"The scary actual U.S. government debt" - Comments Please

Neil Reynolds
OTTAWA— From Wednesday's Globe and Mail

Boston University economist Laurence Kotlikoff says U.S. government debt is not $13.5-trillion (U.S.), which is 60 per cent of current gross domestic product, as global investors and American taxpayers think, but rather 14-fold higher: $200-trillion – 840 per cent of current GDP. “Let’s get real,” Prof. Kotlikoff says. “The U.S. is bankrupt.”

Writing in the September issue of Finance and Development, a journal of the International Monetary Fund, Prof. Kotlikoff says the IMF itself has quietly confirmed that the U.S. is in terrible fiscal trouble – far worse than the Washington-based lender of last resort has previously acknowledged. “The U.S. fiscal gap is huge,” the IMF asserted in a June report. “Closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 per cent of U.S. GDP.”

This sum is equal to all current U.S. federal taxes combined. The consequences of the IMF’s fiscal fix, a doubling of federal taxes in perpetuity, would be appalling – and possibly worse than appalling.

Prof. Kotlikoff says: “The IMF is saying that, to close this fiscal gap [by taxation], would require an immediate and permanent doubling of our personal income taxes, our corporate taxes and all other federal taxes.

“America’s fiscal gap is enormous – so massive that closing it appears impossible without immediate and radical reforms to its health care, tax and Social Security systems – as well as military and other discretionary spending cuts.”

He cites earlier calculations by the Congressional Budget Office (CBO) that concluded that the United States would need to increase tax revenue by 12 percentage points of GDP to bring revenue into line with spending commitments. But the CBO calculations assumed that the growth of government programs (including Medicare) would be cut by one-third in the short term and by two-thirds in the long term. This assumption, Prof. Kotlikoff notes, is politically implausible – if not politically impossible.

One way or another, the fiscal gap must be closed. If not, the country’s spending will forever exceed its revenue growth, and no one’s real debt can increase faster than his real income forever.

Prof. Kotlikoff uses “fiscal gap,” not the accumulation of deficits, to define public debt. The fiscal gap is the difference between a government’s projected revenue (expressed in today’s dollar value) and its projected spending (also expressed in today’s dollar value). By this measure, the United States is in worse shape than Greece.

Prof. Kotlikoff is a noted economist. He is a research associate at the U.S. National Bureau of Economic Research. He is a former senior economist with then-president Ronald Reagan’s Council of Economic Advisers. He has served as a consultant with governments around the world. He is the author (or co-author) of 14 books: Jimmy Stewart Is Dead (2010), his most recent book, explains his recommendations for reform.

He says the U.S. cannot end its fiscal crisis by increasing taxes. He opposes further stimulus spending because it will simply increase the debt. But he does suggest reforms that would help – most of which would require a significant withering away of the state. He proposes that the government give every person an annual voucher for health care, provided that the total cost not exceed 10 per cent of GDP. (U.S. health care now consumes 16 per cent of GDP.) He suggests the replacement of all current federal taxes with a single consumption tax of 18 per cent. He calls for government-sponsored personal retirement accounts, with the government making contributions only for the poor, the unemployed and people with disabilities.

Without drastic reform, Prof. Kotlikoff says, the only alternative would be a massive printing of money by the U.S. Treasury – and hyperinflation.

As former president Bill Clinton once prematurely said, the era of big government is over. In the coming years, the U.S. will almost certainly be compelled to deconstruct its welfare state.

Prof. Kotlikoff doesn’t trust government accounting, or government regulation. The official vocabulary (deficit, debt, transfer payment, tax, borrowing), he says, is vulnerable to official manipulation and off-the-books deceit. He calls it “Enron accounting.” He also calls it a lie. Here is an economist who speaks plainly, as the legendary straight-shooting film star Jimmy Stewart did for an earlier generation.

But Prof. Kotlikoff’s economic genre isn’t the Western. It’s the horror story – “and scarier,” one reviewer of his book suggests, than Stephen King.

 

India, an economic "star" in the eyes of some people, has national debt 80% of its GDP. This is by my memory, I am unable to get the source.

 

I found this in another forum.

Is a White House coup about to take place?

I recently posted a thread that contained links to an interview with a supposed White House insider who said that Obama was essentially off his rocker. This thread by another source contains a lot of interesting information about what is going on inside the White House. As with the other thread, I have no idea if this information is accurate or not so consider the sources.

http://www.opinion-maker.org/2010/11/white-house-obama-conducting-reign-of-terror/

 

I have looked into this .... his original IMF report is here

http://www.imf.org/external/pubs/ft/fandd/2010/09/pdf/kotlikoff.pdf

He does not mention negative $200 trillion in this report - $200 trillion is a figure he has mentioned on TV and radio and seems to be a calculation of net present value based on the Congessional Budget Office figures (as discussed in the IMF report)

http://en.wikipedia.org/wiki/Net_present_value

http://www.cbo.gov/ftpdocs/115xx/doc11579/06-30-LTBO.pdf

 

My email box is filling up from friends around the world that are reading this and freaking out.

Regardless, this is not a stable environment the US is creating.

 

Stimulus is not debt. Stimulus cannot increase debt. If he thinks stimulus is debt he should be ignored as a moron.

The only debt that matters if the foreign. If this debt is in a reserve currency and you still posses your sovereign right to print money, you basically have no debt in you want to see it that way. Every crank economist should understand that Greece, for example, has abolished its sovereign right to print money, and that can be done only by the ECU. Greece and other countries of the EU in dire straits cannot stimulate their economy because the Germans allow them only to borrow from their surpluses at high intererst rates, close to 10% in some cases. I wonder how can a person who claims to be an economist not understand this difference and compare a 250 Billion economy like Greece with no local currency to a 14 trillion economy like US with reserve currency.

 

Interesting. Dumbocrats pay $7500 a plate to hear Odumba talk for 20 minutes, then run out to "scoop dog turds?":eek:

Yeah, I can see why the dumbs are upset.

 

You realize your email box won't fill up 'cause you're talking sense to the senseless?
Apparently crank economics is very popular. You can see it from this board and the number of "Doomed! We're all doomed!" threads that get opened around here, this being only the latest and perhaps, although it's a tough competition, dumbest in a very long line.
These people read a post from Mises, decide they've learned everything there is to know about economics, and history even, and then start posting crap all over the place.

 

Let's face it. The cranks, marxists, propagandists of all kinds, psychos and special lobbies are using the internet, blogs, forums to try to manipulate public opinion that stimulus is bad and US is getting destroyed. Actually, it is the most sensible and appropriate action at this point. In reality, they do not want the stimulus because they do not want America to recover. They want to continue milking its wealth and lend money to Americans like they were allowed to do in the past. This is coming to an end. Fair trade should involve free floating currencies so there can be equilibrium.

I believe most sane people understand the above and the propagandists, etc., are pounding their stupid heads on the wall.

 

You're right, but I don't know how many people understand the point about free floating currencies. Not very many, from the evidence in this place.