Why the US is the most insolvent developed nation in the world

[Chef Ramsay]

Esteemed economist Larry Kotlikoff warned the Senate Budget Committee last month that Greece is more solvent than the United States.

Kotlikoff identified the “fiscal gap” as the most important and telling measurement for gauging the health of an economy. The fiscal gap is “the difference between our government’s projected financial obligations and the present value of all projected future tax and other receipts.” The projected financial obligations are also known as “unfunded liabilities” such as future Social Security payouts. At $210 trillion, the U.S.’s fiscal gap is higher than many of the world’s economic basket cases.


Kotlikoff furthered: “The first point I want to get across is that our nation is broke. Our nation’s broke, and it’s not broke in 75 years or 50 years or 25 years or 10 years. It’s broke today. Indeed, it may well be in worse fiscal shape than any developed country, including Greece…”
Broke? Well, how did the U.S. essentially bankrupt itself? In short, politics and normalcy bias.


Explains economist Gary North (covering Kotlikoff’s address):
“I suspect, most Congressmen really don’t understand it (the fiscal gap). They have been able to kick the can, decade after decade, and they assume that they will be able to do this in the future. Nothing bad has happened so far, so they assume that nothing bad will ever happen… Congress doesn’t care. The President doesn’t care. The AARP doesn’t care. The voters don’t care. Investors in Treasury bonds don’t care. It is all distant. Anything that is beyond two years out is not considered an important factor. The attention span of the public is short. The attention span of the media is short. Anything longer than the next Congressional election is considered long-term. Politicians don’t care about the long-term. They care about getting reelected. A budgetary strategy of hiking taxes and reducing benefits is a sure-fire way not to get re-elected.”

Thinking the implications through, the point must be made that the reason the U.S.’s essential bankruptcy is not yet as visible as Detroit’s – or Greece’s — is because the Federal Reserve “prints” dollars out of thin air, which allows the federal government to keep borrowing and spending. This cannot go on in perpetuity.


The rest of the world has been waking up to this fact. China has been making a push to replace the dollar as the world’s reserve currency for some time. And even “allies” like the UK are beginning to comprehend which way the wind is blowing. According to Financial Times, the UK has decided to become the first G7 nation to join China’s new Asian Infrastructure Investment Bank. This has riled the U.S.: “The Obama administration accused the UK of a ‘constant accommodation’ of China after Britain decided to join a new China-led financial institution that could rival the World Bank.”

http://www.voicesofliberty.com/article/the-fiscal-gap-why-were-the-most-insolvent-of-developed-nations/

[picolo]

Esteemed economist Larry Kotlikoff warned the Senate Budget Committee last month that Greece is more solvent than the United States.

Kotlikoff identified the “fiscal gap” as the most important and telling measurement for gauging the health of an economy. The fiscal gap is “the difference between our government’s projected financial obligations and the present value of all projected future tax and other receipts.” The projected financial obligations are also known as “unfunded liabilities” such as future Social Security payouts. At $210 trillion, the U.S.’s fiscal gap is higher than many of the world’s economic basket cases.


Kotlikoff furthered: “The first point I want to get across is that our nation is broke. Our nation’s broke, and it’s not broke in 75 years or 50 years or 25 years or 10 years. It’s broke today. Indeed, it may well be in worse fiscal shape than any developed country, including Greece…”
Broke? Well, how did the U.S. essentially bankrupt itself? In short, politics and normalcy bias.


Explains economist Gary North (covering Kotlikoff’s address):
“I suspect, most Congressmen really don’t understand it (the fiscal gap). They have been able to kick the can, decade after decade, and they assume that they will be able to do this in the future. Nothing bad has happened so far, so they assume that nothing bad will ever happen… Congress doesn’t care. The President doesn’t care. The AARP doesn’t care. The voters don’t care. Investors in Treasury bonds don’t care. It is all distant. Anything that is beyond two years out is not considered an important factor. The attention span of the public is short. The attention span of the media is short. Anything longer than the next Congressional election is considered long-term. Politicians don’t care about the long-term. They care about getting reelected. A budgetary strategy of hiking taxes and reducing benefits is a sure-fire way not to get re-elected.”

Thinking the implications through, the point must be made that the reason the U.S.’s essential bankruptcy is not yet as visible as Detroit’s – or Greece’s — is because the Federal Reserve “prints” dollars out of thin air, which allows the federal government to keep borrowing and spending. This cannot go on in perpetuity.


