Federal Government's Big Secret

An excellent article from Casey Research's very own Chris Wood below:

The federal government’s big secret isn’t that its spendthrift ways are destroying the country; it’s that it knows its spendthrift ways are destroying the country and it’s doing absolutely nothing to remedy the situation. In fact, all recent government action has exacerbated the decline. And it knows that too.
For instance, “The 2009 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds” (http://www.ssa.gov/OACT/TR/2009/trTOC.html) reports, in black and white, that the Social Security unfunded liability is a whopping $15.1 trillion. Furthermore, the “2009 Annual Report of The Board of Trustees of The Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds” (http://www.cms.hhs.gov/ReportsTrustFunds/downloads/tr2009.pdf) reports that the Medicare unfunded liability is an even more staggering $36.4 trillion.
These “trustees,” mind you, are not some outside government watchdog group either. The Managing Trustee of both boards is none other than Secretary of the Treasury Tim Geithner. And if Geithner’s aware of the situation, you know Obama and Congress are, yet you never hear anything about this reported in the mainstream media. What you get instead is pushed-through health care legislation that will add even more costs to Medicare – and the mainstream media cheers.
Want more? The 254-page “2009 Financial Report of the United States Government,” (http://www.fms.treas.gov/fr/09frusg/09frusg.pdf) which is produced by the Treasury Department, is full of goodies illustrating just how deep in the quagmire we are.
The government’s projection of debt held by the public in relation to GDP is heading towards the stratosphere. And keep in mind that this is not what’s called the “National Debt,” which includes intragovernmental debt but just what can be considered “net debt,” or debt held by the public.
[Note: Debt held by the public is all the federal debt held by individuals, corporations, state or local governments, foreign governments, and other entities outside the U.S. Government. Intra-governmental debt is the Government Account Series securities held by government trust funds, revolving funds and other special funds, which are generally required to invest in U.S. Treasury securities. The federal government competes with private industry for credit, therefore the level of debt held by the public shows how much of the nation’s wealth has been absorbed by federal government expenditures. Interest on the public debt is a direct expense of the taxpayers paid in cash by the Treasury. Intragovernmental debt and its interest, on the other hand, aren’t necessarily paid in cash from the current budget. Instead, it often represents a liability on a future budget until the government agency holding the debt needs to cash it in (i.e. when the baby boomer social security payments come rolling in).]
Research shows that when debt reaches 75% to 100% of a country’s GDP, a default or restructuring may not be far behind. The U.S.’s net debt is already 57.4% of nominal GDP. So, by the government’s own predictions, we could expect a debt default or restructuring around 2020.
The document also reveals that rapidly growing interest costs on the national debt together with spending on major entitlement programs will absorb approximately 100 cents of every dollar of federal revenue by 2020. This is astounding. By the government’s own calculations, interest on the debt and spending on entitlement programs will eat up everything the U.S. Government takes in before a penny is spent on anything else. That’s a recipe for disaster if ever there was one. And this document was written before Obamacare was on the books.
Now, going back to that bit about the government knowing its recent actions are only going to exacerbate the decline, I’d like to point to a recent article from moneynews.com (http://moneynews.com/StreetTalk/Obamacare-Bankrupt-Us-DouglasHoltz-Eakin...) which reports that even the former director of the Congressional Budget Office, Douglas Holtz-Eakin, thinks Obamacare will bankrupt the U.S.
Here’s an excerpt from the article:
While the Congressional Budget Office reported that President Barack Obama’s healthcare bill would lower federal deficits by $138 billion, the budget office “is required to take written legislation at face value and not second-guess the plausibility of what it is handed,” says former CBO director Douglas Holtz-Eakin.
“So fantasy in, fantasy out.”
Strip out all the gimmicks and budgetary games and rework the calculus, a wholly different picture emerges: The healthcare reform legislation would raise, not lower, federal deficits, Holtz-Eakin writes in The New York Times.
“Removing the unrealistic annual Medicare savings ($463 billion) and the stolen annual revenues from Social Security and long-term care insurance ($123 billion), and adding in the annual spending that so far is not accounted for ($114 billion) quickly generates additional deficits of $562 billion in the first 10 years,” Holtz-Eakin points out.
“And the nation would be on the hook for two more entitlement programs rapidly expanding as far as the eye can see.”
With that in mind, it looks like the U.S. could reach the danger zone of debt to GDP well before 2020. Something to think about…