benefit. In effect, government would tranfer America to foreigners while impoverishing its own citizens.

As for putting the land to work, government can't do anything right. The results would be the same.

Social Security can be fixed by the voluntary total complete privatization plan using the Cato format. It is not possible to fix Medicare which must be abolished completely. Since I do not expect politicians to be up to the tasks at hand, I expect the United States to follow in the foot steps that all democracies have and will always follow. When the public learns to raid the treasury, all democracies end in bankruptcy. Ours will be no exception and it will happen before the 2016 presidential elections.
14 posted on 05/30/2003 10:40:05 AM PDT by Recovering Republican
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To: davisfh
Geez! I just had the same radical thought. Do you think I should do some sort of penance?

Shhhhh, you don't want to wake up the bots. Any hint of responsible political leadership or anything that might be thought of as the least critical of this administration will not be tolerated. Free speech and thought are so old fashioned these days.

Richard W.

15 posted on 05/30/2003 10:42:13 AM PDT by arete (Greenspan is a ruling class elitist and closet socialist who is destroying the economy)
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To: Recovering Republican
I was hardly suggesting that it's a good thing; I'm not a socialist. My point is that while I would like to see the end of the DC government by 2016, it won't happen, this country will decline for at least another hundred years.

You mention a couple good ideas, the I agree with in principal, but none of them will ever be implemented and the American people will be fed a false dichotimy: higher taxes or reduced benefits. My point is that the debt is bogus and could be solved tomorrow by selling off assets and issuing bonds for what is owed to every American.
16 posted on 05/30/2003 10:47:41 AM PDT by JohnGalt (They're All Lying)
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To: arete
Free speech and thought are so old fashioned these days.

coming from a true Puplava goldbug that is absolutely hilarious!

17 posted on 05/30/2003 10:48:33 AM PDT by Steven W.
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To: Recovering Republican
-- meaning that if the federal government wants to meet its Medicare and Social Security obligations

Oopsie! A basic error in their analysis - the liabiities are not "obligations" as the Supreme Court has already ruled and they may be arbitrarily changed or cancelled at the whim of Congress.

18 posted on 05/30/2003 10:50:32 AM PDT by balrog666 (When in doubt, tell the truth. - Mark Twain)
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To: Recovering Republican
Try $44.2 trillion on for size.

Over 75 or more years? If GDP is currently $10 trillion and doesn't grow, that's 44.2/750= 5.8% of GDP. Government currently spends about 30% of GDP. Sounds like cutting spending by 20% would fix us right up.

If GDP grew 2% a year we'd be talking about 44.2/1655= 2.7% of GDP, looks like a 10% spending cut fixes this problem.

Please, show me where I'm wrong.

19 posted on 05/30/2003 10:54:45 AM PDT by Toddsterpatriot
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To: Recovering Republican
With 44 trillion in future debt we can see WHY the government would prefer to have an unarmed populace.

Peasants can't overthrow the king when he defaults on promises.

20 posted on 05/30/2003 10:56:28 AM PDT by Centurion2000 (We are crushing our enemies, seeing him driven before us and hearing the lamentations of the liberal)
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To: Recovering Republican
I love the way these articles always seem to be written. Point out an enormous future financial obligation of the U.S. government, then identify a series of 10 to 12 "draconian measures" that must be taken to stave it off.

Simply reforming and/or eliminating these stupid entitlement programs would be far more effective.

But this is not how government does things -- it always recommends the most expensive and draconian things first. A couple of years ago the Army Corps of Engineers was prepared to spend several billion dollars on a massive flood-control project to deal with recurring flooding in parts of the Passaic River basin in northern New Jersey. For about $500 million, they could have purchased every home in the affected area for about ten times its market value and relocated the families somewhere else.

21 posted on 05/30/2003 10:58:10 AM PDT by Alberta's Child
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To: Recovering Republican
While you may be in recovery and these people may have an interesting theory it comes from the same people AEI that said in 1996 that Dow 3600 was the last level before a 1929 style crash.

As posted above, sell some land and you have 0 debt. I bet a couple of national parks have some minerals that would help and that if the Nature Conservancy can sell land to rich patrons we could sell some park land to Joe Six Pack and make a lot of problems go away. OH and we might sell some Federal Timber while we are at it, maybe at a low price so that the cost of housing goes down to 145,000 instead of 150,000 for the cost of the average new home.

