This page has been archived and commenting is disabled.
We Owe How Much??
So, here's a formula: take $55 or so trillion of reported total debt (from the Fed's Z-1 report), and $100 or so trillion of unfunded liabilities, and toss in a modest portion of the derivatives that are effectively debt (any thoughts on that one?), and divide by 300 million Americans - we get more than half a million per capita. Anyone have some other suggestions for the formula to determine what the actual debt is for all, and per capita? ~ Ilene
We Owe How Much??
Courtesy of John Rubino.
One of the problems with the debate over the “national debt” is that there’s no generally agreed upon definition of that term. Is it what the federal government owes, or what it owes foreigners, or what the whole country, private and public sector together, owes? Does it include off-balance-sheet items and contingent liabilities?
There’s a hundred-trillion dollar gap between lowest and highest on this spectrum, which allows each commentator to confuse the rest of us by picking the measure that best suits their point of view. New York Times columnist Paul Krugman, for instance, uses “net debt” — the amount that the US owes foreigners — to argue that since this number is relatively small and slow-growing, we’re actually fine. Analysts using broader definitions of debt come to the opposite, more apocalyptic conclusion. Consider this from today’s Wall Street Journal, on the impact of off-balance-sheet obligations:
Smoke, Mirrors and Public Deficits
.
By RICHARD BARLEY.
Are public debt and deficit numbers illusory? Perhaps, judging by the ruses employed by governments and identified by the International Monetary Fund’s Timothy Irwin in a recent staff note. Deficit crises in developed countries may only increase the allure of such devices, although they may do little to help in the long run..
European countries got creative as they strove to hit targets to join the single currency during the 1990s. In 2005, Organization for Economic Cooperation and Development researchers cataloged 192 cases of one-time measures and accounting maneuvers across Europe—50 in Greece alone—with effects ranging from negligible to 2% of GDP. In 1997, for instance, France took on the pension liabilities of France Télécom in exchange for a payment of €5.7 billion ($7.6 billion), or 0.5% of GDP.
.
But Europe wasn’t alone in playing games. In 2003, the U.S. proposed buying 100 refueling planes via operating leases, which would have kept the cost from being recognized upfront. The Congressional Budget Office said that was federal borrowing in disguise and would prove more expensive than a normal purchase.
The euro-zone debt crisis has put these techniques front and center. Portugal hit its 2011 target only via a transfer of bank pension assets that shaved 3.5 percentage points off its deficit.
.
Likewise, the U.K. is taking on the Royal Mail’s pension plan to pave the way for privatization. The plan brings with it £28 billion ($44.8 billion) of assets, thereby reducing the country’s 2012-13 deficit. But the U.K. is also taking on long-term liabilities on behalf of the company with a present value of £37.5 billion—which aren’t recognized immediately. So accounting transforms the Royal Mail’s pension deficit into a short-term gain for the U.K. budget but at a long-term cost.
.
.
Keeping long-term liabilities out of the picture is a common tactic: In the U.S., debt was 62% of GDP in 2010, but including civil-service pension and other liabilities raises the total to 113%, Mr. Irwin notes. Public-private plans for infrastructure have also shifted upfront investment costs off-budget but have raised long-term debt risks—often through government guarantees.
.
The crisis has narrowed governments’ options. One way to flatter the statistics is via optimistic growth assumptions, although skeptical markets and the rise of independent fiscal watchdogs such as the U.K. Office for Budget Responsibility make this difficult. Another way is to shift cash flows forward, as Germany, Greece, Portugal and Belgium did in the past via securitizations of future government revenue. This, too, may now prove a tricky sell.
.
Investors trying to keep track of governments should remember Goodhart’s law: As soon as an indicator becomes a target for conducting policy, it loses its informational value. It also becomes a target for manipulation. That is a sobering thought given the euro zone’s obsession with deficit targets. They might just conceal problems building up elsewhere.
Then there are the “unfunded liabilities” of entitlements like Social Security and Medicare, which dwarf the official national debt. From a recent Zero Hedge article:
Massive $17 Trillion Hole Found In Obamacare
Two years ago, when introducing then promptly enacting Obamacare, the president stated that healthcare law reform would not cost a penny over $1 trillion ($900 billion to be precise), and that it would not add ‘one dime’ to the debt. It appears that this estimate may have been slightly optimistic… by a factor of 1700%. Because coincident with the recent Supreme Court debacle, in which a constitutional law president may be about to find that his magnum opus law is, in fact, unconstitutional, someone actually read the whole thing cover to cover, instead of merely relying on the CBO’s, pardon Morgan Stanley and Goldman Sachs’, funding estimates. That someone is Republican Jeff Sessions who after actually running the numbers has uncovered that the true long-term funding gap is a mind-boggling $17 trillion, just a tad more than the original sub $1 trillion forecast..
