United States Now Financially Broke

[IronGhost]

Prepare to be shocked.

The US is insolvent. There is simply no way for our national bills to be paid under current levels of taxation and promised benefits. Our federal deficits alone now total more than 400% of GDP.

That is the conclusion of a recent Treasury/OMB report entitled Financial Report of the United States Government that was quietly slipped out on a Friday (12/15/06), deep in the holiday season, with little fanfare. Sometimes I wonder why the Treasury Department doesn’t just pay somebody to come in at 4:30 am Christmas morning to release the report. Additionally, I’ve yet to read a single account of this report in any of the major news media outlets but that is another matter.

But, hey, I understand. A report is this bad requires all the muffling it can get.

In his accompanying statement to the report, David Walker, Comptroller of the US, warmed up his audience by stating that the GAO had found so many significant material deficiencies in the government’s accounting systems that the GAO was “unable to express an opinion” on the financial statements. Ha ha! He really knows how to play an audience!

In accounting parlance, that’s the same as telling your spouse “Our checkbook is such an out of control mess I can’t tell if we’re broke or rich!” The next time you have an unexplained rash of checking withdrawals from that fishing trip with your buddies, just tell her that you are “unable to express an opinion” and see how that flies. Let us know how it goes!

Then Walker went on to deliver the really bad news:

Despite improvement in both the fiscal year 2006 reported net operating cost and the cash-based budget deficit, the U.S. government’s total reported liabilities, net social insurance commitments, and other fiscal exposures continue to grow and now total approximately $50 trillion, representing approximately four times the Nation’s total output (GDP) in fiscal year 2006, up from about $20 trillion, or two times GDP in fiscal year 2000.

As this long-term fiscal imbalance continues to grow, the retirement of the “baby boom” generation is closer to becoming a reality with the first wave of boomers eligible for early retirement under Social Security in 2008.

Given these and other factors, it seems clear that the nation’s current fiscal path is unsustainable and that tough choices by the President and the Congress are necessary in order to address the nation’s large and growing long-term fiscal imbalance.

Wow! I know David Walker’s been vocal lately about his concern over our economic future but it seems almost impossible to ignore the implications of his statements above. From $20 trillion in fiscal exposures in 2000 to over $50 trillion in only six years? What shall we do for an encore…shoot for $100 trillion?

And how about the fact that boomers begin retiring in 2008…that always seemed to be waaaay out in the future. However, beginning January 1st we can start referring to 2008 as ‘next year’ instead of ‘some point in the future too distant to get concerned about now’. Our economic problems need to be classified as growing, imminent, and unsustainable.

And let me clarify something. The $53 trillion shortfall is expressed as a ‘net present value’. That means that in order to make the shortfall disappear we’d have to have that amount of cash in the bank – today - earning interest (the GAO uses 5.7% & 5.8% as the assumed long-term rate of return). I’ll say it again - $53 trillion, in the bank, today. Heck, I don’t even know how much a trillion is let alone fifty-three of ‘em.

And next year we’d have to put even more into this mythical interest bearing account simply because we didn’t collect any interest on money we didn’t put in the bank account this year. For the record, 5.7% on $53 trillion is a bit more than $3 trillion dollars so you can see how the math is working against us here. This means the deficit will swell by at least another $3 trillion plus whatever other shortfalls the government can rack up in the meantime. So call it another $4 trillion as an early guess for next year.

Given how studiously our nation is avoiding this topic both in the major media outlets and during our last election cycle, I sometimes feel as if I live in a small mountain town that has decided to ignore an avalanche that has already let loose above in favor of holding the annual kindergarten ski sale.

The Treasury department soft-pedaled the whole unsustainable gigantic deficit thingy in last year’s report but they have taken a quite different approach this year. From page 10 of the report:

The net social insurance responsibilities scheduled benefits in excess of estimated revenues) indicate that those programs are on an unsustainable fiscal path and difficult choices will be necessary in order to address their large and growing long-term fiscal imbalance.

Delay is costly and choices will be more difficult as the retirement of the ‘baby boom’ gets closer to becoming a reality with the first wave of boomers eligible for retirement under Social Security in 2008

I don’t know how that could be any clearer. The US Treasury department has issued a public report warning that we are on an unsustainable path and that we face difficult choices that will only become more costly the longer we delay.

Perhaps the reason US bonds and the dollar have held up so well is that we are far from alone in our predicament. In a recent article detailing why the UK Pound Sterling may fall, we read this horrifying evidence:

Officially, [uK] public sector net debt stands at £486.7bn. That's equal to US$953.9bn and represents a little under 38% of annual GDP. Add the state's "off balance sheet" debt, however – including its pension promises to state-paid employees – and the total shoots nearly three times higher. Research by the Centre for Policy Studies in London says it would put UK government deficits at a staggering 103% of GDP.

If we perform the same calculations for the US, however, we find that the official debt stands at $8.507 trillion or 65% of (nominal) GDP but when we add in our “off balance sheet” items the national debt stands at $53 trillion or 403% of GDP.

