Economist Says National Debt Really $211 Trillion

[Sirius]

Economist Says National Debt Really $211 Trillion

Written by Jack Kenny

If a $14.3 trillion national debt sounds like a staggering sum, economist Lawrence Kotlikoff's estimate of the nation's real long-term indebtedness might bowl you over. Kotlikoff, who was a senior economist on President Reagan's Council of Economic Advisers, calculates the debt at $211 trillion.

"We have all these unofficial debts that are massive compared to the official debt," Kotlikoff, a professor at Boston University, said on the weekend edition of National Public Radio's All Things Considered. "If you add up all the promises that have been made for spending obligations, including defense expenditures," Kotlikoff said, "and you subtract all the taxes that we expect to collect, the difference is $211 trillion. That's the fiscal gap. That's our true indebtedness."

The main drivers of the real national debt are Social Security and Medicare, funded by the Federal Insurance Contributions ACT (FICA) payments that both employee and employer pay with every paycheck. As the average life span has increased and the elderly portion of the population has grown since the program was adopted in the 1930s, the "contributions" have fallen increasingly short of the "transfer payments" to recipients. Social Security alone will run into the trillions annually in another 10 to 15 years, when an average of $40,000 a year will be due to 78 million baby boomers, Kotlikoff said. "Multiply 78 million by $40,000 — you're talking about more than $3 trillion a year just to give to a portion of the population. That's an enormous bill that's overhanging our heads, and Congress isn't focused on it."

The "official" national debt of $14.3 trillion amounts to $47,667 for every man, woman and child in America, based on the current population of 300 million. If Kotlikoff's $211 trillion is accurate, the per capita long-term debt obligation comes to more than $700,000.

"We've consistently done too little too late, looked too short-term, said the future would take care of itself, we'll deal with that tomorrow," Kotlikoff told NPR's David Greene. He added, "Well, guess what? You can't keep putting off these problems."

Kotlikoff offered a similar analysis a year ago, when he pegged the real debt at that time at $200 trillion. In a column for Bloomberg, he conceded that the economy will likely be larger in 20 years, but not nearly large enough to meet the nation's Social Security and Medicare obligations without either crippling taxes or devastating budget cuts — or both.

"This is what happens when you run a massive Ponzi scheme for six decades straight, taking ever larger resources from the young and giving them to the old while promising the young their eventual turn at passing the generational buck," he wrote. It will likely end "in a very nasty manner," he said.

The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills.

Most likely we will see a combination of all three responses with dramatic increases in poverty, tax, interest rates and consumer prices. This is an awful, downhill road to follow, but it's the one we are on. And bond traders will kick us miles down our road once they wake up and realize the U.S. is in worse fiscal shape than Greece.

But the situation is not hopeless for the United States, he wrote. "What it can and must do is radically simplify its tax, health-care, retirement and financial systems, each of which is a complete mess. But this is the good news. It means they can each be redesigned to achieve their legitimate purposes at much lower cost and, in the process, revitalize the economy."

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[Jim1cor13]

Hi Sirius

Thank you for this information, sad as it is. The figures given by

Kotlikoff are what I also had found a few months ago, or at least

close to those. the figures I came up with in my daily market research

was between 150 - 200 T$, which for all intents and purposes is

beyond imagination, and certainly are not just going to "go away".

Realizing they also just lifted the debt ceiling again, it is growing literally

by the day. We are in trouble, that is evident. Too many years of the worst

monetary policy of any country, we are in fact in much worse condition

than any eurozone countries at present, whether it is Greece, Portugal,

etc. it should be a wake up call to anyone paying attention.

My advice to people is to take steps to protect asset values, etc., now rather

than later. Near zero interest rates now scheduled to remain until mid 2013

is a horrible answer to a dying economy and a dying currency. Also, it is no secret

that wall street WANTS even more easing and near free money, it will not surprise me

to expect an announcement soon that the feds will once again step in to prop up a dying

system, i.e., MORE 'easing' and further debasing of the USD$. Truly, there is no other way

to prop up markets and the only manner to do so is continued easing and weaker USD$

to maintain the overvalued stock markets, otherwise markets will simply tank. The signs of

overwhelming stress is already apparent within certain markets, my hope is that the feds

actually do NOT step in, but likely they will, in my opinion within 2 months time.

I stated a few months ago in my opinion, that another round of QE will come at end of

summer likely. This will drive the US rating further down, and also create less and less

willing buyers of US debt instruments, which many countries have already turned away from.

That is the reason for QE2, was to buy up our OWN debt...which is truly insane and cannot work.

China is scheduled to unload near 2 T$ worth of short term treasuries and they are due March

2012. Some say no big deal, China will just roll over to longer term...I say this is a serious error

in judgement, because China has made it clear they are reducing their holdings of foreign debt,

from 3.04 T$ down to 1.3T$. Most of this is US debt and this will have severe consequence and likely

the feds will have to enter another round of buying US debt soon. So for anyone to assume China

who is our largest creditor, will just roll these instruments over, is contrary to what China has already

stated. The hurdles appear to be growing and we face some very critical decisions over time.

It is truly the slow decay of a once great nation, due to irresponsible fiscal and monetary policy that

is far past the point of no return. There is no escaping this conclusion. We all need to pay attention

to what is happening, and plan accordingly for our families and to help others where we can. It is

a time we all need much guidance and to be aware of all that is happening for sure.

Thank you again for the post...the sheer amounts are staggering to say the least, but I have been

aware that it was so far more than the "official" figures. Hard to wrap ones brain around this kind of

out of control spending. I say allow the 'too big to fail' institutions to fail, stop bailing them out, transfer

the assets from failing institutions to those who can better manage them, instead of bailing them out

and allowing the same criminal elements to keep repeating the same fraud within the system, which

also includes continued mortgage fraud that should have been stopped 3 years ago, yet it continues

unabated, until someone steps up and says simply "NO more". Unfortunately, it is far too likely this will

not happen any time soon, and even if it does...we have a long road ahead of us as a nation, but together

I do believe we can rebuild if we are willing to stop the insanity and the destructive policies that have brought

us to this condition. We also must stop expecting government to handle every matter, as it is evident they only

know how to spend more, and talk of cuts is just that, empty talk.

Have a nice weekend

All my best!

Jim

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[Dalite]

AIG liabilities alone are projected to top 65 trillion; if not more.

Moody's was silent on the downgrade issue.

They were the ones who gave the sub primes triple A ratings.

Unfortunately, this iceberg is just breaking the surface, and has a long way to rise from the waters of insolvency before the entire results are known.