An Unbearable Burden
To the "average" person who pays attention to the fiscal situation in this country, they are used to seeing stories about annual deficits of a few hundred billion dollars. Bad as they are, these numbers represent only a fraction of the total liability that this country has amassed. If you looked hard enough, you would find that when properly accounted for, the U.S. government is really in the RED. For example, in 2006, the Treasury reported an annual deficit of approximately $250 Billion, but the actual number is closer to $2.5 trillion. As of the fiscal year 2006, the government's total indebtedness was a staggering $65 trillion. (By the way, even though it is rarely mentioned, even the Government Accounting Office recognizes a number of this order of magnitude).
Why is there such a large discrepancy between perception and reality? The government reports its financial results on a cash basis. They do not have to include future obligations in these reports. It's sort of like borrowing a million dollars today, and claiming you are a millionaire because you don't have to tell people you have to pay the money back tomorrow. The demographics of the baby-boom generation work in the same way. Benefit programs like Social Security and Medicare (the main contributors) have been cash-flow positive for years. However, with retirement looming, these programs will soon go from being a cash contributor to a cash drain; and the government will soon be (really) bleeding red ink.
It is hard, but let me try to put numbers of this size in perspective. First, annual Gross Domestic Product in nominal dollars is only $13.7 Trillion, one fifth the amount of the actuarial value of the liability stream. Think about it, if the government could take every penny of value we now produce as a nation (including food, gas, Viagra and MTV), it would take five years to pay off this debt. Never mind that we couldn't eat. If this is a bit too esoteric, think about it this way. If you wanted to pay off the debt over 50 years, every current tax-paying household would have to ante up $40,000 per annum. That is just slightly less than current per capita income. To net this amount from the tax base, the average household would need to earn about $200,000 more per annum. If you aren't frightened, you should be.
Furthermore, if you don't feel guilty, you should. What we have done over time is to systematically impose a terrible burden on the future for our own benefit. If we were the victims, we would call it highway robbery and scream for blood. Come to think of it, we once did. This country owes its existence to the inequity of taxation without representation. We thought it so unfair that we went to war with the British. And yet, we just do not have the political courage to admit that our behavior amounts to the same thing. We don't even think twice about the tax liability we are passing on to our children. We certainly don't have the political will to bear any of the costs of solving this problem.
While I am not going to suggest solutions here, I would suggest one way of approaching government expenditure. Next time a politician proposes a new program or initiative, you should ask two questions. First, you should insist on knowing how the program will be paid for. Second, ask yourself if you would vote for the program if you actually bore the cost of paying for it.
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"Why is there such a large discrepancy between perception and reality?"
Because the "average" person has an IQ of 100.
There is not enough to go around. The issue now should be priority of creditors. I have paid into Social Security since 1964. Now that I am to retire and need MediCare and Social Security should I just roll over and die because some Wall Street jerks with a degree from the University of Chicago wants to make big bucks on Wall Street ripping people off?
As in any other liquidation (such as a bankruptcy) there must be an orderly process in which creditors with priorities have preference. Those who took risk in exchange for very high profits based on inflated assets must be forced to pay first, not last. I want what the government promised me when it took my withholdings.
The wiz kids on Wall Street have milked the country dry. Now the world economy is a poisoned well based on Wall Street fraud - bundled liars loans - what kind of asset is that? This country cannot run an economy based on selling homes to each other at inflated prices. Let's allow the bubble to deflate and make sure that we don't repeat the mistake of the Roaring Twenties. Re-enact the Glass-Steagall Act - no more asset-backed junk bonds and off the books funny money. Risk must be shown on the books; assets must have market value.
I head a family of 5,
Before I read this post I was planning to move to another country to save $150,000 of national debt. Guess I will move to save $1,000,000 instead.
If you want out from under the debt, and you are an intelligent, educated professional, it is easy to move. It is only the poor (and the foolish) who will be stuck in the US paying that debt.
The republicans have absolutely no intention of ever paying off this debt or honoring these obligations. They want to bankrupt America so they can buy up the remnants at pennies on the dollar (or Euro in their case). It's called "starve the beast" and it is the main function of their economic policy.