This latest revelation means that total underfunded US welfare liabilities: Medicare, Medicaid and social security now amount to $99 trillion! Add to this total US debt which in 2 months will be $16 trillion, and one can see why Japan, which is about to breach 1 quadrillion in total debt (yen, but who’s counting), may want to start looking in the rearview mirror for up and comer competitors. And while Obama may have been taking creative license with a number that is greater than total US GDP, he was most certainly correct when saying that Obamacare would not add a penny to US debt. Because the second the US government comes to market to fund a true total debt/GDP ratio of 750%, it is game over, and the Fed will have its hands full selling Treasury puts every waking nanosecond to have any time left for the daily 3pm stock market ramp.
Here’s a chart (compiled by John Williams’ Shadowstats) illustrating the impact of adding unfunded liabilities to the national debt:
There are two reasons that debt and unfunded liabilities are treated as separate things:
1) The practice allows government to hide its true obligations in the same way that Enron did — right up to the day it evaporated. In other words, it’s a legally sanctioned lie.
2) Debt and unfunded liabilities are, at first glance, different in some ways. Debt is a legal obligation that gives the lender recourse, i.e. some way of getting back some of their money. In the private sector a lender who’s not getting paid can seize the borrower’s assets or force the latter into bankruptcy court where a judge decides who gets what. With sovereign debt, the creditor (who lent money by buying bonds) can sell those bonds and use the proceeds to buy up the borrower’s assets.
Unfunded liabilities, in contrast, are simply promises that don’t carry a legal obligation. In theory, Medicare could be cancelled tomorrow by Congress. Just like that, the program and its associated unfunded liabilities would disappear.
So the question becomes, how real — and therefore how dangerous — are US unfunded liabilities? The answer is that because they represent a promise to tens of millions of retired baby boomers who expect to get free money and health care for the last 30 or so years of life, they’re effectively more real an obligation than a Treasury bond.
A politician who messes with the Most Selfish Generation’s free health care will find himself back in the private sector before the polls close in the next election. Compare this with the probable repercussions of stiffing China or Saudi Arabia on bond interest — some contentious headlines and a bit of turmoil in the foreign exchange markets that most voters would hardly notice — and it’s clear that unfunded liabilities have, if anything, a more solid claim on future economic activity in the US than does interest on Treasury bonds.
So our true national debt is government debt plus private sector debt plus off-balance-sheet obligations plus unfunded liabilities, which comes to somewhere around half a million dollars per man, woman and child, or two million per family of four.
We can’t pay this of course, so the story of the next few years will be the search for the least painful way of breaking our promises. And history is pretty clear on this: a country with a printing press will always use it before exploring the harder options of actual default, whether through non-payment of interest or cancellation of benefits.
Visit John's Dollar Collapse blog here >
»
- ilene's blog
- 10739 reads
- Printer-friendly version
- Send to friend
- advertisements -
You all don't understand basic accounting and as such you need to stop with the NPV misnomer you apply to Unfunded Liabilities.
Just as no one lives their lives such that they insist that someone who does not have saved in a bank account earning interest, enough money to pay their entire life expenses from birth, so too does a government or business not save up everything they need to live off of the interest only, before they ever open up shop.
Your premise is foolish, stupid and insane. No one lives like that except the inherited rich that Ilene berates.
You repeatedly claim that UL are NPV when they are just future obligations. None of you have calculated the future projected revenues that will affect tht NPV. In order to do that you must include the taxes taken in revenue during the window, as well as future revenues (but not costs) that are taken in to the future.
IOW the costs are in the present but the revenues overlap and extend into the future beyond wihich the corresponding outlays exist.
In addition, applying NPV to a growing population that has not peaked in size also distorts your point.
Please let someone who understands maths to do this, not you.
“Unfunded liabilities” is also a conceptual tactic used to foster an "Us vs Them" mentality and drive a wedge between generations. Unfortunately too many sheeple buy into that rhetoric and beat their macho breastplates proudly determined to show off their faux bravado not even realizing they're being played.
Divide and conquer. Start with the easy ones. Make them believe they have a stake in fighting the bogey man that is known as "The Boomer Generation". Blind them to the fact that all generations are in this together. This isn't generational warfare, but make them believe that it is, anyway.