22 posted on 05/30/2003 10:59:12 AM PDT by q_an_a
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To: Recovering Republican
Does anybody believe that politicians are going to deal with this problem in a meaningful way?

We have a majority of the House and, probably, the Senate who would vote today to privatize Social Security and shift to a premium support, medical savings account approach on Medicare and Medicaid. And we have a president who would sign such a reform. The problem is the certainty of a filibuster, coupled with non-stop, froth-at-the-mouth howling by the dems right through the election.

The question is, will there ever be enough rational Senate Democrats willing to cross over and break a filibuster? I wouldn't bet on it, but there is a chance. Many of them have to know that this is not only the right way to go, but that they are young enough to still be around when the roof caves in. It's one thing for the fossils to play "after me, the deluge;" it's quite another for those in their 40's and 50's.

Perhaps more important, the intelligent dems also have to know we will eventually end up with an investment option in Social Security anyhow. Over two dozen other countries, including Britain and Sweden, are now doing it, and by delaying, we're conceding a massive comparative advantage to future competitors. The only real question is whether we do it pre- or post-bankruptcy. Obviously it's a lot less painful to do it now, but the 'rats would have to forego another three or four election cycles of howling at the moon on these issues.

Obviously the majority of the dems are perfectly willing to put the country through hell for short term political gain. The great historic question is whether anyone on their side any longer puts the national good first. Dems like Bob Kerry and Pat Moynihan talked the talk for years but never had the courage to act. Some Democrat has one of the great careers of this century waiting for him if he's willing to lead. It might even make him president.

23 posted on 05/30/2003 10:59:32 AM PDT by sphinx
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To: Toddsterpatriot
Please, show me where I'm wrong.

Every increasing government spending is the economy. Big government is the employer and spender of last resort. It will eventually consume us all. Only solution is to cut off it's oxygen which is the treasury markets.

Richard W.

24 posted on 05/30/2003 1:27:55 PM PDT by arete (Greenspan is a ruling class elitist and closet socialist who is destroying the economy)
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To: arete
I've got a better idea, set a target for government spending as a % of GDP. An ever shrinking % and if the congresscritters overspend, no pay check.
25 posted on 05/30/2003 2:41:53 PM PDT by Toddsterpatriot
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To: arete
"...anything that might be thought of as the least critical of this administration will not be tolerated. Free speech and thought are so old fashioned these days."

Perhaps I should explain myself at this point. While I may not totally agree with this administration, I cannot imagine myself voting for a Jimmy Carter or a Bill Clinton and certainly not for a Hillary Clinton. I am firmly rooted in conservatism and have been since becoming politically aware.

I believe that the Republican Party is currently the seat of conservatism in this country and has been for some time. In the unlikely event that this changes and the Democratic Party assumes that role, then I will have to reassess my thinking. I doubt very much that will happen though.

If you think that free speech is endangered by this Republican administration, just think of what would happen if Bill Clinton's woman were president. I think that even you would be frightened by this woman. I pray that the electorate of this country is smarter than that - but, who knows. Bill Clinton was elected twice, wasn't he?

You apparently thought that you had found an ally who would support your liberal philosophy. I hope you can understand that you were wrong and won't repeat this mistake again.

26 posted on 05/30/2003 9:58:06 PM PDT by davisfh
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To: davisfh
You apparently thought that you had found an ally who would support your liberal philosophy

Actually, I am one of the most conservative of people. My problem (and increasingly so) is that we conservatives are voting for people who are less liberal than the alternative. When someone stands up and says they are for smaller less intrusive government and the protection of the constitution as written, or that they will not engage in nation building, then I expect that person to honor his word to those who voted for him. Government size and spending is expanding as fast as ever. We have homeland security and the patriot act and at the same time do nothing to protect our borders. We are "rebuilding" Iraq. I'm sure that you see the problem here for some conservatives.

Richard W.

27 posted on 05/31/2003 4:22:01 AM PDT by arete (Greenspan is a ruling class elitist and closet socialist who is destroying the economy)
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To: Recovering Republican
Much ado about Medicare?

