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– Towards Liberty –
A COMMENTARY ON CURRENT EVENTS
– by Jarret Wollstein –
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The US Government Is Bankrupt
– 07-27-06 –
For years, I have argued that because of huge, unfunded liabilities, the U.S. government is already technically bankrupt. Now no less
an official authority than a Federal Reserve researcher publicly agrees!
Prof. Laurence Kotlikoff of Boston University – a researcher for the Federal Reserve Bank of St. Louis – has just published
a paper in which he warns that:
"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 of various kinds."
What Dr. Kotlikoff is referring to are mandated payments to retirees, including Social Security, Medicare, military and government
pensions:
"There are 77 million baby boomers now ranging from age 41 to age 59. All are hoping to collect tens of thousands of dollars in pension and healthcare benefits from the
next generation. These claimants aren't going away."
UNCLE SAM OWES $65.9 TRILLION!
Kotlikoff estimates that Uncle Sam's long-term "fiscal gap" – the difference between all future government spending and all
future receipts – is a staggering $65.9 trillion. That's over eight times the official, $8 trillion national debt.
$65.9 trillion is over five times the entire Gross Domestic Product of the United States and twice all wealth in America.
So even if we sold every home, car, company, factory, office building, mine, and bank account in the country to China and Europe, or
whoever, we would still only have half the money we need to pay promised retirement benefits.
As Dr. Kotlikoff says, the U.S. government is already bankrupt.
WHAT INSOLVENCY MEANS
TO YOUR RETIREMENT
So what will happen to all of the promised government benefits for retirees 10 or 15 years from now?
There are only two realistic alternatives:
- Drastically cutting benefits.
- Huge increases in tax rates.
Dr. Kotlikoff says current tax rates would have to double.
And that doesn't even factor in the increased cost of future welfare payments, infrastructure repairs, and other crucial government
expenditures.
No wonder footnotes in recent federal budgets have projected lifetime tax rates of future generations at 80%or more of every penny they
earn.
However, even such astronomical tax rates would probably be insufficient, since they would so undermine the incentive to work and
produce that they would result in falling, rather than rising, government revenues.
That leaves only one realistic alternative: Drastically slashing retiree benefits, one way or another.
What you can expect is steadily increasing qualifying retirement ages, severe rationing of Medicare, means-testing retirees for Social
Security, and government payments that do not keep pace with inflation. So while retirees 20 years hence may still collect Social Security, they'll be lucky if it buys
a week's worth of groceries. And if you are over 65 and want Medicare to pay for an "urgent" operation, you may be put on a three-year waiting list.
HOW TO PROTECT YOURSELF
If you are over 70, you will probably be OK. The worst effects of the $65.9 trillion "fiscal gap" won't be felt for a decade or so.
However, if you are over 50, you definitely should consider buying supplemental Medicare insurance and making sure you have plenty of
savings to pay for your own operations, in another country if necessary.
However, if you are under 40, you are in a much worse situation. On the one hand, you can expect your Social Security and Medicare
taxes to steadily increase. On the other hand, by the time you retire, your benefits may be nearly worthless. To protect yourself . . .
- Minimize your social security taxes by developing sources of income not subject to SSN deductions, such as investment income.
- Save lots of money to pay for your own healthcare and living expenses when you retire.
- Keep a significant amount of hard assets offshore (gold, foreign stocks, etc.), so the government can't grab them in an emergency.
To view back issues of Jarret Wollstein's Towards Liberty, Click here.
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