Now that’s horrifying. Staggering. Whatever you wish to call it. More than four hundred percent of GDP(!). And that’s just at the federal level. We could easily make this story a bit more ominous by including state, municipal and corporate shortfalls. But let’s not do that.

Here’s what the federal shortfall means in the simplest terms.

1.

There is no way to ‘grow out of this problem’. What really jumps out is that the US financial position has deteriorated by over $22 trillion in only 4 years and $4.5 trillion in the last 12 months (see table below, from page 10 of the report). The problem did not ‘get better’ as a result of the excellent economic growth over the past 3 years but rather got worse and is apparently accelerating to the downside.

Any economic weakness will only exacerbate the problem. You should be aware that the budgetary assumptions of the US government are for greater than 5% nominal GDP growth through at least 2011. In other words, because no economic weakness is included in the deficit projections below, $53 trillion could be on the low side. Further, none of the long-term costs associated with the Iraq and Afghanistan wars are factored in any of the numbers presented (thought to be upwards of $2 trillion more).

http://www.financialsense.com/fsu/editoria.../2006/1217.html

[AROCES]

Prepare to be shocked.

The US is insolvent. There is simply no way for our national bills to be paid under current levels of taxation and promised benefits. Our federal deficits alone now total more than 400% of GDP.

That is the conclusion of a recent Treasury/OMB report entitled Financial Report of the United States Government that was quietly slipped out on a Friday (12/15/06), deep in the holiday season, with little fanfare. Sometimes I wonder why the Treasury Department doesn’t just pay somebody to come in at 4:30 am Christmas morning to release the report. Additionally, I’ve yet to read a single account of this report in any of the major news media outlets but that is another matter.

But, hey, I understand. A report is this bad requires all the muffling it can get.

http://www.financialsense.com/fsu/editoria.../2006/1217.html

- I think this is a very accurate and a good report. There is really no way ever we can pay the bills for the PROMISED BENEFITS!!!

There is the problem right there, who made the promise then?

[Cinders]

This news comes as no surprise to me, nor should it to many tax paying American citizens.

I also think when CNN Jack Cafferty was talking that week on "Broken Government" the subject was brought up.

I also believe Lou Dobbs has mentioned things about this as well..

Not only will America's debt haunt us for a long time, but now we read this in todays news: Gates: Failure in Iraq will haunt U.S.

Don't ya' just love it.. I believe it was Clinton (the guy who did a bad naughty ) that helped America get out of debt..

Then comes along the

[truethat]

I was waiting for this as well. People have been struggling during this war not quite comprehending how much it is actually costing us. We've spent it all on the war. Yippee.

[Avinash_Tyagi]

Been telling people we need to cut spending and raise taxes for a while now, hopefully now some will listen.

[AROCES]

There is one problem with your theory, there was DOT COM then. You have no DOT COM this time if you raise taxes. Cut spending with a Democrat Congress and Senate?????

[supercar]

Our federal deficits alone now total more than 400% of GDP

This is nothing new. From 1980-1996 the United States had an equally huge budget deficit.

Edited December 19, 2006 by supercar

[bathory]

am i getting this right

the US is broke IF we count Social security benefits for the soon to be retiring boomers?

[AROCES]

How can a country whose Budget is 3 Trillion dollars be considered broke???

[Startraveler]

am i getting this right

the US is broke IF we count Social security benefits for the soon to be retiring boomers?

Social Security is paid for through a separate payroll tax, half on employees and half on employers. Money taken in through the payroll tax immediately goes to paying out benefits to current beneficiaries and the leftovers are put into a trust fund. Social Security can't bankrupt the U.S. because it can't pay out more than is taken in through the payroll tax.

[makesyouwonder]

Read this people and then sit back and think about our country being broke.

http://www.wtv-zone.com/Mary/FEDERALRESERVE.HTML

[bathory]

Officially, [uK]public sector net debt stands at £486.7bn. That's equal to US$953.9bn and represents a little under 38% of annual GDP. Add the state's "off balance sheet" debt, however – including its pension promises to state-paid employees – and the total shoots nearly three times higher. Research by the Centre for Policy Studies in London says it would put UK government deficits at a staggering 103% of GDP.

so basically the problem is massive costs from poorly thought out welfare policies?

[Bella-Angelique]

so basically the problem is massive costs from poorly thought out welfare policies?

No, it is from a thirty year old non-stop trade deficit and wages being paid out to non-US citizens through illegal immigration, insourcing, and outsourcing.

Lou Dobbs has covered it A LOT.

Lou Dobbs is not just a talking head who recites good lines written for him. He is an actual economist and author of excellent books on this subject.

Google Lou Dobbs to find out more.

Edited December 19, 2006 by Bella-Angelique

[Avinash_Tyagi]

How can a country whose Budget is 3 Trillion dollars be considered broke???