Three sites:

The flap going on out there is about the Bush tax cuts, and how they're going to wreck everything, and I want you to watch and see how many people -- if any at all -- are alert enough to grasp what the real nut of this is. They are fretting their little nerves over $350 billion in tax cuts in the face of $44 trillion in projected deficits, and the matter of $36 trillion of that going to Medicare alone is somehow getting past them."Here

KS: Our calculation of a $44,000bn present value shortfall is actually very conservative. Our estimate of the Social Security liability is only around $7,000bn which is $3,000bn less than what it appears in the Trustees report. The reason why our Social Security number is smaller is that we calculate it under OMB assumptions, which are different than the assumptions used by the Trustees. Our Medicare number of over $36,000bn is calculated under very conservative health-care growth assumptions. Unfortunately, the Trustees' have not yet calculated that number for Medicare. But still it's very clear that almost all the problems are SS and Medicare. It's not the rest of the government that's a problem. This new framework would do wonders for analysing SS reform. The president's commission - which I had the honor to help work with during my time in DC - uses the older measures since the new ones were not yet available. If they use these new measures, plans like Commission Model #2 would look terrific.Present Value

The report, by Jagdeesh Gokhale and Kent Smetters, is highly technical and certainly has not been read, let alone understood, by most of the reporters who have used it as another pretext to bludgeon the Administration and to discredit tax cuts. The point of the report, titled "Fiscal and Generational Imbalances: New Budget Measures for New Budget Priorities," is to propose a new method of measuring the federal government's long-term budget obligations. The Administration did not include this paper or its findings in the 2004 budget report; instead, it included the 75-year projections for Medicare and Social Security which have been used by the federal government for a number of years. In other words, the current budget used exactly the same projections that have been used in past years, rather than adopting the new measure argued for by Gokhale and Smetters. Some scandal.Tax Cuts

28 posted on 05/31/2003 4:57:44 AM PDT by decimon
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To: arete
" While I may not totally agree with this administration, I cannot imagine myself voting for a Jimmy Carter or a Bill Clinton and certainly not for a Hillary Clinton."

And, yes I agree with you. Government continues to grow at an alarming rate and, as you said, the borders remain largely unprotected. Problem is, there is no political camp to which you can take your vote. For a conservative, that would be the Republican party. If you know of another party that's going anywhere in the foreseeable future, please let me know.

29 posted on 05/31/2003 7:04:03 AM PDT by davisfh
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To: davisfh
Problem is, there is no political camp to which you can take your vote

Why do you think that is? Could it be that as long as the political ruling class keeps an iron grip on the two party system and keeps the country polarized, they will always win and we will always lose?

Richard W.

30 posted on 05/31/2003 8:11:50 AM PDT by arete (Greenspan is a ruling class elitist and closet socialist who is destroying the economy)
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To: arete
"...as long as the political ruling class keeps an iron grip on the two party system..."

Who are what is there to stop them?

31 posted on 05/31/2003 11:33:35 AM PDT by davisfh
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To: Recovering Republican
Don't you just love this line....

The White House has said raising taxes 7.1 percent would fix the problem forever -- but a tax increase of that size is also highly likely to sink the economy.

Do you think the politicians would leave the extra money alone so that the funding problem would remain fixed Forever?

I now what we'll do....Let's give everyone free drugs and NOT pay for them either.....
32 posted on 05/31/2003 11:51:25 AM PDT by evaporation-plus
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To: evaporation-plus
>>Do you think the politicians would leave the extra money alone

The fundamental problem boils down to O'Rourke's highly simplistic, but highly accurate summary:

"Giving money and power to politicians is like giving whiskey and car keys to teenaged boys."

They're going to wreck the car, the question is, does it happen in a dozen or so years, or in a hundred?
33 posted on 05/31/2003 12:53:07 PM PDT by FreedomPoster
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To: Recovering Republican
...meaning that if the federal government wants to meet its Medicare and Social Security obligations in coming years, it would have to raise taxes,...

Amazing that after the Kennedy and Reagan administrations that these so-called "economists" can't grasp that lowering rates mean more tax revenue. The private sector generates tax revenue. If you allow the private sector to have more activity, then more revenue will be raised. You raise economic activity by lowering tax rates. There's probably a peak rate where a tax rate will generate the most revenue through high economic activity. I'd imagine it'd be around 10%. Certainly less than 50%.

34 posted on 05/31/2003 1:02:50 PM PDT by #3Fan
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To: Steven W.

The rally due entirely to Bank of Japan intervention. Its sad that no one believes in free market economics anymore.
35 posted on 06/01/2003 4:50:34 PM PDT by JNB
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