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No. of Recommendations: 12
The United States is Insolvent
By Dr. Chris Martenson
Dec 26, 2006, 18:56

http://www.axisoflogic.com/artman/publish/article_23613.shtml

Prepare to be shocked.
The US is insolvent. There is simply no way for our national bills to be paid under current levels of taxation and promised benefits. Our combined federal deficits now total more than 400% of GDP.

That is the conclusion of a recent Treasury/OMB report entitled Financial Report of the United States Government that was quietly slipped out on a Friday (12/15/06), deep in the holiday season, with little fanfare. Sometimes I wonder why the Treasury Department doesn't just pay somebody to come in at 4:30 am Christmas morning to release the report. Additionally, I've yet to read a single account of this report in any of the major news media outlets but that is another matter.

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No. of Recommendations: 1
this shouldn't surprise any of us?
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The US is insolvent. There is simply no way for our national bills to be paid under current levels of taxation and promised benefits. Our combined federal deficits now total more than 400% of GDP.

I won't argue that there isn't a problem. I will argue, however, that this is a poor way to express it. The $54T or so that is cited is an infinite-horizon net present value; the current GDP is this year's national income; to some extent, this is an apples-to-oranges comparison. What's the NPV of the infinite-horizon national income, using the same economic assumptions? I believe it's something north of $500T, which gives us a much better idea of what kind of change would be necessary to "fix" the problem.

The nature of some of the forecasts is also subject to debate. At what rate will medical expenditures, which make up the lion's share of the problem, inflate? I can guarantee that it will not continue, relative to the general rate of inflation, at the rates of the past couple of decades -- simply because if it does so, it grows to become more than 100% of GDP within about 25 years. Other developed countries manage to deliver quite good health care for about 60% of what the US spends per-capita, and with a lower inflation rate. What happens if that is used as the assumption instead?
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No. of Recommendations: 7
I'm currently in a school were supposedly THE budgetary guru for the US government spoke. This person is not a political appointee and they painted a very grim picture. The person mentioned that everyone knows a financial meltdown is coming but no one of either party is willing to do anything about it. Hands down beyond all other items the big budget crashers are Social Security and Medicare/aid which will end up soaking up like 80+ percent of all government expenditures. Surprisingly however, this person mentioned they were far more concerned about the medical side of the problem than social security. The person noted that social security is technically an actuarial issue and can easily be solved (again solved technically not politically). Medical costs are simply spiraling out of control. No one the speaker knew had any real good plans for fixing the looming medical financial crisis.

The person noted that eventually the problem will be fixed or the US defaults/loses its place in the financial world...however their frustration was in the fact that every year's delay makes the solution that more painful. On a positive side the person noted that it really is not that difficult to solve and the problem could be solved with some political will. However, the solution involves one of three options that involve cutting the cores of both parties.

1) Raise taxes...hits the Republicans
2) Lower benefits...hits the Democrats
3) Combo of the above.

What the person felt personally most badly about was how much our children are getting screwed. Federal education spending is way down and the person, given the above, didn't see it getting any better and projected it would probably go down further.

But the speaker's bottom line: The current law on the above entitlements can in no way be sustained over time.

Happy New Year... Kev
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? I can guarantee that it will not continue, relative to the general rate of inflation, at the rates of the past couple of decades -- simply because if it does so, it grows to become more than 100% of GDP within about 25 years
>>
Yes, exactly. An unsustainable trend, by definition, will stop.

That's why this report likely generated little fanfare. It's stupid.

David
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1) Raise taxes...hits the Republicans
2) Lower benefits...hits the Democrats
3) Combo of the above.


4) design a health care system that brings US per capita spending in line with "first world" norms

5) increase the tax base by retaining good paying jobs in the US

6) increase the tax base by opening the doors to people wishing to move to the US.

Steve

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There is simply no way for our national bills to be paid under current levels of taxation and promised benefits.

Sounds like it is time to cut benefits and other spending.

Keith
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4) design a health care system that brings US per capita spending in line with "first world" norms>>
>>
With this again? So the US is the only innovator nation in new health care, so we can bring our innovation in line with "first-world" norms, i.e., zero.

>>5) increase the tax base by retaining good paying jobs in the US.
>>
We're doing that, by offshoring all the lower-paying jobs. I think you mean retaining a sufficient number of middle-class factory jobs. That won't happen, for reasons we have gone over, primarily due to global labor arbitrage. The best we can do is to constantly provide new training and skill sets to all workers through decent educations and community college systems.

>>6) increase the tax base by opening the doors to people wishing to move to the US.
>>
If you mean "skilled workers" emigrating to the US, yes. If you mean throwing open the doors to unskilled labor, this wil not "increase the tax base," rather it would continue to overly burden local tax bases and contribute little to the overall economy.

You can't have free immigration and a welfare state, in the words of the late, great Friedman.

David
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There are a couple of remarkable things about this report.

First, despite it's being the official financial statement of the U.S. Government, it's unusually frank. The numbers, blunt and incomprehensible as they might seem, don't lie. When otherwise intelligent people take me to task for being a "doom and gloomer", I point them to this document.

And the second - and truly remarkable - thing is that there is little or no notice of the report in the mainstream media.

For those who insist on being sanguine about the financial prospects of this country, I'll pose the question - if this were an investment opportunity, would you buy shares after reading that financial report?
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...Yes, exactly. An unsustainable trend, by definition, will stop.
That's why this report likely generated little fanfare. It's stupid....


Anyone have a timeline on when the spending will stop?

President Signs Medicare Legislation
http://www.whitehouse.gov/news/releases/2003/12/images/20031208-2_hr-1-120803-pm-515h.html

One of those guys since indicted, another one or two voted out, so that's a start I guess. Estimated cost on that reform rose 200 billion or 40% in less than a year, so there's some "inflation". :)

Why do folks think the spending will stop as long as someone is there to run the printing presses?

Less reform in 2007. Maybe reverse reform Part D out of existence. And people are surprised the financial press "missed" something? Alrighty then! Yes, something is stupid in Denmark. (Pictured above). 8 trillion dollar reform when the thing was sinking already and they all knew it. And knew the 395 billion was a joke. God help us if the libruuuuuuls ever take charge.:) Well, like these financial writer clowns:

Goldie Lives!
Good plan, President Bush.
posted by Money Politic$ at 10:53 AM 8 comments
http://www.kudlowsmoneypolitics.blogspot.com/
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