Why do we have such massive deficits? Â Because if the government actually tried to collect the amount it needs to cover its current spending levels and unfunded liabilities, it would trigger a revolt – and that’s not a metaphor.
The truth is that our politicians have been very careful in their labeling of government receipts and payments so as to keep most of the coming bills associated with ‘Take As You Go’ off the books. Consider, for example, Uncle Sam’s promises to pay me my Social Security and Medicare benefits starting in roughly 10 years. The present value (the value in the present) of these promises is $400,000. How does this differ from my holding a Treasury bond valued at $400,000?
Fundamentally, it differs not at all, which means that the government has a lot more debt than it’s reporting.
How much more?
I’m not sure you want to know. I recently calculated the fiscal gap using the CBO’s AFS forecast. The fiscal gap measures the present value difference between all projected future federal expenditures (including servicing official debt) and all projected future taxes. The fiscal gap is thus the true measure of our government’s total indebtedness and the true measure of fiscal sustainability.
How big is the fiscal gap?
Brace yourself. It’s $222 trillion large! In comparison, official debt in the public’s hands is only $11 trillion.
Here’s one way to wrap your head around our $222 trillion fiscal hole: closing it via tax hikes would require an immediate and permanent 64 percent increase in all federal taxes. Alternatively, the government could cut all transfer payments, e.g., Social Security benefits, and discretionary federal expenditures, e.g., defense expenditures, by 40 percent. Waiting to raise taxes or cut spending makes these figures worse.
In short, our government is totally broke. And it’s not broke in 30 years or in 20 years or in 10 years. It’s broke today.
How do we know that a dollar bust is upcoming? The interest we pay on our national debt indicates our future. The interest theÂ United States paysÂ on its debt is now above $350 billion per year. Because more than 43 cents of every dollar the United States spends is now borrowed â€” and plans are in place toÂ add about a trillion dollars moreÂ in debt each year â€” theÂ interest payment on U.S. debt is expected to climbÂ to a trillion dollars per year in 2017.
In other words, in four years, the interest on the debt will consume almost half of all revenue that the government collects, and each year after that it will get progressively worse â€” until it consumes all revenues.
As the interest on the debt grows, we wonâ€™t be able to borrow enough to pay our bills, and the government will have to either simply print more money to pay up or default. It will likely at least try printing money, and this is when inflation will zoom atmospherically. Even Ben Bernanke, the head of the Federal Reserve,Â acknowledged this scenarioÂ last year.
The chance that the United States will avoid this path in our near future is infinitesimal, but there is a chance. An unexpected business boom could spare us â€” socialistÂ Norway stays solvent via exploiting oilÂ revenues, and the United States has some of the biggest oil reserves in the world â€” or a massive downsizing of government could spark a boom â€” as happenedÂ during the Harding administrationÂ and at theÂ end of WWIIâ€” but thereâ€™s little chance of either happening.
The government is issuingÂ smothering business regulations and taxes, and the government will likely run higher debts than projected, not lower.
Debts will likely be higher for many reasons: Not only did the administration fight the minuscule sequester cuts tooth and nail,ObamaCare is much more expensive than promisedÂ and will only reduce costs if the death panel lives down to its name, as well asÂ devastating the small businessesÂ that most influence employment. Also, year-in and year-out, Congressional Budget Office figures used to project future tax revenues have predicted a rapidly growing economy andÂ been consistently wrong; the federal floodÂ insurance fund is empty; the Social SecurityÂ Disability fund is almost empty; etc.
The great majority of U.S. spending is claimed to promote â€œfairness,â€ while critics have argued that it is immoral for Baby Boomers â€” the group mainly responsible for electing political spendthrifts â€” to heap devastating debt on their children and grandchildren. Ironically, the imminent demise of the dollar has accelerated to where the dollar will almost certainly crash during most Boomersâ€™ lifetimes, so they will have to suffer along with their offspring.
I guess thatâ€™s fair.