Deficit

Economics Economics Questions
1

Here’s a bit from the Daily Reckoning

"The last time we looked, the shortfall between what had been promised – in the form of Treasury bonds, Medicare, Medicaid, Social Security and the like – and what might reasonably be collected in taxes toted up to some $50 trillion, or about a half a million dollars per family. In other words, the whole country is bankrupt…and the financial obligations of the U.S. federal government should be regarded by investors as though they were subprime debt. It is a huge debt that the debtor cannot pay. "

Is there a way to validate those numbers ? Is it possible to know for a fact that the state is bankrupt ?

Here’s more information on a similar tone : http://www.shadowstats.com/article/55

What do you guys think ? Can these ‘parallel universe’ data be trusted ?

2

Well considering the US government budget reports don’t even use internationally accepted GAAP, and that they hardly mention entitlement obligations (last I checked), then I don’t see how trusting the government works out to be better than trusting alternative sources.

If someone is able to provide some more sources though, it would be very useful.

3

"

In short, the federal government seems to have much larger unfinanced liabilities than official data imply. If you compare the present value of all projected future government expenditures, including debt-service payments, with the present value of all projected future government receipts, the gap is about $66 trillion, according to calculations by the economists Jagadeesh Gokhale and Kent Smetters. That’s almost eight times the size of the official gross federal debt."

http://www.nytimes.com/2006/06/11/magazine/11national.html?pagewanted=all

I know Niall Ferguson won’t find many friends here, but I admit I am a fan.

4

Liabilities the government intends to default on should not be included as part of the deficit, obviously.

5

I don’t know about the numbers, but it should be clear that the U.S. government is morally bankrupt. [;)]

6

This is the US Comptroller’s accounting of the tale:
http://www.liveleak.com/view?i=e01_1203364378

If you think his figures are too pessimistic as well then I don’t really see who you could trust on this matter. Of course, this is just the budget for what they “want” to pay for presently. They are always looking at ways of sneaking out of those obligations (like intentionally understating inflation figures, which many of those obligations are pegged to). And if the going gets really rough then they could simply decide (or be forced) not to meet some of those obligations period - so they’re not quite bankrupt yet. However if they do decide to honour all of those obligations then they’ll certainly be pushing a fine line.

As the comptroller says, the only real way out of this is to make some hard decisions… and the longer you put off making those decisions, the harder they’ll be when the day of reckoning comes.