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Thread: The US is Bankrupt ... Lawrence Kotlikoff

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    Default The US is Bankrupt ... Lawrence Kotlikoff

    (snip)"Last month, the International Monetary Fund released its annual review of U.S. economic policy. Its summary contained these bland words about U.S. fiscal policy: “Directors welcomed the authorities’ commitment to fiscal stabilization, but noted that a larger than budgeted adjustment would be required to stabilize debt-to-GDP.”

    But delve deeper, and you will find that the IMF has effectively pronounced the U.S. bankrupt. Section 6 of the July 2010 Selected Issues Paper says: “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It adds that “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”

    The fiscal gap is the value today (the present value) of the difference between projected spending (including servicing official debt) and projected revenue in all future years.

    Double Our Taxes

    To put 14 percent of gross domestic product in perspective, current federal revenue totals 14.9 percent of GDP. So the IMF is saying that closing the U.S. fiscal gap, from the revenue side, requires, roughly speaking, an immediate and permanent doubling of our personal-income, corporate and federal taxes as well as the payroll levy set down in the Federal Insurance Contribution Act.

    Such a tax hike would leave the U.S. running a surplus equal to 5 percent of GDP this year, rather than a 9 percent deficit. So the IMF is really saying the U.S. needs to run a huge surplus now and for many years to come to pay for the spending that is scheduled. It’s also saying the longer the country waits to make tough fiscal adjustments, the more painful they will be.

    Is the IMF bonkers?

    No. It has done its homework. So has the Congressional Budget Office whose Long-Term Budget Outlook, released in June, shows an even larger problem.

    ‘Unofficial’ Liabilities

    Based on the CBO’s data, I calculate a fiscal gap of $202 trillion, which is more than 15 times the official debt. This gargantuan discrepancy between our “official” debt and our actual net indebtedness isn’t surprising. It reflects what economists call the labeling problem. Congress has been very careful over the years to label most of its liabilities “unofficial” to keep them off the books and far in the future.

    For example, our Social Security FICA contributions are called taxes and our future Social Security benefits are called transfer payments. The government could equally well have labeled our contributions “loans” and called our future benefits “repayment of these loans less an old age tax,” with the old age tax making up for any difference between the benefits promised and principal plus interest on the contributions.

    The fiscal gap isn’t affected by fiscal labeling. It’s the only theoretically correct measure of our long-run fiscal condition because it considers all spending, no matter how labeled, and incorporates long-term and short-term policy.

    $4 Trillion Bill

    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. "(snip)

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    Default Re: The US is Bankrupt ... Lawrence Kotlikoff

    Some people confuse accounting math with economics math, and some people extrapolate any current situation too far into the future and ignore the effects of very small changes in assumptions.

    You seem to favor every prediction of doomsday and never the predictions of those who've had the best track records.

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    Default Re: The US is Bankrupt ... Lawrence Kotlikoff

    ^^^ which predictors with 'bad' track records are you referring to ? The CBO that predicted 8% unemployment max post $800 billion in stimulus spending ? Or the IMF that predicted that Greece was broke ? Or are you referring to mainstream financial media commentators, who were touting a 5%+ early estimate of US GDP growth ... that was subsequently revised down to 2.4%.

    Please understand that I do not have an ingrained desire to see the US or any other economy do badly. However, I know enough about economic fundamentals and investment bankers ( thanks to spending years on their laps in Manhattan VIP rooms ) to recognize economic 'propaganda' when I see / hear it. At least they appear to have given up on the 'Green Shoots' headlines lately.

    What I do desire, at least for the Dollar Den readers who are exotic dancers, is that they will look beyond economic 'propaganda' when it comes to making ... or lately protecting ... their hard earned savings and investments. Unlike 'ordinary' Americans whose careers will span perhaps 40 years and whose earnings will tend to increase as they approach Social Security age, exotic dancers only have something like 10 years worth of 'peak earnings' potential. Exotic dancers must then spend the next 30 years until Social Security age managing / protecting the savings and investments established during those 10 peak earnings years.

    The key difference is that, unlike 'ordinary' Americans, exotic dancers long term earnings potential typically will not allow them to significantly add to those savings and investments after they retire from dancing. Thus where an 'ordinary' American worker has some ability to dig out from under investment losses via higher future income / savings, with exotic dancers ( and also professional athletes and other professions with short but highly lucrative career windows ) sustaining investment losses during their peak earning years is 'irreplaceable'.

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    Default Re: The US is Bankrupt ... Lawrence Kotlikoff

    One is only bankrupt when creditors are pounding on the door.

    Don't count the US out yet; we have an enormous ability to innovate our way out of harm's way.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: The US is Bankrupt ... Lawrence Kotlikoff

    ^^^ yeah it's called Quantitative Easing 2, and the Fed is already doing it with the willing but 'stealth' co-operation of Wall St primary dealer banks who are only to happy to swap more of their toxic mortgage paper for freshly printed US treasury bonds. The only 'losers' in the deal are US taxpayers who will wind up having to make good the markdowns on the Fed's new 'toilet paper'.

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    Default Re: The US is Bankrupt ... Lawrence Kotlikoff

    ^^ That is not innovative as in creative. It is only sweeping bad newspapers under the carpets.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: The US is Bankrupt ... Lawrence Kotlikoff

    How's this for innovation ... the US prints absolute mountains of new US dollars ... uses the inflated currency value to make ( technical ) repayment to foreign creditors ( which actually forces them to take huge losses in terms of exchange rate / purchasing power ), and when the US dollar is universally recognized as worthless 'innovates' participation in a new regional ( Amero ) or worldwide ( IMF SDR ) currency to replace the dollar.

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    Default Re: The US is Bankrupt ... Lawrence Kotlikoff

    The origin of the name "dollar" is the old German currency name "Taler".
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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