According to this, the US is broke...

MKSheppard · Post by **MKSheppard** » 2003-06-09 08:24am

US is Broke

June 2, 2003, 1:23AM

Lessons in how to make $43 trillion disappear

By SCOTT BURNS
Universal Press Syndicate

ON Friday, May 16, the word was out. A $350 billion tax cut was a done deal.

So why did the stock market sink that day? Why did it plunge the following Monday, losing 2.5 percent of its value?

One possible explanation is Treasury Secretary John Snow and his comments on the dollar. Another is concern about new terrorist attacks. But let me suggest a third possibility. Despite efforts to suppress it, word is getting around we can't afford a tax cut.

The story starts one night in January, only days after Treasury Secretary Snow had replaced Paul O'Neill. A cell phone rang as two men were leaving a restaurant in Santa Fe, N.M. The caller told Boston University economist Laurence Kotlikoff that six months of work by two economists was going to be deleted from the president's budget. The budget was due to be published in February. I know this happened because I was the second man: Kotlikoff was in Santa Fe working on a book project with me.

The material to be deleted from the budget document was an updating of generational accounting. O'Neill had requested an estimate of the government's true long-term obligations.

The estimate would include the formal debt of the U.S. Treasury plus equally serious government promises to provide retirement income and medical care. (Readers who think promises of Social Security and Medicare aren't as serious as U.S. Treasury bond promises should visit the nearest elderly person.)

The resulting information might easily have been lost in a document whose online girth is measured in megabytes.

Except for one thing.

The new accounting shows the United States is broke.

It shows the true obligations of government were 10 times larger than Treasury debt held by the public. It shows the present value of these unfunded obligations is a mind-numbing $43 trillion.

In a recent telephone conversation I asked one of the project economists, Jagadeesh Gokhale, why he thought his work was cut. Gokhale, a senior economist for the Federal Reserve Bank of Cleveland, was circumspect. He suggested the figures were a surprise to the new Treasury secretary.

Here's another interpretation: Snow's first task was to sell the president's tax cut. The sales job would be awkward if an official government document announced we were already $43 trillion in the hole.

The Federal Reserve, by the way, recently put the net worth of all households at $39 trillion. This problem goes way beyond taxing the rich, the poor or the middle class.

So the generational accounting figures disappeared from the budget.

But they did not cease to exist. In early March the other economist on the project, Kent Smetters, testified before the Subcommittee on the Constitution of the United States in the House of Representatives. Smetters, an expert in Social Security and Medicare, is at the Wharton School in Philadelphia.

Asked to comment on the Balanced Budget Amendment, Smetters was direct, saying, "I support practically any effort to make it harder for one generation to pass large fiscal burdens to future generations ... ."

Unfortunately, he noted, government cash accounting is a poor basis for a Balanced Budget Amendment. "The government reports that the national debt in 2003 was about $3.8 trillion in the form of government `debt held by the public.' But that number ignores massive imbalances in Medicare and Social Security programs and the government's other programs.

"When the liabilities associated with those programs are taken into account, the nation's fiscal policy is currently off-balance by over $43.4 trillion in present value, a number that is not reported in standard budget documents," he said (italics added).

The American Enterprise Institute will soon publish a pamphlet, co-authored by Jagadeesh Gokhale and Kent Smetters. The draft copy does more than lay out the size of the government's unfunded liabilities. It shows how much the current generation is benefiting at the expense of the next.

It shows, for instance, that past and current generations of Social Security recipients will receive $8.7 trillion more in benefits than they will pay in employment taxes.

Republicans and Democrats have distracted us with unending battles between haves and have-nots for decades. Over the same period they have bankrupted the country.

Perhaps that terror, not the terrorism of al-Qaida or currency traders, may explain the odd market decline after a tax cut that was supposed to make stocks soar.

Post by **Sea Skimmer** » 2003-06-09 08:36am

I don't trust that city, let alone its papers

CaptainChewbacca · Post by **CaptainChewbacca** » 2003-06-09 01:12pm

They wouldn't be able to keep that quiet, if it were true. The sky ain't falling yet, chicken little

Knife · Post by **Knife** » 2003-06-09 01:17pm

I shutter at the mention of 'we can't afford a tax cut'. Thats bull shit. What it really means is that with current waste, fraud, and abuse, not to mention political bull shit, there is not enough money in taxes to pay for pet projects and political ventures and still run basic services.

kojikun · Post by **kojikun** » 2003-06-09 02:03pm

I wanna be the government. With a population of 280 million and the ability to tax even as little as $2000 per year (Less then my TV and internet bill!) they make about oh.. i dont know.. half a trillion dollars. And thats if you tax 2000 across the board, not income-percentage based.

