I’ll help the President along with his ambitious election promises.
The total value of federal debt outstanding is $12.4 trillion as of mid-February 2010. That was the maximum amount that the Treasury was permitted to borrow under the law until …
… President Obama and Congress raised the debt limit to $14.3 trillion. This is roughly the amount the CBO estimates will be required to keep the federal government from making drastic changes by the end of 2011.
Now, I do not make a distinction between the “debt held by the public” and the total federal debt outstanding, unlike the folks in government budget offices. What is the difference? A good portion of US debt is owned by government agencies itself – in the form of promises to pay future obligations. Since this is the U.S of A. and we always pay our obligations, let’s assume that those debts are real obligations.
But this $14.3 trillion of debt that is on the books merely scratches the surface of total U.S. federal obligations. What else are the Lords of Transparency hiding from view:
- Fannie and Freddie are owned by the government. They have $1.6 trillion of corporate debt outstanding. Taxpayers are responsible for this debt – it is every much a U.S. federal obligation as the published debt obligations are.
- Implied obligations to Fannie and Freddie exceed even this $1.6 trillion. There already is a Congressional line of credit available to Fannie and Freddie on the order of $400 billion. Since the current budget is not balanced, any drawing on this line of credit will have to be funded with more debt. I think $100 billion of this has already been accounted for (it’s the amount we’ve paid out already), so about $300 billion more should be added to the federal debt obligations.
- The federal government, through the Pension Benefit Guarantee Corporation and other programs, is responsible for making public employees whole if their state provided pensions and other retirement benefits are not fully funded. And indeed, they are far from fully funded. By the end of 2008, it is reported that states have underfunded promises to pay employees by $1 trillion. Given how much of the current “stimulus” has ended up as transfer payments to unions and state employees, it is not credible to argue that the government will not bail these benefit guarantees when they go belly up. And given the “dire” fiscal situation of the states right now, is there any reason to believe that this $1 trillion will not grow?
- The present value of the gap between what the government has promised to pay current and future retirees, and how much funds they can reasonably collect to pay them now stands at $5.3 trillion. This was based on the 2009 Social Security trustees report based on the 2008 fiscal year. The current estimate of the unfunded social security obligations is likely to be higher given the plummeting of tax revenues and incomes that occurred in 2009.
- The present value of the gap between what the government has promised to pay current and future retirees in terms of Medicare benefits versus the funds it expects to have available now stands at … The HI portion of Medicare right now has an actuarial shortfall of about 13.8 trillion (you can do this calculation by suffering through pages 60 to 70 of this report). If we take a longer term horizon, this unfunded present value exceeds $36 trillion. But let’s be nice and only assume we care about the next 75 years – after all, modern capitalism will have destroyed the planet after 75 more years or so anyway. The Part B of the SMI portion of Medicare right now has an actuarial shortfall of $23 trillion ($ 6 trillion of which should come from beneficiary premiums, and the remaining $17 trillion for general tax revenues, so let’s consider only the latter). The Part D of the SMI portion of Medicare right now has an actuarial shortfall of $9.4 trillion, with $2.2 trillion supposedly being paid for by beneficiaries and states. In other words, taxpayers must come up with about $7.2 trillion from general tax revenues to cover these shortfalls.
Let’s summarize the implied obligations of the Federal government for these wonderful programs (remember that in 1992 the government wrote into law that the obligations of Fannie and Freddie are NOT to be construed as federal obligations, so I am less optimistic than many others that the government will reduce payouts to seniors in the future, I tend to believe we are going to pay through the nose):
- Actual (reported) debt = $14.3 trillion
- Fannie and Freddie obligations = $1.9 trillion
- Social Security obligations = $5.3 trillion
- Medicare obligations (optimistic case) = $38 trillion
Total US Debt Obligations = $59.5 trillion. That is over 400% of US GDP. Has there ever been a country that did not default on its debt obligations when it is borrowing this much more than its output levels? And remember, not all of that GDP is available to pay obligations – the government is limited by how much it can extract in taxes before inciting a revolution – my guess is half this amount can ultimately be stolen from taxpayers. So, if you were to calculate a financial obligations ratio (much like mortgage companies do) it appears that we are borrowing over 8 times our disposable income. Would you ever be able to get a mortgage on those terms?
But I think I forgot a few things:
- Doesn’t the government still own AIG, and hence its obligations?
- Doesn’t the government still own a few car companies, and hence their obligations?
- Isn’t the Politburo planning on doing something about climate change?
- Isn’t the Politburo planning on doing something to increase health care obligations?
- Isn’t the Politburo now considering a second stimulus bill in the name of job creation?
Forget the darn Constitution, why would I even try to argue than any of this was constitutional? The courts and the congress have brushed that aside for 200 years. All I can do is paraphrase a famous legislator, who spoke this in a different context. “Have you no decency?”
Is there EVER a point when the looters say that enough is enough? Is there ever a point when taxpayers understand that splitting the check ends up bankrupting everyone at the dinner table? Can’t I just sign a piece of paper now ending my obligations? Seriously – I’d buy a bond right now ending my obligations to these looters forever. But I will never have that option granted to me – even here in the land of the free. What is worse? Having your home broken into this year, with certainty, and the thief taking most of your valuables? Or knowing that your home will be broken into repeatedly every year until you die – and each time not knowing exactly when he will strike, or how much he will take?
Remember, it took hundreds of years of discipline by individuals to make us as rich as we are — and a mere 3 generations to destroy it all.