Keep them preoccupied with drivel so they won't ask questions, but instead just keep regurgitating triumphant platitudes designed to make them feel powerful while they're being led to the slaughter.
Is that tactic working?
Apparently exactly as planned...
You can fudge the numbers all you want,
but in the end, the obligations were made; on paper; in public, specific commitments to people.
The finance portion is established: It is owed.
The legal portion is NOT established: Am I (a 20,30.40 year old) responsible for the debt
incurred by my (generous and well intentioned) mother & grandmother?
What happens if I (collectively) refuse to pay?
I fail to see how unfunded liabilities are just scare tactics. Perhaps you have overlooked the number of state pensions that have already been slashed or perhaps you haven't factored in how you will pay for that knee replacement when government either says NO or else puts you on a waiting list that will require you to come back from heaven to get it done. Then again you may be a little more informed or hopeful than I am.
disagree Pete. If residential real estate prices start collapsing again the rate of return on Social Security will be astronomical...provided the retirement age isn't raised to 90 of course. Obviously Social Security is still cash flow positive...and with the huge rally in treasuries over the past year it's solvency looks assured for decades. a collapse in a "student loan bubble" only puts an exclamation point on what is a staggering amount of family formation that will never be formed thus leaving "empty nester" housing bargains of lifetime for the forseeable future...PROVIDED you have a job of course. I see actual highways being privatized "en masse" in the near future as the staggering corruption to go with the staggering costs runs its inevitable course. We simply don't need all the highways we have...and they will fail right along with all those banks we didn't need either. and that's just for starters folks! when i say "you want arable land" i'm not kiddin! "enough to land an airship to pick up the food you're growing there to take it to the DOT Foods processing center/refrigerated warehouse." That would be i would gather "somewhere around 100 acres or so." of course if you have "10,000 acres of vineyards in Upstate NY" so much the better.
If residential real estate prices start collapsing again the rate of return on Social Security will be astronomical,,,
You must be brain disabled...
I've got bad news for the statists pushing this story...I don't owe jack shit. And I don't feel the least bit guilty about not owing something I'm not responsible for.
They spend now without even bothering to pass a budget and expect people to say OMG look what "we" owe!!!...lol...let it burn.
You and I both on having no debt - me not even the encumbrance of a house I might notionally 'own', but could not possibly maintain at my age (69 and disabled). Fortunately I rent a one bedroom unit I can afford to pay the rent for, but others are not as fortunate.
But I differ from you in not having an "I'm OK jack, pull up the ladder" attitude where others are concerned and I can't be as confident as you seem to be about when the shit really hits the fan. I don't think anyone will be unaffected, including the "1%"; though I admit to not giving a toss about those who have shafted the "99%" ... especially those who have bought some kind of bolt-hole, maybe underground, from which they imagine they can emerge, into a world that's totally different - possibly with no one left to attend to their excessive wants. Imagine the likes of Jamie Dimon trying to grow food.
Let it burn for sure, but I doubt that you and I will not get at least singed; whilst millions of others might literally burn, if it all ends in WW3.
Good & evil have fought for eternity. It appears you and I have no differences in what we consider good & evil. Its just the mediary thats in question.
And yes, small solace, but it will be fun watching Jamie Dimon going through our garbage piles for the scraps.
I always laugh when I see that 'we'
It's more like 'they'. 'They' fucked up, now 'we' are going to pay? I don't think so!
In fact, they know better too, that's why they are trying to inflate it away.
Either way, it won't work. It will end in a 'us' vs. 'them'.
That is certainly one view, but if you rely on government for penions, health care, and civil society, you are going to get a very rude shock when these services are either reduced or withdrawn. Or perhaps they might be able to provide for these things by taxing you to death.
do not worry...burn it will
we should have a debt jubilee. I'd love to hear Obama give the news on that one...good news, no one owes anything to anybody, bad news, we have no money and can't borrow any either. We need an immediate 45% cut in spending.
Of course that won't happen, It will go down the traditional way. They will try inflation and financial repression, fail, get hyperinflation...the speech will be the same almost.
Down through the ages its been like this...when they were not shaving coins or changing the alloy they were busy printing up paper backed by nothing at all.
The speech (after the threats fail) will be the same old tired "we've got to pull together, just think of your children" claptrap it always is.
A debt jubilee is well overdue, but it does not take care of unfunded liabilities unless we also scrap the present entitlement system and cull the expectations of the people.
"cull the expectations of the people?"
Oh.....is that code, for.....get rid of all the old people soze we aint gotta pay 'em?
By design. Smoke and mirrors.