Post by **NecronLord** » 2003-06-09 02:14pm

The US economic position hasn't been much good for a long time... This isn't news.

Joe · Post by **Joe** » 2003-06-09 02:46pm

Yup, 50 years of vote buying are finally catching up with us (only the people whose votes were actually bought aren't actually gonna pay for it, my generation is).

Post by **Darth Wong** » 2003-06-09 03:33pm

Knife wrote:I shutter at the mention of 'we can't afford a tax cut'. Thats bull shit. What it really means is that with current waste, fraud, and abuse, not to mention political bull shit, there is not enough money in taxes to pay for pet projects and political ventures and still run basic services.

Great, now all we have to do is wave a magic wand and eliminate all corruption, waste, and public union greed from the system.

*looks around for magic wand*

Ummmm ....

Post by **Sea Skimmer** » 2003-06-09 04:07pm

Darth Wong wrote:
*looks around for magic wand*

Ummmm ....

*Offers Mike a rifle and gestures to pickup truck flying the Soviet flag*

Join the revolution comrade and all these problems will be a thing of the past, the government will be the people and work for the people.

Joe · Post by **Joe** » 2003-06-09 04:09pm

As for not being able to afford tax cuts; hey, we might as well cut taxes now, because in the coming years they will probably never be cut again. $350 billion is barely a drop of the federal government's liability, anyway. I just hope that we're not a virtual third world country by the time I retire.

Ted · Post by **Ted** » 2003-06-09 04:12pm

Durran Korr wrote:I just hope that we're not a virtual third world country by the time I retire.

If the EU continues to grow economically, and more people trade with Euro's than US dollars, the US could concievably become a 3rd world country.

RedImperator · Post by **RedImperator** » 2003-06-09 04:14pm

What that article dances around is that the major problem isn't tax cuts. It's not waste, corruption, fraud, pork barrel spending, the war in Iraq, corporate welfare, regular welfare, the space program, or even too many legitimate programs competing for two few dollars. Almost the entirety of that projected debt is Social Security and Medicare. Eliminate them, and most of that $43 trillion dollars evaporates. Try to eliminate them, and your political carreer evaporates and someone who doesn't know or doesn't care about the problem gets elected in your place with a mandate to put off the problem until....well, until the people who voted for him are dead and don't have to worry about it.

In my moodier moments, I look at this problem and think we may have reached the point where democracy fails--"When the majority of the electorate realizes they can vote themselves largess from the public treasury." There's no way that I can see for a democratic system to get around this problem. My entire generation is going to have to fork over more than half its income just for Social Security alone, and I can't say that most of us wouldn't vote in a dictatorship if it promised to fix the problem.

Post by **Darth Wong** » 2003-06-09 04:15pm

Durran Korr wrote:I just hope that we're not a virtual third world country by the time I retire.

Awww, how cute. He thinks that the concept of "retirement" will still exist when he gets old!

Joe · Post by **Joe** » 2003-06-09 04:15pm

Ted wrote:
Durran Korr wrote:I just hope that we're not a virtual third world country by the time I retire.
If the EU continues to grow economically, and more people trade with Euro's than US dollars, the US could concievably become a 3rd world country.

The EU economy is the last thing I'm worried about; it devotes half its budget to farm subsidies, has a very heavy regulatory and tax burden, and is about to assimilate some of the weaker eastern Europeans economies. If the US is to become a third world country it will be because we killed ourselves from within, not because of external forces.

Joe · Post by **Joe** » 2003-06-09 04:16pm

Darth Wong wrote:
Durran Korr wrote:I just hope that we're not a virtual third world country by the time I retire.
Awww, how cute. He thinks that the concept of "retirement" will still exist when he gets old!

By "retire" I meant "stop working a couple days before I die."

RedImperator · Post by **RedImperator** » 2003-06-09 04:19pm

Ted wrote:
Durran Korr wrote:I just hope that we're not a virtual third world country by the time I retire.
If the EU continues to grow economically, and more people trade with Euro's than US dollars, the US could concievably become a 3rd world country.

You better hope that doesn't happen, because take a wild guess where Canada is going if its biggest trading partner goes into a permanant economic decline?

Joe · Post by **Joe** » 2003-06-09 04:29pm

The best thing to do would be to end Social Security and Medicare right now and sell off federal assets to buy compensation for those forced into dependency on the two programs. But that won't happen, because seniors vote (nevermind what happens to their children, they want their fucking benefits!).