See Neil Grossman's Profile
I am not really trying to take political sides. i don't believe the Democrats have any intention of paying this off either. In fact, I don't really think anyone who wants to squarely confront this issue can get elected, at least not yet. I sort of call myself a Franklinite; because I believe in Old Ben's adage that an ounce of prevention is worth a pound of cure. (I also believe in the one about a penny saved..). In any event, we should have been addressing these issues years ago. The longer we wait, the more painful the solution. At some point, it is possible to pass the point of no return. It is sort of like the situation on Apollo 13 after the explosion. NASA immediately adjusted the spacecraft's trajectory in order to allow the moon's gravitational field to help return the craft to Earth. If they had waited too long, there would have been no solution.
I agree that neither party will do anything. Look at the way Ron Paul was ostracized...one of the few politicians who would even touch the subject. He's somebody I'd like to see replace Paulson.
The problem of the nation's debt is related to the money-creation powers of the private cartel.
Interesting that the sub-header used the "taxation-without-representation" quote.
Revolutionary War historians boil down the true cause of the battle between the Brits and the Colonies thusly.
The Colonies were creating their own money - collectively, mind you.
And they were prospering.
The Brits could not control the wealth of the Colonies.
They could not allow that to continue.
Thus, the major issue was not the tax - or import fee - on tea.
The major issue was a decree by the Brits that the tea tax could only be paid using British currency.
And, if the Brits could control the amount and type of currency available in the Colonies, it could again control the wealth creation of the Colonies.
The debt-money creation powers of the bankers in this country is the true cause of the fiscal imbalances pointed out in Neil's post.
Said Thomas Jefferson:
"I believe that banking institutions are more dangerous to our liberties than standing armies. The issuing power of money should be taken from the banks, and restored to the people to whom it belongs."
I agree.
see: http://www.neweconomics.org/gen/uploads/CreatingNewMoney.pdf
The whole Bush family will need to hide on that 1 Million ac. ranch they gave Bush in Portugal.
He will be the most hated man in the country when all the corruption comes to light.
That would be in Paraguay, otherwise, I agree wholeheartedly.
Hey, 'dad, I keep telling dad' about the 100,000 acre ranch Bush has in Paraguay, but it's not sinking in. At least he got the "P" in the country right this time...LOL.
It now seems almost certain that the Clinton/Obama battle will end in May or early June at the latest, regardless of the Clintons' insistence on going to the convention. And it appears most likely the Democratic nominee will be Barack Obama.
For those who are still not sure about Obama, I respectfully recommend the following thoughtful and informative magazine articles; they are online and in libraries:
Newsweek, March 31st: cover story, The Obama Dividend, other articles.
Rolling Stone, March 20th: cover story, several articles.
New York Review of Books, current (April 17th) issue has an article on the two candidates, Clinton and Obama, entitled Molehill Politics, by Elizabeth Drew.
Atlantic Monthly, December issue: cover story, Goodbye To All That: Why Obama Matters, by Andrew Sullivan; other articles.
Whether the debt is sixty five trillion or ten trillion, America is no longer an economic power house. The war was supposed to cost about $250,000,000.00 iwill cost at least three trillion. Lowering taxes on the wealthy such as Gates and Buffett and countless others, and raising spending, Bush has beggared the country. The idiocy of Greenspan became obvious when the housing market collapsed due to the lack of regulations and law. Any idiot would know that during the Depression interest rates were at 1% and yet it did nothing to start the economy. A hard look at the causes of the market disaster called Black Friday resulted in the creation of regulations and laws which would make such a collapse impossible in the future. Thanks to Reagan et al, regulations were withdrawn and the free market has benefited China, Japan, India and others but damaged Americans greatly. It is unlikely that America can ever crawl out from under the incredible debt of the nation, the states and personal debt run up on credit cards and mortgages. The jobs have moved to Asia which is doing very well. America also has to realize that as it's population rises and that of Asia begins to fall America will be overpopulated and have people who have no hope of feeding themselves. Tthe number of homeless families in America is shocking.
