> $116 trillion ="official" debt plus money it is short to pay future benefits for social security, medicare, etc. [1] Even its "official debt" of $14.2 trillion today is $123,754 per household! Spread the word & complain about "credit card politicians" putting us in debt!
"The U.S. is bankrupt and We Don't Even Know it" wrote a Boston University professor of Economics in Bloomberg. The IOU figure I'm using is more conservatively based on US Treasury figures. Using more recent CBO (Congressional Budget Office) data he calculates a $220 trillion fiscal gap. That is $1.9 million per household! He says the IMF (International Monetary Fund, part of the UN) "effectively pronounced the U.S. bankrupt". Its fortunate the US hasn't yet needed to borrow cash to pay its IOUs to future social security and medicare recipients since a 2009 estimate put total value of the world's financial assets at only $178 trillion, and the world's supply of credit at $102.3 trillion in 2008. Countries are often in denial about their financial woes and out of control government spending until a major crisis arises. Do we really wish to follow their examples?
The US government in the 2010 fiscal year spent $30,096 per household.
It borrowed $14,385 of that on your behalf. [2]
State&Local governments spent $25,125 per household.[3]
State+Local+Federal= $55,221 per household!
Thats more than the $52,029 median household income!
Obviously taxes paid by the wealthy shield the true cost of government from most people. However even the rich can't handle the IOUs its built up.
Should we copy Greece? It had to be bailed out by Europe and the IMF as it approached bankruptcy early last year. An Oct. 1st article noted periodic protests "have effectively shut down the country" due to controversy over sudden major reforms needed. It details the discovery that its real debt including unfunded pensions was: "more than a quarter-million dollars for every working Greek" Our real debt works out to be 3 times that, $752 thousand per working American. Greece's real debt is only $316 thousand per household. [4] We are richer, but our national income (GDP) is only 50% higher per person than Greece
Greece let its government spending get so out of control that the "average government job pays almost three times the average private-sector job". We aren't quite that bad yet. When the cost of gold plated benefits packages are added the average US federal government job pays twice as much as the average private sector job. [5] This article notes that "half of federal hires in the past several months have been at starting salaries over $100,000".
France waited too long to deal with the future of its retirement programs and had to make changes faster than an unprepared public was ready for and chaos resulted. From Oct. 29th: "French strikes have been a weekly ritual since the beginning of the summer. Finally, the country's crippling protests are expected to die down now that Paris has passed its pension reforms" and Oct 25th:"Strikes are costing the France 200 - 400 million euros per day ($560 million) according to Finance Minister Christine Lagarde.", Oct. 21st:"Violent clashes continued around the country on Wednesday [...] and gas stations across the country were still starved of fuel despite police operations at three fuel depots that ended blockades. [...] in Lyon protesters looted stores and fought with police, sometimes setting fire to cars", Oct 21st: "Anywhere from 1.1million and 3.5m took to the streets [...] In Lyon 1,300 casseurs, half of them under 18, rioted in the historic centre, torching and overturning vehicles, looting shops and smashing up bus shelters. A courthouse in Nanterre, west of Paris, was vandalised. In Le Mans, a junior high school was burned to a cinder."
There are already warning signs that our debt level will soon cause problems. The UK newspaper The Telegraph reported that our credit rating has already been lowered by one of the largest purchasers of US bonds: "One of China’s leading credit rating agencies has downgraded United States of America government debt" and quoted an investment strategist saying "It is interesting to see what people with money outside the American sphere of influence think. Until recently, the US had been regarded as beyond reproach but now independent analysts say the position is deteriorating and likely to deteriorate further."
Back on Dec. 10th 2009 the San Francisco Examiner reported that "It took the current administration less than a year to provoke a rating agency to warn that unless our government mends its profligate ways, it will lose the triple-A credit rating it has had since U.S. government debt was first assessed in 1917."The New York Times reported last year that "The gold-plated credit rating of the United States — an article of faith across America and, indeed, around the world — may be at risk in coming years as the nation copes with its growing debts." The Financial Times reported that all 3 major US credit rating agencies issued comments critical of the situation and threatening to potentially lower the US rating in the future if it didn't clean up its act.
Unfortunately people make the assumption that the because western agencies haven't yet lowered the US credit rating from US that its level of debt is ok The Telegraph reported on credit rating agencies: "Greece is only the latest example of how badly they trail events. Only now has Standard & Poor’s recognised the near certainty of some form of default by assigning junk status to Greek government debt. In every significant financial crisis I can recall, they’ve been left looking like clowns, with ratings that are wholly inappropriate to underlying realities". Similarly an article on the European crisis notes that "The agencies have been accused of giving overly generous ratings due to conflicts of interest. Ratings agencies also have a tendency to act conservatively, and to take some time to adjust when a firm or country is in trouble. In the case of Greece, the market responded to the crisis before the downgrades, with Greek bonds trading at junk levels several weeks before the ratings agencies began to describe them as such." These are the same agencies that for years missed the problem with bonds based on subprime mortgages. In Iceland authorities "blame the agencies for assigning rock-solid ratings to the country's institutions only changing their opinion "a few weeks" before the crisis hit."
