Fantastic article by Scott Burns over the weekend.
what stood out "The Federal Reserve recently estimated the net worth of all U.S. consumers – that's you, me and Bill Gates – at $55.6 trillion. " We have unfunded liabiliies of $64 trillion. Hence, a 100% tax on all income and assets would still not cover the bill.
U.S. going broke; guess who will pay?
08:08 AM CDT on Sunday, April 22, 2007
Scott Burns [email protected]
Thanks to a good accountant, the Burns family tax return was ready a week before deadline this year. Proud of ourselves, my wife and I signed it.
Then we contemplated its enormity. While far shorter than War and Peace, the heft of our 40-page return was striking.
So was the amount we paid.
If taxes are "the price we pay for civilization," our payment should help make America the Athens of the 21st century. I'm sure millions of others had similar thoughts.
Unfortunately, the price we pay for civilization will need to rise sharply in the near future. Whatever you paid this year, get ready to pay lots more.
The newest estimates come from two economists, Jagadeesh Gokhale and Kent Smetters at the Cato Ins ute and Wharton School, respectively. Their estimates of unfunded government liabilities were summarily removed from the president's budget in 2003 as Treasury Secretary Paul O'Neill was ousted and replaced by John W. Snow.
Mr. Snow's immediate job was to sell the second round of tax cuts. The idea wouldn't have gone over very well if an official accounting of government liabilities had revealed that the entire country was stone broke.
Writing in the March/April issue of the Financial Analysts Journal, Mr. Gokhale and Mr. Smetters updated their earlier work. Since 2003, things have gotten worse, not better. They found:
•That our government has promised $63.675 trillion more in benefits than it will collect in taxes.
•That "if the federal government confiscated all the land in the United States along with all of its improvements – buildings, highways, plants and equipment, and other durable assets built on it – and sold them at auction to foreign investors, it would still fall more than $20 trillion short in present value of the monies required to satisfy its future budget."
•That the true federal deficit isn't the $200 billion-odd a year discussed in newspapers but nearly 10 times more, $2.4 trillion.
•That without Social Security and Medicare, we'd be running a surplus. The entire problem is the $72.9 trillion in unfunded liabilities of Social Security and Medicare.
•That eliminating all military spending, forever, would only cover about half of the unfunded liabilities of Medicare.
•That just paying for promised benefits would require an immediate new 14.4 percent tax on all payroll. A tax increase that large probably wouldn't be collectible. Work would go underground.
•That the vast majority of the problem can be traced to Medicare. Its unfunded liabilities are 8.5 times larger than the unfunded liabilities of Social Security.
Lest you think Mr. Gokhale and Mr. Smetters belong to the Chicken Little School of Economics, the two economists compare their estimates with figures from the trustees for Social Security and Medicare. The trustees' estimates are $10.9 trillion higher (see the accompanying table).
To put these figures in perspective, the total output of the U.S. economy is now about $12.5 trillion. The Federal Reserve recently estimated the net worth of all U.S. consumers – that's you, me and Bill Gates – at $55.6 trillion.
The economists ask why the credit markets aren't treating the U.S. Treasury like a poor cousin to General Motors Corp. They suggest four possible answers, but I've got one of my own: Every government in the world does exactly the same thing.
This would make more sense if I were sure that those unfunded liabilities were put into present day terms.
As it is, I wonder if the time value of money factored into those calculations?
Not that we shouldn't be worried, but I am not entirely sure the calculations are entirely accurate.
When these large shortfalls are upon us the government will monetize the debt on a large scale along with increasing federal taxes. The U.S. government will issue massive amounts of treasury bonds and the Federal Reserve will make sure all are purchased by buying up any that aren't otherwise purchased with money that they will create exactly for this purpose. The consumer will pay this price in the form of greatly inflated consumer prices. So not only will there be higher taxes, but higher prices of everything. Much higher prices.
If a government needs $X it can tax its citizens to get it, or it can issue $X in treasury notes and have the central bank create $X and buy them (The Fed does return over 90% of the interest it collects on these notes from the taxpayers to the treasury)*. The federal government gets its money either way, but one is more obvious then the other.
This is all dependent on foreigners not rejected the dollar as payment in the long term, however. That is dependent on a few things, but it is completely dependent on the petro-dollar. If all OPEC nations demand Euros and refuse dollars in the future then who knows what will happen with these liabilities.
*The Federal Reserve is still a horrible ins ution that steals wealth from all money holders and borrowers for reasons other than this.