I think its fair to say that hes blogging because regardless of whether you agree with the facts as stated in his article, its hard to deny the fact that we as a country think more about today and "us" then we do about tomorrow and our kids.
The usual bollocks, designed to scare people who don't actually understand economics or the US government.
First, we agree:
1) it would be good if we didn't run up unreasonable deficits, but raised taxes appropriately or didn't spend on stupid things.
Everything else here is misleading.
1). As a society, the part that is obligations for social security or medicare is not like money we owe to a bank, but money we will eventually pay to our poor and middle class selves. He deliberately includes this with money owed either to rich bondholders or foreigners.
2) Experts know that medicare and social security deliberately use current income to pay current expenditures; they are NOT savings plan. The combination of tax increases and benefit changes that are needed to keep the system cash neutral are relatively modest and well understood.
3) He invites us to think about whether we would support a particular program if _we_ had to pay for it; the right question is would we support it if its costs were distributed fairly (i.e., progressively). He encourages us to think about our personal cost-benefit analysis, not the social good.
Why is he blogging on HuffPo?
--Paul Baer, PhD
I can't tell if the criticism and the challenge to Mr. Grossman's right to post on Huffpo is because it is perceived that he is representing some "right wing" viewpoint seeking to deny "social" programs because they're unaffordable. I don't really see the post that way. Mr. Grossman is pointing up that the federal govt. does not use GAAP accounting in allowing for future liabilities, and in this assertion (and in the calculations) he is correct. Because the Social Security surpluses are spent (by both parties) on an ongoing basis, the Social Security "trust fund" is a mythical construct" that has, as David Walker has testified, no accounting significance. In 2017 or so, the system will go negative and then increasing amounts of the general fund will be necessary to pay currently promised benefits. Medicare is in substantially worse shape, since it will go negative in the next year or so, and there is no plan for cost containment. The external part of the national debt is also of mounting concern, since the approximately 2.5 trillion owed to foreign holders could become critical if holdings are shifted to competing currencies.
I see your bollocks and raise you 3 bollocks'.
1) The only difference between the liabilities related to Social Security or Medicare and the money we owe to rich bondholders or foreigners, is that the latter will get paid but former will not. So this a real cause for concern.
2) Only a fool would say that in light of current demographics a relatively modest change is all that is required. It is like saying that although you have cancer all we need to do is prescribe some aspirin for the pain. After all eventually we all die and after that we won't care anymore.
3) Yes clearly the tax breaks to the oil companies and the bridges to nowhere are all for the social good. How dare we the common people criticise what the Government spends our money on. Ever heard of “We the People” .
On a personal note, I have no idea what school gave your Phd, but I would go ask for refund because your comments clearly show that you know nothing about economics.
Maybe from Berkley in Resource Economics.
But he could be a Pediatrician from Iowa.
Now I am not sure if either Mr. Baer, with whom I would rather argue Carbon-tax vs Cap-and-Trade, or Mr. Grossman, who presents some very true and very frightening statistics, is correct.
To me, socio-economically speaking, there is only one issue.
The debt-money creation powers of the FED.
I challenge every poster here today to read this article:
http://www.neweconomics.org/gen/uploads/CreatingNewMoney.pdf
OK, it's not an article, it's a major paper on this most important issue, and is more pertinent than ever today.
If, after reading this, anyone can tell me why we don't NEED to create a sovereign Central Bank of the US, with the broadest possible money-creation and management powers, I am open to hearing any views.
Maybe, especially, Mr. Grossman.
Historically, at times the most conservative, and the most progressive, of politiical operatives have suported public money.
Said a banker:
"The issue which has swept down the centuries, and which will have to be fought sooner or later, is the People versus the Banks". - Lord Acton in 1875
But debt-free money is not taught at UCB, nor at the Wharton Business School.
Neither is Cooperative Economics.
"Permit me to issue and control the money of a nation and I care not who makes its laws". - Baron Mayer Rothchild
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