Hah the joke's on you - I ain't got it!
Actually, the joke is on you because the government will just print more money and then inflation will eat away at your savings. It's hard to allways get what you want.
Ya gotta love the boomer generation. First in to rail against the Man. But, boy ever are they fucking "entitled" to those entitlements!
First, foremost, and sideways, you cannot coerce people. You can't force people to pay for your retirement. Even if you"can," it's not right. You are not entitled to anything. The people who made those promises were liars.
No politician can promise you that *I* will pay you money. It's stealing. I don't care if you payed into the system or not. It was a con then, it's a con now.
Sorry. I didn't do it to you. And I'm not paying for your golden years. It just aint gonna happen.
Gotta love you "Reagan Babies". You didn't swallow that crap about smaller government, did you? You've been had by a pretty good actor.
I'm not sure I follow. I am not Reagan fan, if that's what you mean. I don't care about whatever he had to say.
I am telling you what you already know deep down at heart: nobody is "entitled" to anything. I don't care how much you "paid in to the system." You were defrauded. Me too. I didn't do it to you.
... who starred in a movie with a chimp, and the chimp had the title role ...
U Reds will never forgive Reagan for 86'ing the Red Empire...just keep on cryin', it sounds so good.
I wanted the Soviet Union ended. It happened on Reagan's watch. For the most part, he just happened to be there. He was awake, I think. And then what? A return to a more traditional America? Peace dividend and lower taxes? More focus on our domestic problems?
How are you liking the post-Soviet period? Or do you blame the Boomers or the Reds for that?
We are in the post-Soviet period, right?
Sieze Mars,
So your are the end of the chain letter. We will watch and see if you have the balls to not pay. Otherwise I hope you are the end of the ponzi scheme. I hope your demographic has enough votes or enough guns to overthrow the status quo.
Yes, the end of a chain letter; well said.
As for the status quo, it's broke. I mean it's already bankrupt - forget voting, that isn't going to matter. There's no more Government Cheese.
The boomers have the votes and always will. By the time you guys get any power, you'll be "invested" in the system. And then you'll be singing a very different tune.
By the time you guys get any power, you'll be "invested" in the system. And then you'll be singing a very different tune.
**********
Looks to me like the acorn doesn't fall far from the tree-the whining/bitching young pups seem to be already "invested" in the system-with a lip lock on it-
Remember the youngest boomer is 48-
********
The average student loan debt for those aged 38 to 41 was the biggest of that group — about US$12,000, up from just under US$9,000 in 2009. Young people still carry the biggest student loan burdens;
http://business.financialpost.com/2011/12/28/student-debt-not-just-for-t...
************
Sounds to me like the gen x's will be responsible for a stagnate housing market in the years ahead--
They have to be self serving/still wet behind the ears to go into debt during a coming deflation--
It seems that if the student debt bomb does detonate, don’t be surprised if it takes a good chunk of the housing market down with it.
http://www.bankingmyway.com/credit-center/student-loan/student-loan-debt...
You always seem to show up here on ZH when your SS and Medicare get threatened.
I going to say this again and again, THERE IS NO WAY WE CAN HONOR WHAT YOU THINK YOU'RE GOING TO GET.
Its math. Even if GEN X, Y, Z we wanted to or not, IT IS IMPOSSIBLE.
Now go remodel your bathroom and take $100,000 equity out of your house, because, "Housing prices never fall."
You always seem to show up here on ZH when your SS and Medicare get threatened.
************
Seems to me since i've been a member (a paying member) for twice as long as you-so i would be careful about using the phrase "showing up only when"
I told you before mommy's boy--i don't need ss-
btw--you never explained the makeup of that last chart you popped up "supposedly" showing boomer debt--i suspect you're afraid to go down the rabbit hole of money supply with me-
Not only are your math skills subpar, but your memory is going as well.
I did "explain" the chart, in detail.
But your correct, my generation ran up the debt we were 5 years old.
You should have listened to your mommy and never buy something unless you can afford it.
I did "explain" the chart, in detail.
************
lol
Let me guess, can't read either.
It does not matter how much debt you have. What matters more is, how much money is in the checking account to make the next payment? And so far the ECB and Thebenbernank have made sure there's money in the account.
Is that the new EuroBank checking account that gives you free butyl rubber checks?
"So the question becomes, how real — and therefore how dangerous — are US unfunded liabilities? The answer is that because they represent a promise to tens of millions of retired baby boomers who expect to get free money and health care for the last 30 or so years of life, they’re effectively more real an obligation than a Treasury bond."
