10/08/2017 "You May Be Hopping Mad When You Finish Reading This" (Part 2)
Tyler Durden
http://www.zerohedge.com/news/2017-10-08/210-trillion-problem-you-may-be-hopping-mad-when-you-finish-reading Uncle Sam’s Unfunded Promises
http://www.mauldineconomics.com/frontlinethoughts/uncle-sams-unfunded-promises/Apparently they take that fabricated analysis more seriously than they do the views of 17 Nobel Laureates in economics and over 1200 PhD economists from MIT, Harvard, Stanford, Chicago, Berkeley, Yale, Columbia, Penn, and lesser known universities and colleges around the country.
Each of these economists has endorsed The Inform Act, a bi-partisan bill that requires the CBO, GAO, and OMB to do infinite horizon fiscal gap accounting on a routine and ongoing basis.
Now why would 17 Nobel Laureates and over 1200 US economists, all listed by name at
www.theinformact.org, including many, like Jeff Sachs, who lean to the left, and others, like Glenn Hubbard, who lean to the right, endorse infinite horizon accounting.
The Intergenerational Financial Obligations Reform Act. “This generation of Americans is very likely to be the first generation in our history as a nation to leave a worse economy and a worse fiscal position than the one they inherited. THE INFORM ACT is a step in the right direction toward informing Americans of the magnitude of this problem.” -- James Heckman, Nobel Laureate in Economics
https://www.theinformact.org 17 Nobel Laureates and 1200+ Economists Agree with Ben Carson re U.S. Fiscal Gap Unfunded Liabilities.
https://www.forbes.com/sites/kotlikoff/2015/05/13/17-nobel-laureates-and-1200-economists-agree-with-ben-carson-re-u-s-fiscal-gap/#5a4e40e4d178 Because they understand something that I told Michelle repeatedly and have also told Bruce Barlett repeatedly.
The fiscal gap is the only measure of our fiscal position that is mathematically well-defined.
Every other fiscal measure, including fiscal gaps calculated over any finite horizon, such as the CBO’s 25-year fiscal gap Michelle references, are not mathematically well defined.
The infinite horizon is mathematically well defined because it is the same number no matter what choice of internally consistent fiscal words we use to label government receipts and payments.
Moreover, the infinite horizon fiscal gap is the only measure of our fiscal policy’s sustainability that puts everything on the books. It is also the only measure of our fiscal policy’s sustainability that is invariant to the choice of words.
Congress’s choice of fiscal labels determines what gets put on and what gets kept off the books.
I told Michelle that her grandparents’ Social Security benefits, for which she is now paying taxes, are not on the books because the government chose to call those payments.
e.g. “T***sfers” paid in exchange for “FICA contributions” not “return of principal plus interest” paid in exchange for “purchase of government bonds.”
Every mathematical model of the economy’s dynamic t***sition path incorporates the infinite horizon fiscal gap, which is called the government’s infinite horizon intertemporal budget constraint.
This constraint has to hold, which means the infinite horizon fiscal gap must be zero. Our country’s infinite horizon fiscal gap is far from zero.
It would take an immediate and permanent 59 percent increase in all federal taxes or an immediate and permanent 33 cut in all federal expenditures (including official debt service) to eliminate our fiscal gap.
The longer we wait to fix our fiscal system, the larger the adjustment needs to be.
This means that (the journalist), and others her age, will need to pay even more for all the “assets,” including my own Medicare and Social Security benefits that have been left off the books.
Yes, something will have to give.
The $210 Trillion Gap:
I will admit that I’m not worried about the $210 trillion in unfunded liabilities.
Uncle Sam’s Unfunded Promises
http://thedailycoin.org/2017/10/08/uncle-sams-unfunded-promises/ Long before we ever get to having to fund those liabilities, the country will be in a massive crisis.
Using the CBO’s own numbers, the projected total US debt will be $30 trillion within 10 years, but the CBO also makes the rosy assumptions that there will be no recessions and that GDP will grow at a 4% nominal rate.
Now, that’s possible; but I’m inclined to haircut it a bit.
If you asked me to bet the “over/under” on the debt in 2027, I would bet the over at $35 trillion.
After the next recession the deficit will be $30 trillion within 4–5 years and then grow from there at a rate of anywhere from $1.5 to $2 trillion per year.
Note: That is not the CBO’s projected debt.
It does not count the off-budget deficit that still ends up having to be borrowed. Last year the deficit was well over $1 trillion – but we were told it was in the neighborhood of $600 billion.
If any normal company tried to use accounting like the US Congress does, the SEC would rightly declare it fraudulent and shut it down immediately. . .
Here’s another chart from the Treasury’s annual financial report, projecting government receipts and spending:
Note that this chart expresses the various items as percentages of GDP, not dollars.
So the relatively flat spending categories simply mean they are forecasted to grow in line with the economy, or just a little faster.
But the space representing net interest grows much faster than GDP does – fast enough to make total federal spending add up to one-third of GDP by 2090.
Obviously, this chart is based on all kinds of assumptions, and reality will be far different.
I doubt we will make it to 2090 (or even 2050) without at least one global depression or other calamity that radically resets all the assumptions.
Beneficial changes are also possible – biotech breakthroughs that reduce healthcare expenditures, for instance.
Still, looking at the demographic reality of longer lifespans and lower birthrates, it’s hard to believe Social Security can survive over the long run in anything like its present form.
But any major change will mean that the government is breaking its promise to workers and retirees.
Well, guess what:
They backtracked on that promise decades ago. Few people noticed it at the time, and even fewer remember it now.
Tax, Not a Promise:
There’s a big difference between that federal government financial statement and similar ones from private companies.
“Liabilities” for a business represent contracts it has signed – the long-term lease on a building, for instance.
The company agrees to pay so many dollars a month for the next 20 years. That obligation is enforceable in court. Even if the company enters bankruptcy, the court will award creditors damages from wh**ever assets it can recover.
The federal government doesn’t work that way. It signs contracts all the time – but often with escape clauses that private businesses could never get away with. Social Security is a good example.
Many Americans think of “their” Social Security like a contract, similar to insurance benefits or personal property.
The money that comes out of our paychecks is labeled FICA, which stands for Federal Insurance Contributions Act.
We paid in all those years, so it’s just our own money coming back to us.
That’s a perfectly understandable viewpoint. It’s also wrong.
A 1960 Supreme Court case, Flemming vs. Nestor, ruled that Social Security is not insurance or any other kind of property.
The law obligates you to make FICA “contributions.”
It does not obligate the government to give you anything back.
FICA is simply a tax, like income tax or any other.
The amount you pay in does figure into your benefit amount, but Congress can change that benefit any time it wishes.
Again, to make this clear:
Your Social Security benefits are guaranteed under current law, but Congress reserves the right to change the law.
They can give you more, or less, or nothing at all, and your only recourse is the b****t box.
Medicare didn’t yet exist in 1960, but I think Flemming vs. Nestor would apply to it, too.
None of us have a “right” to healthcare benefits just because we have paid Medicare taxes all our lives. We are at Washington’s mercy.
I’m not suggesting Congress is about to change anything. My point is about promises.
As a moral or political matter, it’s true that Washington promised us all these things. As a legal matter, however, no such promise exists.
You can’t sue the government to get what you’re owed because it doesn’t “owe” you anything.
This distinction doesn’t matter right now, but I bet it will someday.
If we Baby Boomers figure out ways to stay alive longer, and younger generations don’t accelerate the production of new taxpayers, something will have to give.
If you are depending on Social Security to fund your retirement, recognize that your future is an unfunded liability –
A promise that’s not really a promise because it can change at any time.