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.
I’m not actually worried about it. Washington is going to hit the wall — fall off the cliff, set its hair on fire, whatever — long before those other bills come due.
Already it’s safe to say there’s no market for the amount of debt Washington is already issuing. Last year the Fed, the lender of last resort, bought up three-quarters of all of DC’s new debt. 77%. It will do about the same this year.
It used to be that when Congress wanted to borrow money, it went hat-in-hand to America’s savers. But Americans stopped saving enough for DC’s appetites, so Congress went to Japan to borrow, then to China. And since Japan and China had to do something with all those dollars they’d gotten from selling us cars and consumer electronics, why not?
These days Japan has troubles of its own, and China seems somewhat less interested in buying securities with a payout lower than the rate of inflation. Go figure.
But fear not! Congress need not go hat in hand to anyone, so long as Ben Bernanke is willing to run the printing presses and use his Make Believe Dollars to buy all the real debt Congress and the president can dream up. And inflation remains low (except for buyers of food and fuel and other exotic goods) because nobody in the private sector is doing much buying. They’re staying hunkered down, trying to avoid being beaten by ObamaCare and the EPA and reenergized union thugs.
It’s further down the line where things get really interesting.
As previously noted, there is not enough demand in the whole entire world for all the new debt we produce each year — but at least it’s cheaper than producing oil pipelines, right? Anyway. There also exists no politically feasible plan for getting our deficits very much under a trillion dollars a year, every year, for as far as the eye can see. Yes, unemployment checks aren’t going out with the same happy ferocity they were a couple of years ago, but entitlement spending is going nowhere but up. And eventually, Uncle Ben is going to have to stop conjuring up Make Believe Dollars.
Because eventually the economy will pick up some steam. It’s at that point that Uncle Ben has to start selling bonds, to hoover up all those Make Believe Dollars he’s been injecting into the economy. If he doesn’t, they’ll run around in their trillions, chasing the same number of goods. This is what we call “nasty inflation.”