Boston University's Kotlikoff Explains Why The US Is Bankrupt

Tyler Durden's picture

Earlier, we posted a link to Boston University's Lawrence Kotlikoff who penned an OpEd for Bloomberg titled simply enough "U.S. Is Bankrupt and We Don't Even Know." In it Kotlikoff took a direct stab at Krugman and all the other hard core Keynesian paradise or bust demagogues: "Some
doctrinaire Keynesian economists would say any stimulus over the next
few years won’t affect our ability to deal with deficits in the long
run. This is wrong as a simple matter of arithmetic. The fiscal gap is
the government’s credit-card bill and each year’s 14 percent of GDP is
the interest on that bill. If it doesn’t pay this year’s interest, it
will be added to the balance. Demand-siders say forgoing this year’s 14
percent fiscal tightening, and spending even more, will pay for itself,
in present value, by expanding the economy and tax revenue. My reaction?
Get real, or go hang out with equally deluded supply-siders. Our
country is broke and can no longer afford no- pain, all-gain 'solutions'." To hammer his critical point in that delaying the inevitable crunch will only make things worse in the end, Kotlikoff also appeared on Bloomberg TV with Erik Schatzker. Koltikoff's argument is anchored by the IMF's July report that notes the US needs to grow at 14% in perpetuity to "grow into" its balance sheet. Obviously, we will be lucky to get a tenth of that.

Some of Kotlikoff's other observations on why the yields on the near and mid-part of the UST curve are now into record territory is that "we have systematic failure of disclosure of what is really happening on the fiscal side. Government and international organizations are lying effectively lying to us, there is no question about it. The present value of the difference between spending and revenues from the CBO is $200 trillion." The BU economist suggests to introduce a comprehensive healthcare reform with vouchers subject to budget constraints, a progressive low-rate consumption tax, and social security reform. He ends: "There are things we could do but we are in deep doo doo." Not the most eloquent interview, but he is certainly correct in broad strokes.

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whatsinaname's picture

I sense a few smiles lighting up on ZHer faces today..

Rainman's picture

What he says is not really news to most of us. The fact that Bloomberg posted it is news.....their most popular view of the day.  

sgt_doom's picture

+1000, Rainman, those of us paying attention realize that the US of A technically went bankrupt in 2004, and that Korporate AmeriKa is only capable of offshoring jobs (and bringing in foreign scab workers), peddling securitized debt and doing those godawful leveraged buyouts to further destroy companies and employment.

If they didn't offshore all those jobs to China, how would China ever afford to buy all those Treasuries which Goldman Sachs, JPMorgan Chase & Morgan Stanley speculate on their ELX Futures?

Perseid.Rocks's picture

We can play tricks with the balance sheet for a long, long time, but when outflows exceed income and our debt is so high that we're borrowing to pay debt service, and interest is compounding on itself, then things start to break, promises (social security, medicare, medicaid) get reneged on, and debts are defaulted on. We're just about there right now.

Bennie better consider buying up ALL the treasuries, lest interest rates start ramping upward and we have to sell Old Faithful and Jellystone Park to the Chinese.

Noah Vail's picture


So . . . even the establishment is starting to have bad dreams. Yes, Mom, there REALLY are snakes under my bed.

" . . . we have systematic failure of disclosure of what is really happening on the fiscal side." Uhm, methinks you mean systematic REFUSAL  of disclosure. The miracles of denile, not just a river in Egypt.

hedgeless_horseman's picture

Take a moment to email the following message to your Congressman.  You can find there email here


U.S. Is Bankrupt and We Don’t Even Know It: Laurence Kotlikoff -


"Congress has been very careful over the years to label most of its liabilities “unofficial” to keep them off the books and far in the future."


INSERT CONGRESSMAN'S NAME HERE, this is exactly why the people operating Enron went to prison. Do you believe that Congress is held to a lower standard than corporate management?

Buck Johnson's picture

The elite and the financial leaders of this country have produced a web so intricate and complex, that it has caught even the spider/them.  They never thought that this would happen and know that it is, they are running scared and are wanting to keep everything quiet.  But as one person said, how long can our outflow be larger than your inflow of money.  Eventually it has to end and when it does, the promises as another said get reniged on and taxes go up and jobs get cut (both private and public including the federal govt.). 