Living beyond your means is not a good way to go through life.
they are present value.
At some point in the future, the U.S. will default on its Medicare and Social Security obligations. There will be a major devaluation of the dollar. The result will be economic ruin and social unrest for much of the populace, a lengthy depression, an attempted coup, and the end of American hegemony.
I am not that pessimistic ES. There is
no doubt that Medicare, SOC and many
other federal programs, as well as
state/county/city programs are draining
many millions (billions) of dollars.
I think the governments will have to
take a hard look and cut back on
the bennies of these programs and
raise taxes. I think you will see a
VAT (value added tax) added to our
taxing system as they have in the
UK, presently 20 percent I think.
The politicians will have to have all
this forced on them, because the use
the welfare system to buy votes with.
But it will surely come.
But I don't see riots or complete ruination of our country, just cuts and
increased taxation.
yeah that article fails to mention that we'd probably also have a surplus w/o Bush's tax cuts
http://www.usnews.com/usnews/biztech...cut_suicid.htm
"Absent a tailwind to growth from some other source," the analysis concludes, "this would almost surely mark the onset of a recession." Question the model, but it sure seems logical that a sudden $400 billion tax increase in 2011 and 2012 might have some slowing effect on the economy. Now to be fair, the WUMM model does show that eventually the additional revenue would help balance the budget, leading to stronger longer-term growth. But as economist John Maynard Keynes famously commented, "In the long run, we are all dead."
did you read the article?
The government could confiscate 100% of all US wealth and still be in the negative. Problem then would be there would be zero taxes to collect the following year.
did you read my article?
we are in so much debt that 100% of US wealth wouldnt make a dent.
Mouse, pick a username and stick with it ya jackass.
alls i know is my taxes gone way up
The primary problemI guess we're going to learn the hard way. A socialist form of government doesn't work fiscally, but who cares.•That without Social Security and Medicare, we'd be running a surplus. The entire problem is the $72.9 trillion in unfunded liabilities of Social Security and Medicare.
Soon everyone will be part of Medicare in the form of universal healthcare.
As it is, I wonder if the time value of money factored into those calculations?
Not that we shouldn't be worried, but I am not entirely sure the calculations are entirely accurate.
Good. Thanks.
Troubling indeed.
All the more reason to start on universal health care. A single payor system would really put a HUGE dent in spirally health costs.
Do you really think universal health care is cheap? Take a
look at both Canada and the United Kingdom. You want
a system that rations health care. Or who sets standards
on who they will treat or not treat because of peoples
life styles. I don't.
The system we have now has seen an explosion in administrative costs, the majority of which are due to massive insurance company, hospital, and provider (read: doctor) administrative costs, that could be MUCH more simply shifted to the government.
The current system is MASSIVELY inefficient, but the costs are all hidden.
As much as one might fault "big government" it would replace a myriad of "little governments" and have some large economies of scale.
It is NOT the same as rationing.
How in the world can you say this when the sole reason why the US is broke is because of MEDICARE, A GOVERNMENT RUN HEALTH PLAN.
Are you saying adding everyone to Medicare is going to make things better because the government is more effecient than private insurance companies?
Putting caps on spiraling out-of-control health care costs is the right to do, but the only thing driving our economy is debt and health care.All the more reason to start on universal health care. A single payor system would really put a HUGE dent in spirally health costs.
When a wing-nut asks, what are you sacrificing for the Iraq War? Why are you tired of the war its not costing you anything? Tell them you are sacrificing your share of your social security money, $1 trillion dollars and counting of new IOU's in your account because of this war, so don't tell me I'm not sacrificing anything for this war.
I think all of that sounds about right, except the coup part. There will no doubt be many private citizens who would like to overthrow the government at that point, but it would take a large and organized faction of the military to make a legitimate coup attempt, and I can't see that happening on U.S. soil without the threat of a foreign invasion.
I don't exactly think the government will default on its Medicare and SS liabilities. If the dollar couldn't surive an extremely large debt monetization in the future, and there is a very good chance that it wouldn't, then I think a more likely scenario to a government default is the Federal Reserve declaring itself bankrupt. The Fed does have one super ace in the hole it can play if there is an incredible economic crisis in the U.S. such as this where debt monetization isn't possible and government default is considered out of the question: the Fed declares bankruptcy, defaults on the dollar, founds the Bank of North America with the Canadian and Mexican central banks (who would be more than willing partners in this scenario), and then issues a new North American bank note. Then the U.S. government would not default on any of its liabilities, foreign or domestic. It would simply insist that all of its creditors accept the new continental currency as payment. This would require restructuring these debts, as the new currency would have a higher value than the dollar would have towards its end. Foreign holders will accept fewer amounts of this new currency than they would have gotten with dollars because the new currency will have a higher value than the dollar did in the world markets do to a lower supply, and because they will have no choice; it's that or they take it in the rear and get nothing.
