Just a reminder: We are in trouble.
I have argued that the real national debt is about $130 trillion. Let’s say I’m being pessimistic. Forbes, in a 2008 article, came up with a lower number: $70 trillion. Let’s say the sunny optimists at Forbes got it right and I got it wrong.
For perspective: At the time that 2008 article was written, the entire supply of money in the world (“broad money,” i.e., global M3, meaning cash, consumer-account deposits, checkable accounts, CDs, long-term deposits, travelers’ checks, money-market funds, the whole enchilada) was estimated to be just under $60 trillion. Which is to say: The optimistic view is that our outstanding obligations amount to more than all of the money in the world.
Global GDP in 2008? Also about $60 trillion. Meaning that the optimistic view is that our federal obligations outpace the entire annual economic output of human civilization.
So, John Boehner wants to roll spending back to where it was in the last year of the Bush administration. Okay, great. Nice start.
Now, what else have you got?
Here's what I've got: Repeal the Medicare prescription drug benefit. Then whittle away some more at the inter-generational handouts known as Social Security and Medicare. Raise the normal retirement age to 70. For Medicare, delay the age of eligibility, increase out-of-pocket payments and implement means testing.
Then prepare your resume because any politician who has the courage to do any of this is going to get voted out.
Reply to this commentLinkReport AbuseConsidering that by far the greater part of that massive obligation is in unfunded future-loaded liabilities, there's no way to do anything significant to it except to repudiate those liabilities, in whole or in part. But repudiating Social Security and Medicare, even in part, would undoubtedly carry a high political price. Therefore, extreme courage would be required of our political class...and having just composed a fantasy too outre for any publisher of note, I think I'll stop right there.
Reply to this commentLinkReport AbuseDon't worry your pretty little heads about it.
Why? Well, I'll let University of Illinois Law professor Richard L. Kaplan explain, "the notion of 'unfunded liabilities' is merely an ominous new catchphrase coined during debates over massive spending programs such as Social Security and Medicare that is rooted in financial fallacy.
"The only possible meaning of ‘unfunded liability’ is in contrast to a ‘funded liability,’ which presumably is more financially secure and apparently morally superior as well,” said Kaplan, an authority on tax law and government entitlement programs.
But in the end, he says, a “funded” liability is really no different than an “unfunded” one."
So yeah. All is well - ALL IS WELL!
The larger question is: Do we really want to save a system in which a person who believes, and is willing to go on the record defending the idea, that there is no difference between funded and unfunded liabilities can become an "authority" on anything, let alone tax law and government entitlements?
Reply to this commentLinkReport AbuseWords do often have different meanings than the initial intent of the speaker of said words. If what the prof, said is interpreted the way you take it, then.... you ask a very thought provoking question. Or, is the fact that someone is "considered" an authority on something make them such. When I read the words of someone like Greenspan, i often ask myself if he simply convolutes the English language to convince us all that he is brilliant, when he really is not saying anything of substance.
Reply to this commentLinkReport AbuseThis is an idiotic comparison. Dollar bills don't go out of circulation when you use them to pay for something. They are used in turn to pay for other things, which generates sales tax and income taxes, which can be used to pay down further portions of the debt, and so on.
Saying the national debt is greater than the volume of money in circulation at any specific moment is like saying your mortgage is greater than the amount of money in your bank account. So what? You pay it a bit at a time, while other sources of revenue are continually replenishing the account. The debt may or may not be too large to be prudent, but the entire point of debt is to fund needs that can't be paid for in one lump sum, so merely pointing out that it is large is meaningless, and implying that it is too large simply because it is larger than the money on hand at one particular moment is uncomprehendingly irrelevant.
Reply to this commentLinkReport Abuse"Saying the national debt is greater than the volume of money in circulation at any specific moment is like saying your mortgage is greater than the amount of money in your bank account. So what?"
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Except, in this case, the mortgage didn't buy me a house, because all of the proceeds were grabbed at the closing and handed over to a combination of local union organizers and the recent bedpartners of the loan officer, all of whom are now busily trying to convince me to just shut up and slog ahead and spend the rest of my life trying to pay off the note, terming my protestations so far "uncomprehendingly irrelevant."
Reply to this commentLinkReport AbuseZero based budgeting.
Phase out all entitlements, replacing them with tax benefits for saving.
I find the "Dollar bills don't go out of circulation" argument to the truly "idiotic" one. It seems to invite unrestrained inflation as the answer to all debt. Dollars are just markers for real wealth, and debt is a bet that future wealth creation can cover our current spending. The size of the unfunded debt may not mean that we're technically bankrupt, since the economy could always improve, but it ought to be alarming enough to make us do something about it. At least, I hope our children think so, because I think the current generation of "leaders" has thoroughly discredited itself.