Continuing warnings ignored by congress say that "Moody’s, Fitch, and S&P have raised concerns about the ability of the US government to raise money at the current low interest rates that the Treasury enjoys.". This will raise the cost of interest payments on the debt in the future even above one estimate that says "By 2020 the federal government will spend a projected $900 billion each year just to pay interest on our debt. That’s more than what the U.S. spends right now on two wars, plus the Departments of Defense, Education, Energy, and Homeland Security combined."
Credit rating agencies have an understandable history of reporting problems with government debt too late. The Telegraph reported that "The European Commission has angrily threatened to regulate credit rating agencies after Standard & Poor's stoked up Europe's debt crisis by downgrading Greek bonds to junk status." and the US has recently been tinkering with financial industry regulations. Any rational company would be cautious before angering its regulator. The willingness for them to even threaten the possibility of lowering the US credit rating should be taken seriously . The Chinese rating agency had no fear of US regulators so they felt free to lower the US rating already.
Western rating companies fear regulators since the only reason these agencies with such a bad track record still exist is that they are an oligopoly created by government regulations which require entities such as banks to use them. CNN reported "Ratings are now very much embedded into regulations". The Wall Street Journal noted also "The Bank for International Settlements also uses ratings to drive capital requirements, so the rating agencies have the same role in global capital markets that they have in the U.S.". This report gives a history of how these rating agencies became protected by the government.
The appropriate choice of how to fix things is beyond the scope of this site which merely points out the problems. I'll just point to a couple of articles that say there is hope. The article "Spending Restraint Works: Examples from Around the World" writes "we can save ourselves".
This article illustrates the point that "Government really can be cut: case studies from Canada, New Zealand, and the United States". It notes that even in the US "Government spending plummeted by nearly two-thirds between 1945 and 1947".
My main concern is the level of IOUs the federal government has. However when you are considering the appropriate amount to spend for government (and its debts) when considering solutions, its also important to be aware that we pay more for government than simply what it directly spends. It costs individuals and companies money to comply with all the overheard of paperwork, permits, and other red tape required by government bureaucrats. For example it was estimated that the 2010 cost for businesses and the public just to prepare and plan for federal income taxes will be $368.4 billion due to its unnecessary complexity.
The government's Small Business Administration (SBA) estimates that the cost for businesses to comply with federal regulations is $15,586 per household. An estimate by the California state government put the cost of state regulations at $13,801 per household (and it claimed this cost 3.8 million jobs). I haven't found data for other states to compare to see if that figure is high. However there is also no data for the cost of local regulations so it seems safe to guess that nationally the average cost of state and local regulations combined is at least that much.
That puts the total amount spent due to governments in the US each year at over $84,608 per household! Is all of that money spent wisely or might it be possible to do things more efficiently if we stop giving government a blank check?
See the tab 'Credit Card Politicians and "So Big It Fails"' for thoughts on why we are in this mess.
Footnotes
- 1. The US census gives the number of households in 2010 as 114,825,421 from data retreived the day of posting.
The US Treasury department gave the present value of unfunded liabilities for social security, medicare, etc. as being $107 trillion in its Financial Report of the United States Government - 2009" in table 6 in the bottom right corner (the table is hidden way down in the document in the supplemental information. Its not something they wish to call attention to. An image of it is in the tab "$14 to $116 trillion. $444 trillion future?"). The total publicly held debt is $9.6 trillion as of Marth 21, 2011. That makes the total of IOUs actually $116.6 trillion and I truncated that, it actually rounds to $117 trillion. - For why I don't refer to the 2010 Financial Report, see the tab "Auditors catch them hiding the problem"
The $116 trillion is detailed further in the tab "$14 to $116 trillion. $444 trillion future?"
This article from 3/23/2011 appears to include the intragovernmental part of the debt to arrive at a "real national debt of $119.5 trillion". ↩
- 2. The government fiscal (accounting) year runs from October 1st to September 30th.
The US Treasury says it spent ~$3.5 trillion for the year ending September 30th, 2010.
The US Treasury gives the official debt for Sept. 30th, 2009 as $11,909,829,003,511.75 and Sept. 30th,2010 as $13,561,623,030,891.79
So it borrowed $1,651,794,027,380.04 = ~ $1.65 trillion in 2010. ↩
- 3. As of data estimated 3/21/2011 at US Government Spending state&local governments spent $2.885 trillion in fiscal 2010. ↩
- 4. Greece has 3.8 million households. and 4.98 million workers.
The US has 154.2 million workers. ↩
- 5. USA Today reported on 8/31/2010 that "federal employees' average compensation has grown to more than double what private sector workers earn" and that "Federal civil servants earned average pay and benefits of $123,049 in 2009 while private workers made $61,051 in total compensation, according to the Bureau of Economic Analysis" and "federal compensation has grown 36.9% since 2000 after adjusting for inflation, compared with 8.8% for private workers."
For more info on government compensation see see this: "Tax Payers vs. Bureaucrats, the Video Version". ↩