Dahak · Post by **Dahak** » 2003-06-09 05:14pm

Ted wrote:
Durran Korr wrote:I just hope that we're not a virtual third world country by the time I retire.
If the EU continues to grow economically, and more people trade with Euro's than US dollars, the US could concievably become a 3rd world country.

Well, people are already starting to shift interest more into Euros than Dollars. GRanted, the high Euro comes from a weak dollar, but it didn't get unnoticed with the world economy that the US isn't in prime condition.

MKSheppard · Post by **MKSheppard** » 2003-06-09 05:21pm

Durran Korr wrote:The best thing to do would be to end Social Security and Medicare right now and sell off federal assets to buy compensation for those forced into dependency on the two programs. But that won't happen, because seniors vote (nevermind what happens to their children, they want their fucking benefits!).

I therefore nominate myself for supreme dictator of Amerika, I'll get us
out of this mess with massive budget cuts..

True story:

Governor Ehrlich of MD cuts $500 million of state aid to Montgomery County, MD from the budget...

A few weeks later, the Federal Government steps in with $333 million
of federal aid to Montgomery County, MD...

And you wonder why the fuck we can't balance the budget?

Stuart Mackey · Post by **Stuart Mackey** » 2003-06-09 07:21pm

Ted wrote:
Durran Korr wrote:I just hope that we're not a virtual third world country by the time I retire.
If the EU continues to grow economically, and more people trade with Euro's than US dollars, the US could concievably become a 3rd world country.

I doubt it. Third world is having to walk 5 miles to get water.

Stuart Mackey · Post by **Stuart Mackey** » 2003-06-09 07:26pm

Durran Korr wrote:The best thing to do would be to end Social Security and Medicare right now and sell off federal assets to buy compensation for those forced into dependency on the two programs. But that won't happen, because seniors vote (nevermind what happens to their children, they want their fucking benefits!).

If they pay for these benifits then I would imagine that they feel entitled to them. That it is poorly administered is hardly their fault.
Mind you, I also think it is beholden on people not to rely on a a government for retitrement income as governments are unreliable.

Andrew J. · Post by **Andrew J.** » 2003-06-09 07:49pm

It's the federal government. What does anyone expect, competence?

Post by **Colonel Olrik** » 2003-06-09 08:14pm

Stuart Mackey wrote:
Ted wrote:
Durran Korr wrote:I just hope that we're not a virtual third world country by the time I retire.
If the EU continues to grow economically, and more people trade with Euro's than US dollars, the US could concievably become a 3rd world country.
I doubt it. Third world is having to walk 5 miles to get water.

A country doesn't suddenly become third world just because it loses its economic supremacy. Britain is doing fine after losing an Empire, and so did many of the European former superpowers. The country may lose importance and power, but the people and the structures remain.

The E.U economy surpassing the U.S is no worse for the U.S people than the U.S economy being bigger than the E.U (or, in ancient times, Portugal) is to us.

Stuart Mackey · Post by **Stuart Mackey** » 2003-06-09 08:50pm

Colonel Olrik wrote:
Stuart Mackey wrote:
Ted wrote: If the EU continues to grow economically, and more people trade with Euro's than US dollars, the US could concievably become a 3rd world country.
I doubt it. Third world is having to walk 5 miles to get water.
A country doesn't suddenly become third world just because it loses its economic supremacy. Britain is doing fine after losing an Empire, and so did many of the European former superpowers. The country may lose importance and power, but the people and the structures remain.

The E.U economy surpassing the U.S is no worse for the U.S people than the U.S economy being bigger than the E.U (or, in ancient times, Portugal) is to us.

Exactly. For a nation with the capabilities its almost impossible to become a third world nation..it would take a couple of generations of Mugabe level ineptitude, incompetency and sheer stupidity to reduse the US to the third world.

Joe · Post by **Joe** » 2003-06-09 08:59pm

If they pay for these benifits then I would imagine that they feel entitled to them. That it is poorly administered is hardly their fault

True, but it would be nice if they could make some concessions for the sake of future generations. But you're right, that's something that can't be expected to do.

Mind you, I also think it is beholden on people not to rely on a a government for retitrement income as governments are unreliable.

Now you're speaking my language. That's why I have a nest egg which will hopefully be enough for me to retire on if I can leave it untouched. Unfortunately, a lot of lower income people are essentially forced into dependence of social security, because after having 15% of your paycheck removed (7.5% directly, 7.5% indirectly), it's often difficult to invest in another retirement fund that will actually generate wealth.