Red tide rising
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RED TIDE RISING. DEFICITS AND UNFUNDED LIABILITES. Public Debt. UNFUNDED LIABILITIES. SOCIAL SECURITY. Present Values of OASDI Cost Less Tax Revenue and Unfunded Obligations for Program Participants [Present values as of January 1, 2009; dollar amounts in trillions]

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RED TIDE RISING

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Red tide rising

RED TIDE RISING

DEFICITS AND UNFUNDED LIABILITES


Public debt

Public Debt


Unfunded liabilities

UNFUNDED LIABILITIES

SOCIAL SECURITY

Present Values of OASDI Cost Less Tax Revenue and Unfunded Obligations for Program Participants[Present values as of January 1, 2009; dollar amounts in trillions]

Present value of future cost less future taxes for current participants $18.7

Less current trust fund surplus $2.4

Equals unfunded obligation for past

and current participants $16.3

To fund these liabilities would require taking an additional 3.4% of all wages or 1.2% of Gross Domestic product in taxes forever.


Medicare

MEDICARE

Table III.B10.—Unfunded HI Obligations from Program Inception through the Infinite Horizon

[Present values as of January 1, 2009; dollar amounts in trillions]

As a percentage of:

Present ValueHI taxable payroll GDP

Infinite Horizon $36.4 6.5 % 2.8 %

From program inception through 2083 13.4 3.8 1.7

From: 2009 ANNUAL REPORT OF THE BOARDS OF TRUSTEES OF THE FEDERAL HOSPITAL INSURANCE AND FEDERAL SUPPLEMENTARY MEDICAL INSURANCE TRUST FUNDS


Total liabilities

TOTAL LIABILITIES

  • PUBLIC DEBT $ 13,193,854,880,648.02

  • SOCIAL SECURITY $ 16,300,000,000,000

  • MEDICARE $ 36,400,000,000,000

    TOTAL $ 55,893,854,880,648

    GDP (2010) $14,592,400,000,000


What does this mean for the future of public policy discussions

What does this mean for the future of public policy discussions?

  • In fiscal year 2010 the federal government paid out $354.9 billion in interest on the public debt, at an interest cost of 2.69%

  • If it could fully fund its unfunded liabilities at the same historically low interest rate the annual interest payment would rise to approximately $2,000 billion!

  • In 2009 total federal government expenditures were $3,454.6 billion. Therefore, full funding of all of the federal government’s liabilities would require committing 60% of the government’s 2009 budget to interest payments!


Deficits burden the future when

DEFICITS BURDEN THE FUTURE WHEN

  • It finances current consumption at the expense of current investment

  • It finances current consumption by borrowing from abroad

  • Conversely, if households and businesses increase their own savings when the government runs deficits future generations will not be burdened by current deficit spending by governments.


National savings decline borrowing increases children burdened

National savings decline, borrowing increases, children burdened


Does this mean that we should no longer ever run a deficit

Does this mean that we should no longer ever run a deficit?

  • NO, IF…..

    .Borrowing is done to finance profitable investments

    .current deficits are matched by future surpluses in order to smooth consumption and reduce the excess burden of taxation

    THESE ARE BIG IFS!!!


Does deficit spending reduce unemployment

DOES DEFICIT SPENDING REDUCE UNEMPLOYMENT?

  • THIS IS THE $787 BILLION QUESTION.

  • UNEMPLOYMENT HAS NOT DECLINED.

  • BUT, THE RELEVANT QUESTION IS: “WHAT WOULD IT HAVE BEEN IF THE AMERICAN RECOVERY AND RE-INVESTMENT ACT OF 2009 HAD NOT BEEN PASSED?”

  • THE ECONOMIC REPORT OF THE PRESIDENT STATES that “…the level of GDP in the fourth quarter was slightly more than 2 percent higher than it would have been in the absence of the stimulus.” On an annual basis, this implies an increase in GDP of $283.5 billion.

  • SINCE ONLY ½ OF THE FUNDS WERE EXPENDED IN 2009 THE IMPLIED INCREASE IN GOVERNMENT DEBT DID NOT INDUCE A CORRESPONDING REDUCTION IN EITHER HOUSEHOLD OR BUSINESS SPENDING.


Is there a call to action

IS THERE A CALL TO ACTION?

  • ACTIONS REQUIRED TO REDUCE THE GROWTH IN THE NATIONAL INDEBTEDNESS WILL BE PAINFUL.

  • PREDICTABLY, CONGRESS REFUSED THE PRESIDENT’S REQUEST TO APPOINT ITS OWN BI-PARTISAN COMMITTEE TO MAKE RECOMMENDATIONS

  • IN RESPONSE, THE PRESIDENT APPOINTED HIS OWN COMMISSION. IT’S REPORT IS DUE AFTER THE NOVEMBER ELECTIONS

  • SOCIAL SECURITY AND MEDICARE WILL BE NATURAL TARGETS, IN PART, BECAUSE CHANGES CAN BE MADE THAT WILL HAVE THEIR MAJOR EFFECTS IN THE FUTURE. SO, WE’LL LOOK AT THESE PROGRAMS IN OUR NEXT TWO MEETINGS.


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