source

US 'could be going bankrupt'

The United States is heading for bankruptcy, according to an extraordinary paper published by one of the key members of the country's central bank.

A ballooning budget deficit and a pensions and welfare timebomb could send the economic superpower into insolvency, according to research by Professor Laurence Kotlikoff for the Federal Reserve Bank of St Louis, a leading constituent of the US Federal Reserve.

Prof Kotlikoff said that, by some measures, the US is already bankrupt. "To paraphrase the Oxford English Dictionary, is the United States at the end of its resources, exhausted, stripped bare, destitute, bereft, wanting in property, or wrecked in consequence of failure to pay its creditors," he asked.

According to his central analysis, "the US government is, indeed, bankrupt, insofar as it will be unable to pay its creditors, who, in this context, are current and future generations to whom it has explicitly or implicitly promised future net payments of various kinds''.

The budget deficit in the US is not massive. The Bush administration this week cut its forecasts for the fiscal shortfall this year by almost a third, saying it will come in at 2.3pc of gross domestic product. This is smaller than most European countries - including the UK - which have deficits north of 3pc of GDP.

Prof Kotlikoff, who teaches at Boston University, says: "The proper way to consider a country's solvency is to examine the lifetime fiscal burdens facing current and future generations. If these burdens exceed the resources of those generations, get close to doing so, or simply get so high as to preclude their full collection, the country's policy will be unsustainable and can constitute or lead to national bankruptcy.

"Does the United States fit this bill? No one knows for sure, but there are strong reasons to believe the United States may be going broke."

Experts have calculated that the country's long-term "fiscal gap" between all future government spending and all future receipts will widen immensely as the Baby Boomer generation retires, and as the amount the state will have to spend on healthcare and pensions soars. The total fiscal gap could be an almost incomprehensible $65.9 trillion, according to a study by Professors Gokhale and Smetters.

The figure is massive because President George W Bush has made major tax cuts in recent years, and because the bill for Medicare, which provides health insurance for the elderly, and Medicaid, which does likewise for the poor, will increase greatly due to demographics.

Prof Kotlikoff said: "This figure is more than five times US GDP and almost twice the size of national wealth. One way to wrap one's head around $65.9trillion is to ask what fiscal adjustments are needed to eliminate this red hole. The answers are terrifying. One solution is an immediate and permanent doubling of personal and corporate income taxes. Another is an immediate and permanent two-thirds cut in Social Security and Medicare benefits. A third alternative, were it feasible, would be to immediately and permanently cut all federal discretionary spending by 143pc."

The scenario has serious implications for the dollar. If investors lose confidence in the US's future, and suspect the country may at some point allow inflation to erode away its debts, they may reduce their holdings of US Treasury bonds.

Prof Kotlikoff said: "The United States has experienced high rates of inflation in the past and appears to be running the same type of fiscal policies that engendered hyperinflations in 20 countries over the past century."

Paul Ashworth, of Capital Economics, was more sanguine about the coming retirement of the Baby Boomer generation. "For a start, the expected deterioration in the Federal budget owes more to rising per capita spending on health care than to changing demographics," he said.

"This can be contained if the political will is there. Similarly, the expected increase in social security spending can be controlled by reducing the growth rate of benefits. Expecting a fix now is probably asking too much of short-sighted politicians who have no incentives to do so. But a fix, or at least a succession of patches, will come when the problem becomes more pressing."

Ah don' care, cuz W sent me that $300 check 5 years ago!!!!!

Hot dang! Git R Done!!!!!!!!!!!!!!!!!!!!

consider me not worried.

seriously? I think that there's a little hyperbole in the article, but i consider this to be the most important issue in contemporary american politics, period.

Maybe we can start getting some of the trillians of dollars back from the countries we have let borrow money. Or even get some of the billions back that we have given to countries for humanitarian aid or the ones that we have completely rebuilt their countries, governments, and economies like Japan.

we can all move to Iraq once it's all cleaned up and rebuilt.
it's ours nowl, right?

