Diagnosis for Democracy
Insights into the State of Our Union
A Blog by Rob Tenery, MD


How Much Money Does This Country Really Owe?

By Rob Tenery, MD on January 4, 2016

 The vast majority of the elected officials in Washington pay lip service to the national debt. But except for a growing number of economists and a smattering of true conservative Republicans, most of them have no intention of backing any meaningful changes that would address the real problems and the real debt that is owed by this country. 

At the forefront of trying to help bring understanding to the significance of where this country is headed with its out-of-control spending commitments is Laurence J. Kotlikoff PhD. A Harvard trained economist, who currently holds a Professorship at Boston University, Kotlikoff points out that the $17 going on $18 trillion deficit only covers a small portion of the real debt owed by this country with its obligations into the future.

It is important to first understand the two ways the Congressional Budget Office (CBO) puts out projections of this country’s fiscal situation. The first is the Extended Baseline Scenario (EBS) that bases the projections on current law. The other projection is the Alternative Fiscal Scenario (AFS) that includes current policies that are set to expire. The CBO now only puts out the EBS projections, assuming sequestration, which is across the board federal spending cuts of most departments and agencies, continues as well as a number of tax cuts that are set to expire. The EBS projections then demonstrate current spending trends even if new laws are required to meet those projections. No one seems sure why the CBO now only puts out the EBS version, except that the AFS projection is the most pessimistic of the possible scenarios.  That would tend to go along with the feeling that the American public is not privy to the whole truth about this country’s debt liabilities. 1.

In a November 6, 2013 interview with Financial Sense Insider, Professor Kotlikoff said, “The liabilities the government owes are mostly off the books.” Social security, Medicare, Medicaid, defense, etc are all obligations that have to be paid at some time in the future and are not included in the so-called federal debt. Whereas, paying off future principal and interest on Treasury notes are listed.  “If you take the value of all those commitments and subtract all the taxes coming (in) to pay those commitments, the difference is what ‘s called the fiscal gap; and that fiscal gap in the U.S. is now $205 trillion. So, the true debt is $205 trillion,” continued Kotlikoff. 2

The GDP (Gross Domestic Product) is a measure of the size and output of the U.S. economy. A universal measure of this country’s debt burden versus its economic productivity is called the ‘debt to GDP ratio’, that is the debt divided by the GDP. Using those calculations, the United States has a national debt/GDP ratio of 104.85% for 2015. The highest is Japan with 245.9%, then comes the U.S. in at number two, followed by France at 97.09% and the United Kingdom at 88.89%. Additionally, Russia came in at 20.4% and China at 43.2%. 3,4

No one has been able to predict the exact ‘crisis point’ that the U.S. economy will fail, but projections using data by the AFS scenario would put the U.S. debt/GDP ratio at 150% by the mid-2030s and 400% by the early 2060s. Clearly unsustainable, ultimately leading to a significant financial crisis! 1

The Harvard trained Professor feels this country is not being told the whole truth. “Congress has done bookkeeping to make sure the public doesn’t see it,” Kotlikoff stated in the interview. His criticism was not directed at just one President, noting that censorship of the true fiscal gap has occurred in all three of the most recent administrations. 2

In an op-ed article in The New York Times, America’s Hidden Credit Card Bill, by Kotlikoff, he claims that by 2014, the debt had grown another $5 trillion to $210 trillion. In the Times article, he suggests supporting proposed legislation named the Inform Act that, along with the support of 1200 other economists, 17 whom are Nobel laureates, that would force our government to make the public aware of the truth about the this country’s approaching fiscal crisis. 5

Kotlikoff’s closing quote in the 2013 interview is the most chilling: “So, this is not accidental. This is more or less a conspiracy to hide the truth to keep ourselves and our kids in the dark about what the politicians are really doing, which is trying to garner the votes of older people and then get themselves reelected and leave a bigger mess for our kids to handle.” 2

Do we really have to go through what Greece and Argentina have to get the big picture?

References:

1.     http://crfb.org/blogs/what-happened-alternative-fiscal-scenario

2.     http://www.financialsense.com/contributions/laurencw-kotlikoff/government-conspiracy-hide-us-debt-burden

3.     https://en.wikipedia.org/wiki/National_debt_of_the_United_States

4.     http://www.statista.com/statistics/264647/national-debt-of-selected-countries-in-relation-to-gross-domestic-product-gdp/

5.     http://www.nytimes.com/2014/08/01/opinion/laurence-kotlikoff-on-fiscal-gap-ccounting.html?_r=0
 





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