Imagine if you will if all those 78 million babyboomers find out that as they are a few years or just got on to SS that it will be cut 50% or eliminated.  They will hit the roof, and go crazy.  What I think is going to happen is that there are two big lumps of money sitting on the market, pension funds and 401k's.  They will either by hook or crook make it mandatory that these have to be invested into US treasuries or US debt of some type.  This way it will mitigate or not make them make that announcement and allow them more time to figure out what to do.  It has already been trial ballooned already on more than one occasions having one the 401k's being invested in the SS fund (which doesn't make sense since we have been paying into it already), and 6 months after that seeing if they would invest in US debt/treasuries.


Fidel Sarcastro's picture

Debt?  We don't have debt!  We're the United States of Arrogance, baby!!  We never have to pay debt back...USA...U S A...(chant with me) U...S...A!


Overpowered By Funk's picture

That's all well and good, but you see the Fed has this thing called a printing press and they will print, print, print and print until it all get's better. A Nobel prize winning economist told that to a Nobel prize winning president. So, it's cool man.

Noah Vail's picture

Hah, if they print, try importing with worthless dollars. We don't make anything any more, not even the clothes on your back or the shoes on your feet, nor the forks we feed our faces with. Wreck the dollar and we starve to death for lack of fuel.

Nonconformist's picture

That is what aircraft carrier battle groups are for.  It isn't that difficult to convince the American public that the oil really should belong to the USA.  Don't expect the US to go under quietly.  The sense of entitlement is way too strong.

BorisTheBlade's picture

Every taxpayer should get a Nobel prize, maybe then the whole thing is gonna work.

Sulla's picture

No comment from Washington, I presume. Maybe Churchill was right - "America always does the right thing - when all other options are exhausted".

ElvisDog's picture

Since when does "eloquence" = "wisdom"? I know that is how we choose our presidents, but I think we need to listen to what people say rather than how smooth and soothingly they say it.

clotario's picture

So true! We should have elected nonsense-spewing Palin and that other guy...what was his name again? At least with her you knew you were being handed a plate of horsesh*t!


Please, although O might be a disappointment to all and sundry, remember the choice we were left with back in '08.

Malaespina's picture

He is not bear enough, Boston U is bankrupt too!

Jason T's picture

"they are lieing." so blunt as if it's all so obvious.  but yet it is so obvious...the lies.

Turd Ferguson's picture

This is from JSM this morning. I feel this is 100% spot on.


Hi Jim,

Given today’s Federal Reserve balance sheet policy, could this be The Playbook?

1. The Federal Reserve feels constrained in their ability to purchase treasuries if they have to wait for mortgage backed securities to mature. They decide to sell this junk paper to free space on their balance sheet.
2. The Federal Reserve offers to sell the junk mortgage paper back to the Big Banks whom they purchased it from in the great bailout of 2008-09. 
3. The Big Banks only offer to pay market rates for the worthless paper, quite a discount to what is on the Fed’s books and what they were paid a short while ago (good news, an audit of the Fed on this is not likely). 
4. The Federal Reserve clears substantial worthless dollars from their balance sheet which allows for quite substantial purchases of treasuries. 
5. The Big Banks, realizing the last "dip at the bonus well" may have passed, devise a revitalized pretend and extend and mark up the recently purchased worthless paper back to a "reasonable mark to model level." 
6. The Big banks report record paper profits and more importantly, record bonuses. 
7. Main Street remains asleep as this policy is reported as non inflationary. 
8. Quantitative Easing accelerates toward infinity.

I doubt this playbook would make much of a stir with Main Street. Who cares, right? "They" are just trying to help us, right?

Perhaps a cheeseburger for $300 is the only thing that will get through to anyone. At that point, it’s too late.