Excuse me...I've been forced by the threat of government guns to pay into that system since 1969. My generation didn't create those laws, but we were forced to pay a share of every dollar we earned to support that scheme.
Free money? What are we bankers?
That better be more real an obligation than a Treasury bond.
That better be more real an obligation than a Treasury bond.
Are you crazy?
They're gonna cut social security benefits till your ss check buys a cup of coffee (not Starbucks either).
Or the easier alternative, just debase the dollar till it's worthless. Your ss check won't be cut, but it'll still buy a cup of coffee.
Actually that's what they'll do, keep printing money to fund all these "obligations" as they come due, steadily debasing the dollar down to nothing.
Sure, you'll get back what you're "due", no problem.
But it'll be paid in worthless dollars ...sucker.
The challenge for my generation is that the Baby Boomers for whatever reason were not able live within their means and were unable to make the hard choices. To be honest, I don't think any generation could have done it as the good times were rolling along fueled by massive amounts of debt.
The fact is the coming unwinding, which began in 2008, is going to take a great sacrifice from all of us and I honestly don't see the Boomers stepping up to the plate. I see them sitting back collecting checks and fighting every form of sacrifice - that's what they have done every step and I don't expect them to change. Hell, I don't think I would either - I don't blame them but the fact remains at the end of the day this is going to have to be a shared sacrifice across all socioeconomic classes and generations. We're going to have to put our own lifestyles aside, our own hopes and dreams, for the sake of the coming generations.
At the end of the day it does not matter how we got here but rather what we're going to do now, how we play the cards we've been dealt, and how we're going to put others (our children) ahead of our own selfish lifestyles.
It will not be easy, but my hope is that this coming storm brings out the best in people, it helps people see the value of shared sacrifice for something greater, and we get through to the other side and leave the next generation better off...
It's only a hope because I have a sneaking suspicion that the exact opposite may unfold right in my own backyard - ouch!!
@Abel... "The challenge for my generation is that the Baby Boomers for whatever reason were not able live within their means and were unable to make the hard choices."
Yes, we sure were lucky to be allowed to spend like crazy and at the end of every month simply send our unpaid bills to Uncle Sam.
Sarc off, I don't understand your comment. Use a compounding interest calculator to see what a worker's payroll taxes add up to over 30 years. We're not the enemy.
I agree with everything you said, AbelCatalyst. But, for one little thing. I do not think anyone ought to be putting their hopes and dreams aside for any reason.
Maybe rethinking what those hopes and dreams are based on. Maybe recognizing that we've been spoon-fed desires for useless do-dads and hyped up "needs" by professional marketers using methods hidden under gobbledigook and slick graphics. Perhaps we can do different and get different - but not less - better.
I hope I can never again engage with banksters in my dreams of making a great living providing things people really want and need (even if they don't know it yet). I dream of letting go of the stupid sheeple indoctrination that makes me believe I must do thing that are actually against my interest as a free human being.
I am willing to sacrifice junk for real value. I am happy to help others do things and strive for things that have real pay-offs. My dreams are greater than ever and I hope that everyone reading this site gets very ambitious and very determined to do without corp/gov controllers.
To be true free Americans. That will take hard work. Maybe sacrifice of free time pursuing junk thinking (or no thinking). But not sacrificing dreams or success. No way.
No only can the congress take away Medicare tomorrow, they can also take away Social Security.
Congress also knows they'd be looking for new jobs at the next election. Social security will be an issue like abortion. It will be a political football bandied about for decades. All the while it is bandied you'll have your hopes raised while you continue to pay in. One way or another.
And they'd find those jobs on K-Street in a heartbeat.
How soon before threats to the K-Street puppet masters surface?
+1
"Most Selfish Generation"?
Fuck you.
the most selfish generation
double fuck you too, just because we are the biggest generation and are going to get to eat at least part of your lunch before it all comes down doesn't mean you should call us names. Before this is over it will not matter. A few older boomers willl retire and collect a bit and then we all just face the music together. Remember, Clinton was the first boomer president. Before that the whole guns AND butter was on the 'greatest' generation.
Yeah, and when the government goes bust Mom and Dad are moving in with you.
Seriously dude:
If you think my generation is going to pay for the debts you racked up with your welfare, warfare, and waste, you are out of your fucking mind.
If you think my generation is going to pay for the debts you racked up with your welfare, warfare, and waste, you are out of your fucking mind.
Please do tell us how you're going to not pay it. Refuse to pay taxes? It's that easy? Just say no?
By all means tell us tough guy. We're waiting.