American citizens will accept this new currency for the same reason. The government will simply say, "Remember all that money you sent us for Medicare and Social Security? Well, it's gone. But we've created a new and stronger currency, so you can either accept it as payment and use it in transactions or you will get nothing." I doubt they would have to be even close to that blunt. People will be desperate at this point and won't care what the new money is or where it came from, just that they get it in their hands.
Stuff like this happens to corporations all the time. A particular corporation will find itself in an impossible finacial situation - it can't service its debt anymore, or it owes more money in lawsuits then it could ever pay, whatever. So how does it surive? It declares bankruptcy, closes up shop, re-incoprorates with a new name and a new board of directors, and is back in business doing the same thing. The Federal Reserve will follow the same path.
$4 a gallon
by Michael Ventura
Energy BulletinAmerica is over. America is like Wile E. Coyote after he's run out a few paces past the edge of the cliff – he'll take a few more steps in midair before he looks down. Then, when he sees that there's nothing under him, he'll fall. Many Americans suspect that they're running on thin air, but they haven't looked down yet. When they do ...
Former Federal Reserve Board Chairman Paul Volcker, a pillar of the Establishment with access to economic information beyond our reach, wrote recently: "Cir stances seem to me as dangerous and intractable as any I can remember. ... What really concerns me is that there seems to be so little willingness or capacity to do anything about it" (quoted in The Economist, April 16, p.12). Volcker chooses words carefully: "dangerous and intractable," "willingness or capacity." He's saying: The situation is probably beyond our powers to remedy.
Gas prices can only go up. Oil production is at or near peak capacity. The U.S. must compete for oil with China, the fastest-growing colossus in history. But the U.S. also must borrow $2 billion a day to remain solvent, nearly half of that from China and her neighbors, while they supply most of our manufacturing ("Benson's Economic and Market Trends," quoted in Asia Times Online) – so we have no cards to play with China, even militarily. (You can't war with the bankers who finance your army and the factories that supply your stores.) China now determines oil demand, and the U.S. has no long-term way to influence prices. That means $4 a gallon by next spring, and rising – $5, then $6, probably $10 by 2010 or thereabouts. Their economy can afford it; ours can't. We may hobble along with more or less the same way of life for the next dollar or so of hikes, but at around $4 America changes. Drastically.
The "exburbs" and the rural poor will feel it first and hardest. Exburbians moved to the farthest reaches of suburbia for cheap real estate, willing to drive at least an hour each way to work. Many live marginally now. What happens when their commute becomes prohibitively expensive, just as interest rates and inflation rise, while their property values plummet? Urban real estate will go up, so they won't be able to live near their jobs – and there's nowhere else to go. In addition, thanks to Congress' recent shameless activity, bankruptcy is no longer an option for many. What happens to these people? Exburb refugees. A modern Dust Bowl.
For the rural poor it's even worse. They are the poorest among us, with no assets and few skills; they earn the lowest nonimmigrant wages in America, and they must drive. When gas hits $4, their already below-the-margin life will be unsustainable. They'll have no choice but to be refugees and join in the modern Dust Bowl migration. So, too, will people who live where people were never intended to live in such numbers – places like Phoenix and Vegas, unlivable without air conditioning and water transport (energy prices will rise across the board, regular brownouts, blackouts, and faucet-drips will be "the new normal" everywhere). In the desert cities, real estate will plunge, thousands will be ruined, most will leave – while all over the country folks will have to get used to "hot" and "cold" again.
But where will the new refugees go, and what will they do when they get there? They will migrate to the more livable cities, where rents are already unreasonable and social services are already strained, and where the new refugees will compete with immigrants for the lowest-level housing and jobs. Immigration issues will intensify to hysteria. Native-born Americans will clamor for work that only legal and illegal aliens do now. In a culture as prone to violence as ours, that will probably get ugly.