Or give back the trillions of dollars our corporations have taken out of countries through exploitation and strong-arming around the world for the last 120 years. Truly. this balance doesn't look good for us.

This is, as Crack said, the great untold story of our current poltical environment, and ultimately, long range, a much, much bigger problem than Iraq.

Of course I look at this through my acknowledged social-justice lens, but how can it be ok that all the statistics show the exponentially increasing wealth of the super-rich (even last year, the top 1% increased by 28% in ONE YEAR). the relative growing affluence of the the top quintile, and the decreased absolute, adjusted for inflation wealth and services available to the bottom 80 % (that includes what used to be called the middle class too).

Additionally, immigration from Latin America, the only demographic solution of the "northern Europe disease" of pensioners outnumbering workers, is threatened by jingoistic myopia.

The administration's policies, tax and spending, have exacerbated a problem that, of course, existed before 2000. But what's been done the last six years is shameless.... and too many Americans can't summons up the energy to even understand these issues. Did Britney cry on TV.. didn't she look fat? Didn't I download that mp3 you wanted? Do you think I can get ripped abs by September?

Soma... we forage into sleep and darkness... while the planet heats up and the Chinese are about to turn off our oil and credit.

Bin Laden's having the last laugh.

Harry, its pretty much always been thus. The masses are asses is not a new concept.

Also, do y'all think this is unplanned? Like we are a rudderless ship adrift in a sea of debt and stupididity?!

Guys like Grover Norquist and Rove know they can't legislate programs away, but if they grow us into government bankruptcy, they CAN dismantle the New Deal.

Oh, we don't have enough money for pensions? So Solly!! Don't you think we should do away with pension programs as a whole?

Oh, its the poor and the illegal immigrants that are "taxing our healthcare system"? Bye bye Medicaid...

I'm not worried the US will ever go bankrupt. Now the defict is a whole nother potato. It's a problem.

I love you.


Those ORLY owls are honestly one of the best things i have ever seen on the innnernets (exaggerating a bit here). I looked and looked for them but couldn't remember what they were called or anything. Now I've been reunited with the retarded owl joke things. Yay. You rock.


[the following post was made in an extremely hung-over state and therefore does not necessarily represent the views, opinions or grammatical syntax of the poster.]

This: http://hporly.ytmnd.com/ is what I was loooking for.

Academic powerhouse there. They're not even in the top 20 of Boston colleges.

party school it might be, criticize the professor, not the school.

But it's not something we can just flippantly brush aside either. The dumbing down of America is THE most serious problem we have facing us as a Democracy.

Ok. THis ties in. But, this makes your and my argument moot. We have, at the very least, given back what we have "taken". I have too many thoughts in my head and not enough knowledge on the whole picture to really make a good argument about the money issue. BUt, from my study of history we have more than met the financial obligations of retribution for the exploitation. Indirectly, maybe. But, repaid, I think so. Some random guy may have made millions in diamond mines in Africa, but the general humanitarian efforts sent forth from our government have, at the very least, contributed to the retribution. Has it saved the souls of the exploiters? Undoubtedly, no. Has it stopped big whig corporation execs from continually trying to cheat the system and exploit the exploitable? No. But has it been a virtually equal trade. I think I would say it has come pretty damn close.

Again, this is all just thoughts in my head from examining things in a historical context. And, I'll repeat this, I am pretty much the farthest thing from "aware" in terms of all the facts. My knowledge is limited, so take everything I said with that in mind.

probably true to some extent. taxes are going to have to go up on the upper brackets or these programs are gonna get cut way way back.

dunno 'bout the country but i currently have more money than i ever have.

you can thank MTV and BET for that.

I bet in many ways the average person is smarter, better trained, and more informed than ever.

And Dalen, I agree, I make cheddar these days

Exactly. It's not even close.

http://www.orlyowl.com for all your o rly owl needs