Dear CIGA Glen,

You have put it all together. If this was not the playbook, it sure as hell is now.


traderjoe's picture

Why does the private Central Bank need to clear up room on their balance sheet? They have a government granted monopoly on money/credit creation. They can simply create the create the credit/money for free - without any constraints (and probably even with some market encouragement) and then earn [free] interest on their entire balance sheet. BTW, banks receive 6% dividends on their ownership stakes of the FR. 

MarketFox's picture

The gentleman is telling it like it is....

He mentioned to eliminate the income tax....and replace it with a consumption tax...

And he has it right about this.....

Just think about it...


Businesses wanting to domicile in the US....

Job creation via entrepreneurs....

Just to start....


This gentleman has it together....

lynnybee's picture

..... the government is bankrupt, my kids are bankrupt, i'm bankrupt, my ex is REALLY bankrupt... so what else is new ! ?   What I want to know is who allowed this much money to be lent out in the first place !   When I was young (1960's) NO ONE in their right mind would allow me to borrow money !   We're all bankrupt, right .......... or, was it that the big banks were so greedy for a steady stream of interest payments TO THEM FROM ALL OF US !   Our young people are not experienced in finances & THEY KNEW IT & TARGETED OUR PRECIOUS YOUNG PEOPLE TO GO INTO DEBT FOR ANYTHING / EVERYTHING !    fuckers.

divide_by_zero's picture


The NEA has targeted them from the first day in public school. Under-educated for the most part, and in place of education subjected to "progressive" indoctrination to do what the man says, practice *correct* group-think, & shout down opposition.

VWbug's picture

if that's true then I would say parents have done a horrible even irresponsible job raising their children.

whose fault is it that no one is able to think for themselves?



traderjoe's picture

It's so OBVIOUS that our country, the EU, Eastern Europe, Iceland, and the UK are fiscally bankrupt. I can't speak for the other countries, but the US is morally BK as well. There is no desire for change. There is no constituency for austerity. Everyone is sucking on the Gov teat. This will all end with so much disappointment, despair, and mistrust when the sheeple finally wake up and realize that there is nothing, and nothing more will be coming to them. I am both frustrated and worried. 

lynnybee's picture

good.  I applaud you for being a truth-teller.   keep on talking true.   I told my adult children that long after I'm dead they will still be talking about this time in history.   My children grew up in a bubble, I've been trying to educate them that they will know both lives, the life they had as children in a bubble & their adult lives of chaos, revolution, deflation, hyperinflation & finally a return to some kind of sound money...... we are going back to colonial days if we are lucky.    if we are not lucky, we are going back to the 1400's of serfdom & subsistance living.   God help us all, but, I'm finally ready to face this great unknown & try to live through the hardship.     I cannot remember who said this, it was a few years ago that I read it (I think it was DAVID TICE, but don't quote me)  :   In 10 years from now people will be saying, "WHAT THE HELL WERE THESE PEOPLE THINKING !"

Babalooee's picture

is that stand alone frustrated and worried, or taken from a long list? If stand alone, you got it made kiddo.

Assetman's picture

I can't believe you forgot Japan! :)

aerojet's picture

Wait a minute, let's not throw morality into the mix, okay?  Europeans are the ashsoles who invented the idea of voting themselves largesse from other people's pockets.  And let's not forget all the whorehouses over there (not that I care, but we are talking morality here).



VWbug's picture

whorehouses??  where??

um  my 'friend' wants to know...

schadenfreude's picture

But having worlds biggest porn/sex industry is morally ok?

Hunch Trader's picture

It would've been so much easier to let the tech bubble deflate in peace...US would probably be over it by now. But Greenspam couldn't let that happen and now here we are, 10 years later, with 10 times the problems...

Who is going to be courageful enough to let deflation happen and let bad debts and leverage be purged out of the system? If it's not done now, the US economy will turn into a surefire future crash, utter and total.



traderjoe's picture

Yup, the first recession would have been the easiest. So many lost opportunities. But, this has been the plan all along...

VWbug's picture

I think that's a key point that doesn't often get discussed.

Krugman and his ilk all say we couldn't possibly let anyone default as that would actually cause pain.

I mean, can you imagine? Some people might actually have to pay for mistakes instead of being rewarded for them?