Meanwhile, suburbs and cities will be in various states of chaos, depending on their infrastructure. As inflation and interest rates rise, and the real estate bubble bursts, millions will see their assets plunge precipitously. In five years, many who are now well-off will live as the marginal live today, while the marginal will sink into poverty. With gas at $4-plus a gallon, real estate values will depend on nearness to working centers and access to transportation. As has already happened in Manhattan, the well-off will head for what are now slums, and the slum-dwellers will go God-knows-where. Places with decent rail service will be prime. Places without rail service will be in deep trouble.
One key to America's future will be: How quickly can we build or rebuild heavy and light rail? And where will we get the money to do it? Railroads are the cheapest transport, the easiest to sustain, and the only solution to a post-automobile America. (For reasons I haven't space to detail, hybrid cars and alternative energy won't cut it, if by "cut it" one means retaining anything like the present standard of living. See James Howard Kunstler's "The Long Emergency" on Rolling Stone's Web site. Also check Mike Ruppert's site www.fromthewilderness.com and the do entary The End of Suburbia.) A massive investment in railroad infrastructure could offer jobs to the unskilled and skilled alike, absorb much of the inevitable population displacement, and create a new social equilibrium 10 or 15 years down the line. Old RR cities like Grand Junction, Colo.; Amarillo, Texas; and Albuquerque, N.M., could become vital centers, offering new lives for the displaced. Railroads are key, but the question is: how to finance them?
There's only one section of our economy that has that kind of money: the military budget. The U.S. now spends more on its military than all other nations combined. A sane transit to a post-automobile America will require a massive shift from military to infrastructure spending. That shift would be supported by our bankers in China and Europe (that is, they would continue to finance our debt) because it's in their interests that we regain economic viability. What's not in their interests is that we remain a military superpower.
And that's where things get really interesting. The question becomes:
Can America face reality? If the government responds to the coming changes by attempting to remain a superpower no matter what, there is no way to underestimate the harm. The numbers speak for themselves. Soon we'll no longer have the resources to remain a military superpower and sustain a livable society that is anything like what we know today. It happened to England; it happened to Russia; it's about to happen to us. England sustained the transformation more or less gracefully; it lost its dominance while retaining its essential character. Russia is still in a period of transformation, but has remained a player thanks to its oil reserves. Europe in general – France, Germany, Italy, and Spain (all world powers in the fairly recent past) – is creating a post-national society, the most experimental form of governance since America's revolution. We have no appreciable oil, and we no longer have a manufacturing base. So what will the United States do? Sanely recognize its declining status and act accordingly, or make one last ignoble stab to retain its position by force?
Half a century ago James Baldwin wrote: "Confronted with the impossibility of remaining faithful to one's beliefs, and the equal impossibility of becoming free of them, one can be driven to the most inhuman excesses." Americans believe they're "No. 1," destined to lead the world. That is the America that's over. If we insist on that illusion, then this world is in for tough times. We will neither hold on to what we have nor create what we might have, but we will wreak untold harm (if we don't destroy the species altogether). Or we can face and embrace reality. And that reality is: There is no such thing as "No. 1" ... there is no such thing as an ideal destined country that is better than any other ... there is only us, doing the best we can, trying to live free and sanely, within limits that are about to become only too clear. Our glory days are done. What's next?
Remember, we're not talking about the far future. We're talking about the next decade.
No country gets two centuries anymore. The 21st will be China's century. That's what $4-plus a gallon means, and nothing can stop it. So: How will we change? But the question "How will we change?" is really the question "How will I change?" Because history isn't a spectator sport. It's you and me. Everything depends on whether we side with reality or illusion. Face reality, and we have a chance. Cling to illusion, and we are lost. The America we've known is over – very soon. The America we can create is up to us. end story
$4/gal is supposed to be some kind of national disaster?
Scroll down to the bottom of this chart for what serious govt's charge for gas:
http://www.eia.doe.gov/emeu/international/gas1.html
If the US now had federal-tax-inflated $7/gal gas, the country would in much better shape now and in the future. Alternative motors for transport, and supporting infrastructure, would be compe ive, developed, and refined so that oil-fuel motors would minimized.
It has almost happened before.
A handful of wealthy families, including the Morgans, Chases, Du Ponts, and Johnsons, attempted a coup against FDR in the early 1930's as the Depression bottomed out, in order to ins ute fascism in the United States. Their allies had infiltrated the military, but the general they called upon to execute the coup blew the whistle on them.
The coup has thwarted, and the matter was referred to Congress. Of course, since rich and powerful people were responsible for the treason, Congress swept it all under the rug.
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