It’s a helluva lot more than $16 trillion.
Former Congressmen Chris Cox and Bill Archer lay out the grim fiscal landscape that our dishonest government accounting practices are hiding from the American people:
As Washington wrestles with the roughly $600 billion “fiscal cliff” and the 2013 budget, the far greater fiscal challenge of the U.S. government’s unfunded pension and health-care liabilities remains offstage. The truly important figures would appear on the federal balance sheet—if the government prepared an accurate one.
But it hasn’t. For years, the government has gotten by without having to produce the kind of financial statements that are required of most significant for-profit and nonprofit enterprises. The U.S. Treasury “balance sheet” does list liabilities such as Treasury debt issued to the public, federal employee pensions, and post-retirement health benefits. But it does not include the unfunded liabilities of Medicare, Social Security and other outsized and very real obligations.
As a result, fiscal policy discussions generally focus on current-year budget deficits, the accumulated national debt, and the relationships between these two items and gross domestic product. We most often hear about the alarming $15.96 trillion national debt (more than 100% of GDP), and the 2012 budget deficit of $1.1 trillion (6.97% of GDP). As dangerous as those numbers are, they do not begin to tell the story of the federal government’s true liabilities.
The actual liabilities of the federal government—including Social Security, Medicare, and federal employees’ future retirement benefits—already exceed $86.8 trillion, or 550% of GDP. For the year ending Dec. 31, 2011, the annual accrued expense of Medicare and Social Security was $7 trillion. Nothing like that figure is used in calculating the deficit. In reality, the reported budget deficit is less than one-fifth of the more accurate figure.
Why haven’t Americans heard about the titanic $86.8 trillion liability from these programs? One reason: The actual figures do not appear in black and white on any balance sheet. But it is possible to discover them. Included in the annual Medicare Trustees’ report are separate actuarial estimates of the unfunded liability for Medicare Part A (the hospital portion), Part B (medical insurance) and Part D (prescription drug coverage).
As of the most recent Trustees’ report in April, the net present value of the unfunded liability of Medicare was $42.8 trillion. The comparable balance sheet liability for Social Security is $20.5 trillion.
Merry Christmas.
When can we expect the real bill to come due? Sooner than we can imagine:
These real-world impacts will be felt when currently unfunded liabilities need to be paid. In theory, the Medicare and Social Security trust funds have at least some money to pay a portion of the bills that are coming due. In actuality, the cupboard is bare: 100% of the payroll taxes for these programs were spent in the same year they were collected.
[...]
When the accrued expenses of the government’s entitlement programs are counted, it becomes clear that to collect enough tax revenue just to avoid going deeper into debt would require over $8 trillion in tax collections annually. That is the total of the average annual accrued liabilities of just the two largest entitlement programs, plus the annual cash deficit.
China can’t bail us out. The entire world couldn’t bail us out of this mess. A good start would be forcing the government to tell the truth about our real liabilities for Medicare and Social Security. Would this make a difference in Congress? Given how easy it is to demagogue entitlements and score political points with a public not eager to face facts, it is unlikely that anything will be done in time to stave off disaster.
I have written before that in 10 years, Paul Ryan will be seen as a soothsayer for recognizing the problem and wanting to do something about it. And we will be kicking ourselves for not adopting his Medicare and Social Security reform proposals when we had the chance.
His fixes for those entitlements will be seen as mild compared to what we will be facing when the bills actually start coming due.
I bet most Americans have no idea what a “Trillion” actually means. Something after a million and before a bazillion. When those numbers get tossed around, their eyes just glaze over.
We have pretended for decades that we could have lavish government without actually paying for it. Both parties have put themselves in the current box. At the end of the day, we will have to spend less and be taxed more. But who wants to run for re-election on either of those planks?
Vítor Gaspar, Portuguese Finance Minister told it plainly. Seems they have the same problem in Portugal.
“There appears to be an enormous divergence between what the Portuguese believe the state should deliver and the amount of taxes they are prepared to pay.”
http://www.ft.com/intl/cms/s/0/09663038-37d5-11e2-8edf-00144feabdc0.html#axzz2DNp6uR1s
The goose is cooked.No one believes in the stats or what the US government says.The “fiscal cliff” is a side show to fool the dimwits.The problem of the debt cannot be solved.The US will default,there is no other way.You can raise the taxes to whatever rates you like this won’t make a dent.
In the article, Moran wrote, “And we will be kicking ourselves for not adopting [Ryan's] Medicare and Social Security reform proposals when we had the chance. His fixes for those entitlements will be seen as mild compared to what we will be facing when the bills actually start coming due.”
He sure got that right.
As you say the debts they list are “Treasury debt issued to the public, federal employee pensions, and post-retirement health benefits.” You listed them in the order they are likely to be paid. As for the middle class entitlements of Medicare and Social Security, they will not be paid in full, period. We had better accept that fact and plan our own lives (to the extent we can) around it.
My advice is simple.
If you’re under 40, you will never see a dime of Medicare or Social Security. My generation has looted the treasury and stuck you with a third-world country.
If you’re not putting away the maximum in a 401(k) right now and putting off that vacation, putting off that new car, putting off that new house, when you “retire” you will have nothing. You have little but debt now. You will have nothing but it in 50 years.
Nobody in America will have the money or the inclination to take care of you when you’re 75. You’re on your own, and you have been since you were born. The bill for the generations of progress from 1955-2005 are now coming due, and we’ve left you with the check.
In return, you voted overwhelmingly for Obamee, assuring the bill will come due most likely within the next 20 years, if not the next ten. You’re just as complicit in your own disaster as my generation is, so keep that in mind.
And just where should I put my 401(k) money? Stocks? Bonds? Domestic Markets? Offshore Markets?
Stocks are basically static when compared to QE3 and the printing of money. Not only that but they will fall in value when the inevitable financial pressures come. I’ve only recently got back to where I was in about 2008 on that front. So stocks aren’t certain at all. They never were. It was great if you managed to live in the high return era, but those days are long gone.
Bonds are debt. In a world of growing debt should I buy more debt? In a low growth commercial debt is not a good bet. Government debt is a joke.
Domestic or offshore – If we sneeze so will everyone else. No help there.
My savings are being inflated away and my 401(k) is gorwing at less then the real rate of inflation. I don’t have access to insider market information.
So while I am trying to do the right thing I have little doubt before this is over that inflation will eat the worth of my savings, that my 401(k) will be shattered by the coming stock market fluctuations and that the government will extract as much of the tatters of what’s left in either outright seizure or changes to the tax code that makes the investment far from sufficient to live on.
I have no doubt I’ll work until I either die on my feet or die because I’m unable to work.
I can’t even comprehend those numbers so it doesn’t matter
No matter how much one denies it, reality always wins and it DOESN’T have a sense of humor.