The rest of the world has been waking up to this fact. China has been making a push to replace the dollar as the world’s reserve currency for some time. And even “allies” like the UK are beginning to comprehend which way the wind is blowing. According to Financial Times, the UK has decided to become the first G7 nation to join China’s new Asian Infrastructure Investment Bank. This has riled the U.S.: “The Obama administration accused the UK of a ‘constant accommodation’ of China after Britain decided to join a new China-led financial institution that could rival the World Bank.”

http://www.voicesofliberty.com/article/the-fiscal-gap-why-were-the-most-insolvent-of-developed-nations/

The US has Hollywood, great businesses, huge accumulated wealth is the first Economy (on paper), has the biggest armee and the reserve currency so the US governement can lie and mismanage the Economy longer.

[Beliathon]

Solvency matters less than you might think when you command the only super military on the planet.

[pattu1]

The world trembles at the thought of what a Greek default could do to the world economy. So a default by the US cannot be imagined.

As long as the dollar remains the reserve currency of the world, the US has nothing to fear. They can print dollars to repay their loans. The process of a new currency becoming the world's  reserve currency will be slow and gradual. Hopefully, politicians in the US will have enough time to correct their mistakes.

[Beliathon]

The world trembles at the thought of what a Greek default could do to the world economy. So a default by the US cannot be imagined.

As long as the dollar remains the reserve currency of the world, the US has nothing to fear. They can print dollars to repay their loans. The process of a new currency becoming the world's  reserve currency will be slow and gradual. Hopefully, politicians in the US will have enough time to correct their mistakes.

They can't print dollars to repay loans, because if they started doing that all foreign holders of us debt would demand repayment within a few months of each other. Domino effect leading to hyperinflation and collapse. That's why the system runs on never ending debt. The debt isn't ever meant to be repayed. It can't be. The financial actors at the highest level all know this. It's only the plebes being duped.

It's a big house of cards, and if anyone knocks it over,  everybody loses. Except those wise enough to have divested wealth to bitcoin.

[pattu1]

They can't print dollars to repay loans, because if they started doing that all foreign holders of us debt would demand repayment within a few months of each other.

Debt holders won't be able to do this, because the date has a stated maturity period. The debt holders can, however, dump these bonds in secondary markets increasing the government's future borrowing costs.

The average debt maturity of the government has shown an increasing trend recently.

[jaysabi]

They can't print dollars to repay loans, because if they started doing that all foreign holders of us debt would demand repayment within a few months of each other.

Debt holders won't be able to do this, because the date has a stated maturity period. The debt holders can, however, dump these bonds in secondary markets increasing the government's future borrowing costs.

Excellent point, but isn't this kind of a distinction without a difference? Once the pool of buyers of debt is turned off (which would happen once confidence in the US's ability to pay back notes is shattered), you can't raise any more money for the debt you need to sell to roll over the debt that is expiring daily or weekly. The default still happens immediately though. Even though notes have an average maturity date that is rising, new debt is still being issued as it expires daily.

[Chef Ramsay]

Boston University economist: "Our Country is Broke"
...
"Were we to go back in time and re-label all past Social Security taxes as borrowing, official federal debt held by the public would not be $13 trillion, but $38 trillion, which is 211 percent of U.S. GDP."

In reality we're facing a fiscal gap of $210 trillion, Kotlikoff proclaimed. That's 16 times larger than official U.S. debt, "which indicates precisely how useless official debt is for understanding our nation’s true fiscal position," he noted, and almost 12 times the current GDP of $18 trillion.

Looking at the global horizon, from 2007 through the second quarter of 2014, debt grew by $57 trillion, raising the global debt-to-GDP ratio by 17 percentage points to 286 percent, according to the McKinsey Global Institute.

The endgame of this global cesspool won't be pretty, says Jeremy Warner, assistant editor of The Daily Telegraph. "The world is sinking under a sea of debt, private as well as public, and it is increasingly hard to see how this might end, except in some form of mass default," he wrote.

And it won't just be sovereign nations, but the corporate sector as well, Warner says.

"You might have thought that a financial crisis as serious as that of the past seven years would have ended the world economy's addiction to debt once and for all. It has not. If anything, the position has grown even worse since the collapse of Lehman Brothers [in 2008]."

http://www.newsmax.com/Finance/StreetTalk/Kotlikoff-GDP-debt-deficit/2015/03/10/id/629314/