Wednesday, August 11, 2010

Bankrupt Nation

U.S. Is Bankrupt and We Don't Even Know: Laurence Kotlikoff

How can the fiscal gap be so enormous?

Simple. We have 78 million baby boomers who, when fully retired, will collect benefits from Social Security, Medicare, and Medicaid that, on average, exceed per-capita GDP. The annual costs of these entitlements will total about $4 trillion in today’s dollars. Yes, our economy will be bigger in 20 years, but not big enough to handle this size load year after year.

This is what happens when you run a massive Ponzi scheme for six decades straight, taking ever larger resources from the young and giving them to the old while promising the young their eventual turn at passing the generational buck.

Herb Stein, chairman of the Council of Economic Advisers under U.S. President Richard Nixon, coined an oft-repeated phrase: “Something that can’t go on, will stop.” True enough. Uncle Sam’s Ponzi scheme will stop. But it will stop too late.

And it will stop in a very nasty manner. The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills.

Worse Than Greece

Most likely we will see a combination of all three responses with dramatic increases in poverty, tax, interest rates and consumer prices. This is an awful, downhill road to follow, but it’s the one we are on. And bond traders will kick us miles down our road once they wake up and realize the U.S. is in worse fiscal shape than Greece.

and this

Not In 25 Years, Social Security Is Bankrupt Now

For the first time in its history the Social Security program will pay out more money than it takes in. This watershed event will occur this year, to the tune of $41 Billion dollars. Under any rational accounting standards this makes the Social Security program bankrupt. And that's right now, not in 25 years when the so-called Trust Fund becomes insolvent.

You see, most pension programs hold income producing assets in their Trust Funds. Stocks, bonds, real estate, oil and gas partnerships, that sort of thing. A fully funded pension program owns enough of those assets to pay its liabilities even if the company closes its doors and not a penny more of new money comes in from current employees.

Social Security plays by a different set of rules enshrined under the New Deal and Great Society programs. These are the same rules that landed Bernie Madoff in jail. Although the Social Security system has been regularly taking in billions for decades and socking it into its Trust Fund just like a normal pension plan, Congress has just as regularly been draining the money out for current spending. All of the money collected from every American's paycheck throughout all of our careers is now gone. In its place are not stocks, bonds, real estate, and oil and gas partnership. In its place are IOUs from Harry Reid, Nancy Pelosi, Charlie Rangel, and Barney Frank. $2.5 Trillion dollars worth of IOUs.

Speaking of Bankrupt, lets look at the Chicago Way (thanks to Gordon Gekko):

Illinois owes nearly 2,000 organizations $100,000 or more.

I think I read somewhere that Illinois is paying bills at around 255 days. They don't have the money so they keep pushing paying bills on time. At some point the whole system is going to bust.

Illinois’ total bill backlog was $4.2 billion as of Friday. The state also must repay $2.25 billion, plus interest, in short-term loans it took out in May and August, Knowles said.

The loans are due starting in March and must be fully repaid by early June, putting the state’s total backlog at more than $6 billion.

“We (the comptroller’s office) have tried to work closely with those who are owed money across the state to address payment emergencies, but when a bill backlog exists that is as large as the state of Illinois’, it makes it very difficult to address even emergency situations,” Knowles said.

“We would love to pay every bill as soon as it arrives at the office, but unfortunately the revenues do not exist to be able to do that. We are doing our best to pay bills with the limited resources we have.”

The collapse is going to be spectacular.

The American way of life is about to change. Sphere: Related Content

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