Tuesday, December 19, 2006

The US Is Broke, Ruined, Bankrupt

In DC, Friday is "take out the trash day," when bad stories get dumped all at once so that only the few people who read the Saturday paper will see them. So it makes sense that a report that says the US is broke would be quietly released on a Friday during the holiday season.

From Financial Sense University:

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 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?

Read the rest.

Hmmm. . . . seems like maybe that "financial recovery" the Bush people are so thrilled about is just more smoke and mirrors. I don't know about you, but if my expenditures were four times my GDP, I'd be living in a van down by the river.


Unknown said...

Wait a second, Chicken Little. America isn't bankrupt nor insolvent, and will never be. All we have to do is crank up the presses and print up more currency. And to keep inflation from ruining our economy, all we have to do is get Saudi Arabia and China to buy more of our bonds.

Of course if Saudi Arabia and China were ever to decide to sell our bonds, or let them mature and stop buying more, then we are up a creek without a paddle.

The base problem is How do we get the American voter to not be seduced by promises of lower taxes? and the lure of ever increasing government benefits?

In other words, as you suggest, How do we get the American voter to recognize that the US gov't's budget works very much like a family's budget where expenditures cannot forever outpace income?

william harryman said...

I think this thing is huge problem. We will never have any leverage with the Saudis or with China while they are financing our economy. As long as the Saudi royal family is in place, rich Saudis will continue to sponsor and support terrorists -- remember that most of the guys from 9/11 were Saudis. And as long as China owns so much of our debt, they have no incentive to listen to us about human rights or about the artificial deflation of the yuan. They own us in more ways than one.

At least under Clinton we were paying down the debt and maintaining a surplus. Ah, the good old days.


Gary Stamper said...

The only thing that might be keeping China from calling our obscene debt is that we're still their number one market. Of course, if we stop being that, the game's well on its way to being over....and without a middle class, well....