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Is the United States bankrupt? will gold be $900/troy ounce by 2007?
michael
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Is the United States bankrupt?
Even more dangerous than the trade gap, however, is what economist Laurence J. Kotlikoff has recently labeled as the U.S. "fiscal gap," or the growing inability of the U.S. government to meet its current and future financial obligations. The fiscal gap includes not only our gargantuan national debt, which is currently $8.3 trillion, but also the future burdens of Social Security and Medicare to which the government is financially (and legally) obligated.
Kotlikoff is no slouch: he's Professor of Economics at Boston University and a research associate at the National Bureau of Economic Research. In the July/August 2006 issue of the Federal Reserve Bank of St. Louis Review, he poses the question, "Is the United States Bankrupt?" His answer is a frightening yes: "the U.S. 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."
It's remarkable that this extraordinary piece of research has gotten so little press because its conclusions are earth-shaking. Following the same methodology used by the Department of the Treasury in 2002 to perform its own internal analysis commissioned by then Treasure Secretary Paul O'Neill, Kotlikoff identifies the U.S. "fiscal gap" as the difference between "all future government expenditures, including servicing official debt, and all future receipts."
According to Kotlikoff's study, our current fiscal gap measures an absolutely staggering $65.9 trillion! This dizzying figure is more than five times the U.S. GDP, almost twice the size of the national wealth, and, significantly, around eight times the "official" national debt of $8.3 trillion!
(Interestingly, Kotlikoff says Secretary O'Neill's own Treasury study outlining this fiscal gap was prepared for inclusion in the president's 2003 budget, but was immediately censored when O'Neill was fired in December 2002.)
The costs are monstrous and growing rapidly as our population ages. The Centers for Medicare and Medicaid Services spent $515 billion in 2005—21% of the federal budget and about $21 billion more than all defense spending. Federal spending on the elderly is plausibly projected to double from 2000 to 2030 as a share of national income. About three quarters of that increase will be health spending—mostly Medicare, but also Medicaid (70% of Medicaid spending goes to the old and disabled). The rise in health spending exceeds all of today's discretionary domestic spending on schools, the FBI, the environment and much more.
One way to get your mind around the staggering implications of our fiscal gap is to ask what changes will need to be made to offset it. Kotlikoff's answers are truly terrifying: the immediate and permanent doubling of personal and corporate income tax; an immediate and permanent two-thirds cut in Social Security and Medicare benefits; or the immediate and permanent (and impossible) cutting of all federal discretionary spending by 143%. Yikes!
Given the reluctance of our politicians to raise taxes or cut benefits, the most likely scenario, he concludes, is that the government will simply start printing more money. However, this "solution" will merely amplify the problem and lead to spiraling expectations of higher inflation, "with the process eventuating in hyper-inflation." Fiscal policies like ours, he says, have created hyper-inflation in twenty nations over the past century.
Kotlikoff does offer some other possibilities, such as direct investment from China, to help to offset our fiscal gap. China saves more than one-third of its national income annually (the U.S. saves around 2%) and is running a global account surplus. But it's far more likely that substantial inflation is on the horizon. Indeed, our fiscal gap almost guarantees it because inflation will be necessary to erode the real value of our government debt. Here is yet more evidence to support the current mega-cycle in commodities, for when inflation rises, commodities gain. And during periods of hyper-inflation, gold reclaims its title as the undisputed heavyweight champion of the financial world.
So what does it all mean? Looking at the bigger picture, not much has really changed since last fall when gold began its run to a generation high of $720. The U.S. economy is weak, and the national debt continues to grow unabated. The U.S. trade deficit is once again setting records, and our truly alarming fiscal gap gets larger by the month. Oil prices, while off from recent highs, still threatens to rise to astronomical levels. The dollar is precarious, and with interest rates peaking, it will lose one of its main props. And we remain mired in an extremely costly war in an extremely volatile region of the world, which could quickly degenerate into chaos and cause an event-driven run on both oil and gold. All of these circumstances combine to favor a much higher gold price.
We are now in period of consolidation, which is to be expected after the huge, tectonic shifts that occurred in the metals markets, the dollar, and the oil price over the past the past few years. However, after the dust settles, and sooner rather than later, the larger trends of the declining dollar, rising commodities, and a rising gold price will reassert themselves once again. We believe that gold will test $700 again by year end and perhaps test its previous all-time high of $850 within the next twelve to eighteen months. And much greater gains in the gold price are probable.
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Knowledge is the enemy of fear
Did the Tories weigh their gold differently than we do now?
Check out my current listings: https://ebay.com/sch/khunt/m.html?_ipg=200&_sop=12&_rdc=1
Every boomer knows already that you better plan to take of your retirement yourself, because the government won't be able to help.
<< <i>This is ridiculous. The idea that the government is going to maintain existing levels of SS and Medicare spending is crazy. Those are not "legal obligations" as the author states, because the government can just change the laws.
Every boomer knows already that you better plan to take of your retirement yourself, because the government won't be able to help. >>
Every boomer also knows that there are virtually no politicians that have the kahonies to cut SS and medicare benefits. The politicians know that they will be run out of office on a rail by the current and incoming crop of beneficiaries. They will continue to steal our childrens, childrens fiscal future by increasing our debt to fund the current level of benefits AND index them for inflation. This WILL lead to a revolution in the future.
<< <i>This is ridiculous. The idea that the government is going to maintain existing levels of SS and Medicare spending is crazy. Those are not "legal obligations" as the author states, because the government can just change the laws. >>
SS and Medicare won't change because AARP is too powerful. Politicians don't vote for what's right or best. They vote for what will get them reelected.