When our Debt is far bigger, and threatening to grow at a rapid pace in the next few years

[Bella-Angelique]

Gold Rises for Second Day as Dollar Falls From Three-Week High

By Meeyoung Song and Debarati Roy

Dec. 19 (Bloomberg) -- Gold in Asia rose for the second day as the U.S. dollar fell against the euro, spurring investors to buy the precious metal as an alternative investment.

The U.S. currency dropped from a three-week high yesterday after a report showed confidence among U.S. homebuilders deteriorated in December, leading traders to increase bets the Federal Reserve will cut interest rates next year. Gold generally moves in the opposite direction of the dollar. soure

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Dollar down against yen after Japan central bank leaves interest rates unchanged

TOKYO (AP): The dollar fell against the yen in Asia Tuesday as players sold the U.S. currency to take profits after the Bank of Japan decided to keep interest rates on hold.

Tokyo traders said the yen will climb further versus the greenback if Bank of Japan Gov. Toshihiko Fukui suggests a tightening in January at a press conference set for later in the day. source

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Iran to replace dollar with euro for deals

TEHRAN: Iran yesterday announced it has ordered the central bank to use euros for foreign transactions and transform the state's dollar-denominated assets held abroad into the single European currency."The government has ordered the central bank to replace the dollar with the euro to limit the problems of the executive organs in commercial transactions," government spokesman Gholam Hossein Elham told reporters.

"We will also employ this change for Iranian assets (in dollars) held abroad." Elham implied that the move would apply to oil revenues from the world's number four crude producer. source

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[+joc]

name='IronGhost' date='Dec 18 2006, 11:15 PM' post='1466850']Prepare to be shocked.

The US is insolvent. There is simply no way for our national bills to be paid under current levels of taxation and promised benefits. Our federal deficits alone now total more than 400% of GDP.

News Flash...breaking news.....the elections are over already . America is at full employment. We are engaged in a huge war effort. Aren't you the same genius who proposed a war tax?

[Bella-Angelique]

Iron is looking around, trying to learn and comprehend what is going on.

She is one of the few on the far left that I think will turn on those on the left that she perceives as a threat to the USA.

I think of her more as a Kucinich Democrat than a Clinton Democrat.

I think she cares more about people than ideology, it shows in her choice of words here and there.

I disagree with some of the things she pulls up from leftist writers quite often, but I respect her for sensing that something is terribly wrong and searching for solutions.

[Aztec Warrior]

It's nice to know that Congress and out-of-control SPENDING, has not affected the deficit.

Raising taxes without reducing spending will never "pay off the debt", but will plunge the econonomy into a recession.

I don't believe Bush has ever vetoed anything, much less any congressional spending bills.

[Unlimited]

Anybody know what happened to the 65 trillion in fort knox?..I think it's in the neo-cons hands...they broke us for a reason..to enrich themselves...and in the end crush america and turn us into NWO communists.

[Reincarnated]

I don't believe Bush has ever vetoed anything, much less any congressional spending bills.

Bush vetoed his first bill back in September of '06. That was the embryonic stem-cell bill, everyone knew that was going to happen though. But other than that, he is letting everything else fly.

This war & the economy is straining the middle class mostly. The gap between the rich and poor is at all time high and it keeps growing, why would they want to stop that? It is nothing but disgusting greed that is bringing this country down.

Edited December 19, 2006 by Reincarnated

[Bella-Angelique]

Maybe someday some can be tried for acts of sedition against the Constitution and the nation, such as making and continuing in trade agreements towards the end of destabalization and destruction for the benefit of global corporations.

If the public is mad from a total economic colllapse I think it could stick.

There are enough records and repeated warnings by experts to make a case against many in both political parties.

The polls show that the people want their blood already and the really hard times have not even hit yet.

[Celumnaz]

It's nice to know that Congress and out-of-control SPENDING, has not affected the deficit.

Raising taxes without reducing spending will never "pay off the debt", but will plunge the econonomy into a recession.

I don't believe Bush has ever vetoed anything, much less any congressional spending bills.

Agreed!

at least Chris admitted excellent economic growth the past 3 years

hard to get fearmongers to admit little nuggets like that sometimes

Yes bathory, it IS a problem with out of control entitlements/welfare progroms

the trade deficit isn't necessarily a bad thing, but I agree that wages being paid out to non-US citizens through illegal immigration, insourcing, and outsourcing IS a problem as things are now.

but all in all personally I couldn't care less if the economy collapses. put mah huntin britches on an let the socialists and elites quake about their imagined future.

[AROCES]

When our Debt is far bigger, and threatening to grow at a rapid pace in the next few years

We all know that. But the US is not broke then, it simply has not enough money to waste, right?

[Aztec Warrior]

Anybody know what happened to the 65 trillion in fort knox?..I think it's in the neo-cons hands...they broke us for a reason..to enrich themselves...and in the end crush america and turn us into NWO communists.

Didn't the Federation in cooperation with the Illuminati steal the gold in the 1950's?

[Bella-Angelique]

The purpose of graphs are to compare one type with another to find a match to determine causes and effects.

When there is an obvious match then there is an obvious answer.