So now (or down the road i should say, as we surely have kicked the can a long way down IMO) we will suffer a whole lot worse pain when it all comes tumbling down.

I only wonder if krugman et al realize this and just expect to be dead by then?

Oniram's picture

I loved this article, I agree 1000000%


I am going to go practice with my shotgun after the bell. I am ready for civil unrest, but I do need to work on being more handy, I am a computer nerd, I need to learn a trade. A real trade.

papaswamp's picture

Blacksmithing would be handy. personal favorite....alcohol distillation.

Medical uses, fuel or party drink.

Moneygrove's picture

I want to learn how to brew my own beer , I think sam adams has a brew your own beer kit.  

VWbug's picture

so you are planning to shoot your neighbours?


ColonelCooper's picture

Maybe he would if they kicked in his door at 3:00 A.M. to take his last can of Spaghettio's.  Can't say as I blame him.

You would do differently?

Not saying it will come to that, but there is neither harm nor shame is being able to defend yourself.

VWbug's picture

wow  you must live in some shit hole of a place.

me, I know all my neighbours, and we're good friends. I also have lots of other friends from childhood, and we still get together regularly, 40 years later.

Close family too of course.

And no, I don't live in fear that they will kick my door down at any time of day or night. I'd voluntarily help them you see?

That's what normal people do in times of disaster and distress.

The abnormal ones cower in their shelters waiting to be attacked, hoarding their 'precious' gold, like the greedy SOB's they rant and rave about.

They curse the rich and in the same sentence spout hopium of becoming rich by buying an ounce of 'physiçal' which they are going to defend to the death and then buy apartment complexes with.

I've seen hypocrisy before, but nothing like on this site.


I am an American. I knew a Croatian whose parents were killed in the war in ‘91. Their throats were slit and their house burnt down with their bodies inside. My Croatian friend found out who did it - neighbors who he had played with when they were kids. He tracked them down and riddled them with an AK47. During starvation and civil war people go insane.

VWbug's picture

while you worry about starvation and the coming civil war I plan to do a bit of travelling, Croatia is high on my list funnily enough.

You enjoy your paranoia, I'll enjoy a nice crisp reisling, preferably with a view.

litoralkey's picture

Your reisling will not be made due to Germany's longstanding problem, lack of energy in form of fossil fuel or oil.

Unless you are going to be drinking Aussie reisling, which be nice, but without international trade lines of credit most of Australia's vinyards will be abandoned due to lack of energy supplies and foreign markets.




VWbug's picture

ummm  i will be traveling this year, not 5 decades from now

litoralkey's picture

First off, my father's family had been chased off their land twice in the last 5 generations by neighbors. 

Secondly, in "gateway states" in the United States, in some counties over a third of the population is foreign born, there is no "community".

Third, in California and Florida and other states with intense floreclosure pressures, depressionary levels of employment and household wealth, which includes more than 1 in 4 Americans in total, the entire stock of food for any particular county is less than a 5 day supply.  NYC's supply is under 72 hours. 

Fourth, FEMA and DHS (and state level equivalents) have planning committees to deal with natural disasters like hurricanes (NOLA), or massive flooding(Tennessee), or the big quake (California), and every single one of those plans will not last upon first contact with the enemy.  The enemy being chaos and fear.

Fifth, 20% of American youth suffer from "food insecurity", (granted this study suspect as a form of lobbying using a damn lie of a statistic ), but using that number, within 2 weeks, a good quarter of American children will be starving to death and the kids and their parents are going to do anything necessary to keep the kids fed.



hbjork1's picture

If you are really a computer nerd and actually know the hardware as well as the software, you should be well equipped for survival.  I have at least two old systems that, with temperature measuring ICs that cost less than $1 in modest quantities could be used for household temp control.  There are also a lot of small businesses that could profitably use temp control if some one could set the up with it.  Boards that are now obsolete would have been to die for two decades ago when "modern" heating and cooling systems, still in use, were installed. 

But you would have to know what to do. 


VWbug's picture

can I politely suggest you might want to learn some social skills? You know, make some friends, meet some new people, stop worrying about your neighbours wanting to steal your stuff?