Reply to this commentLinkReport AbuseKevin Williamson, expected spending 75 years in the future, based on current policies and projects that are certain to change anyway, is NOT debt. No amount of calling it "debt" or calling it "our REAL debt" changes that fact. Project funding gaps are not debt. DEBT is debt.
You, Kevin, will have to spend money on groceries in July of 2015. There's no proof today you'll have a job that month. Do you count that as debt today? If you fill out a mortgage app today do you count all of your future personal spending as current debt? No, you don't, do you?
Point is, spending and funding gaps projected over the next 75 years simply are not debt. It is pretty well agreed what the word "debt" means, and that isn't it.
We DO have a debt problem -- 13 trillion of real contractual debt -- and we have a problem with projected spending. But when unsophisticated, economically-ignorant people corrupt the conversation they paint all us conservatives as ignorant yocals, and that does not help. Perhaps you should leave this conversation to the adults.
By the way, I wonder how many of your readers don't have enough cash in their savings and checking accounts to pay off the entirety of their mortgages and other debts right now, plus pre-pay for everything they are going to buy for the rest of their lives. Is that a problem?
Reply to this commentLinkReport AbuseKevinF
I assume you are not a CPA. Many promises to pay are categorized as debt according to GAAP and accounting body authorities. If government were required to report like public companies a lot of the promises would show as debt. So if you don't believe that GAAP correctly classifies debt and that the thousands of SEC filings are wrong its your perogative but you'd better keep your day job and not become a CPA or one responsible to produce SEC financials
Reply to this commentLinkReport AbuseJust some items for comparison, like when you put a human figure in an illustration to give it a sense of scale. If you do not think that the unfunded liabilities of the U.S. government being larger than the GDP of the planet is a big deal, you may be able to make a case for that position. But it is useful to know the scale of the problem.
Kevin F., in fact businesses are required to include known future liabilities on their financial statements and to treat them as equivalent to debt. That is one reason why there were so many restatements following the passage of Obamacare -- businesses suddenly had new future liabilities.
If a bank had massive off-balance-sheet liabilities comparable in scale to the government's, the FDIC would shut it down, and its executives would stand a pretty good chance of going to jail.
Reply to this commentLinkReport AbuseLet's think about what unfunded liabilities are for a moment. We, as a society, have committed to each other that we will pay some benefit or provide some service 'in the future'. As the author points out the amount of unfunded future liabilities that the US government has committed to is somewhere over 100 Trillion Dollars. That is in present value dollars or the amount of funds that need to be put away now to fund future liabilities. If you don't want to listen to blog commenters, take a look at the Peter G. Peterson Foundation at External Link
As for the U of I professor, he should know better. I too live in Illinois. The 'unfunded liabilities' for various state backed pension are around 55 Billion Dollars. The problem is that they do in fact need to be funded. At present our new current pension obligations are about 4 Billion and year and growing each year. In ten years we will need to find 20 Billion Dollars of NEW money to meet the new current obligations. That is because pension have been horribly underfunded for decades. Politicians can make promises for the future that do not cost any thing now if you do not sent aside the money.
As was mentioned above, in the private world people go to jail for these acts of malfeasance. Please do not tell me that this is not debt. That kind of view is how we got into the situation in the first place.
Reply to this commentLinkReport AbuseComing at it from another angle: If the country decides to raise taxes enough to pay off those unfunded liabilities over as long a time period as seems reasonable now; total federal, state and local taxes on a typical US family making $75,000 annually will have to increase by $29,000 annually over the next 10 years. That's fresh new taxes on top of currently existing taxes.
For details see External Link
As the bond god Mohammed El Erian admonishes, and as is evident in some nearby comments, "recognition lag" is real. Denial is understandable. But it won't help.
Reply to this commentLinkReport AbuseHow about a New Federalist party running on a platform of only keeping the constitutionally mandated parts of the Federal govt (military, roads, post office) and junking the rest?
Quit dreamin', I know . . .
Reply to this commentLinkReport AbuseWtif55 I assume that you are no CPA either. You clearly misunderstand the difference between governmental accounting and corporate accounting.
If IBM for example sells $1 million in 30 year bonds it books that $1 million as a liability, but the real liability is the discounted present value of $1 MM. Its like the Power Ball telling you you won 100 mill. but you get it over 20 years. That's not 100 mil its about 40.
By your logic if we book the $70 trillion as a liability we would also have to book as assets all federally owned assets such as oil and gas on federal lands, the White House and its property, Yellowstone National Park, the Guttenberg bible in the Library of Congress, ect.
I would submit to you that it is about a wash. That is not to say that I think the feds are not eating the seed corn, they clearly are, but that you are comparing apples and oranges.
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