<< <i>Every boomer knows already that you better plan to take of your retirement yourself, because the government won't be able to help. >>
Smart boomers, yes. Unfotunately, the dumb boomers far outnumber the smart ones.
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YOU ARE TALKING ABOUT REALLY BIG SITUATION HERE.
<< <i>Interesting post - but one question:
Did the Tories weigh their gold differently than we do now? >>
I think 900$ an ounce would be QUITE a bit of money, and I think that the global economic situation would have to change rather dramatically.
But my grasp of the subject is minimal.
-Amanda
I'm a YN working on a type set!
My Buffalo Nickel Website Home of the Quirky Buffaloes Collection!
Proud member of the CUFYNA
So it is just a matter of when now.
So they balance the budget by cancelling Social Security.
An authorized PCGS dealer, and a contributor to the Red Book.
There's plenty of money for Social Security for the next 40 years.
10% of the budget, is for paying Interest on the Debt.
Does 10% of your income go to paying interest on your credit cards??
Not broke yet, but keep spending the way they are speding and we will be.
San Diego, CA
Since everyone and their dog who tries gets on Social Security Disability, there must not be a problem.
<< <i>Since everyone and their dog who tries gets on Social Security Disability, there must not be a problem. >>
My dog's not on it but he can walk, I cant
But we are successful in convincing ourselves how "free" we are while accelerating our march along with marx's ten point manifesto Where we've been heading
Pretty sad state of affairs from any lover of liberties perspective.
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
But, overall, we should be living w/in our means and not borrowing so much. I'd hate to have to give the Chinese Alaska.
<< <i>If you look at it from the perspective of total assets, the balance sheet isn't bad.
But, overall, we should be living w/in our means and not borrowing so much. I'd hate to have to give the Chinese Alaska.
Heck, give em New Jersey too
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
Apropos of the coin posse/aka caca: "The longer he spoke of his honor, the tighter I held to my purse."
Most will buy gold.
2. NO
roadrunner
Perhaps the better question is; Is the United States in default? Technically, yes.
The definition shown below by Wipedia:
<<<<<<
Although the terms bankrupt and insolvent are often used in reference to governments or government obligations, a government cannot be insolvent in the normal sense of the word. Generally, a government's debt is not secured by the assets of the government, but by its ability to levy taxes. By the standard definition, all governments would be in a state of insolvency unless they had assets equal to the debt they owed. If, for any reason, a government cannot meet its interest obligation, it is technically not insolvent but is "in default". As governments are sovereign entities, persons who hold debt of the government cannot seize the assets of the government to re-pay the debt. However, in most cases, debt in default is refinanced by further borrowing or monetized by issuing more currency.>>>>>>>>>>
That's what many governments have done in the past.
tiiiiiiimeeeeeee is on my sidddeeeeeeeeee yes it is!
we are in a dip right now.
<< <i>Jonathan Swift's Modest Proposal comes to mind. He said "Eat the children." Maybe our soution is to "Eat the Old People."
Well, if the US govt is not going to pay my social security benefits when I am ready to retire-then I want to stop paying into it now and want all my previous payments back with interest.
>>
I want mine back too.
Can I get some stock in the "Soilent Green Co."
(Priest) BLASPHEMY he said it again, did you hear him?
we have big generational shifts going on here.
The Centers for Medicare and Medicaid Services spent $515 billion in 2005—21% of the federal budget
wait until that doubles and see what tax bracket you are in. any dollars that are saved should not be in accounts that are taxed later(read 401K). pay the tax now and be glad you did it when most of us may have children and a mortgage deductions.
the liabilities to the american taxpayer in social security are not required. they can change the payout anytime. we must pay in, but there is no requirement for them to pay us later.
i am libertarian for a reason; less government, less benefits, and less tax. i also purchase gold and silver as someone mentioned earlier, as a floating rate currency. get it while it is cheap before your dollars become cheap. the presses are running.
If he were a dealer, would he give me 143% off the price of some coin?
Proud recipient of two "You Suck" awards
<< <i>
<< <i>This is ridiculous. The idea that the government is going to maintain existing levels of SS and Medicare spending is crazy. Those are not "legal obligations" as the author states, because the government can just change the laws. >>
SS and Medicare won't change because AARP is too powerful. Politicians don't vote for what's right or best. They vote for what will get them reelected.
LOL!
If voting could actually do something meaningful it would be declared illegal. But for now it's like the idiot button at intersections.
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
save a couple of trillion bucks a year and pay off debts.....
It's all about today. As long as the masses have gas and food they refuse to see the freight train coming. Don't worry, the government will take care of you. They will fix it, they won't let anything bad happen. The Romans called it "Bread and Circus."
<< <i>There's plenty of money for Social Security for the next 40 years.
10% of the budget, is for paying Interest on the Debt.
Does 10% of your income go to paying interest on your credit cards??
Not broke yet, but keep spending the way they are speding and we will be.
>>
Could you please tell me where this SS money is that will last the next 40 years??? Or is it your belief that we can simply tax the hell out of the workers for at least another 40 years and they will continue to pay.
10% of the budget is paying interest as long as the foreigners accept worthless paper with below inflation interest. What happens when they get tired of all the unbacked paper we keep printing and actually want soemthing for it. What do we produce that we can exchange?? You think 10% is acceptable?? At a 5% interest rate that means that we are in debt two years income!!!(and growing) Anyone in debt that far is BANKRUPT!!
<< <i>National Debt Clock >>
I've had that on the homepage of my website for 3 years . Pretty incredible
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
is george bush responsible for that too?
but not for it going down.
A coin so I can say I didn't post completely non-coin related.
Edited for the spelling thing again..like usual.
1969s WCLR-001 counterclash