The most important story in this week’s newspapers
What determines geopolitical strength, and ultimately survivability, for a nation? At or near the top of the list is solvency — a nation’s ability to meet its obligations. Since 2003 David M. Walker, Comptroller General of the United States (now retired) has warned us of the precarious and deteriorating finances of the US Federal and State governments.
Three times per year the the General Accountability Office (GAO) publishes an update on the “Nation’s Long-Term Fiscal Outlook.” Here is their April 2008 Update; it is not pretty. I doubt anything published recently by the Department of Defense or Homeland Security Department has such ominous implications for America.
One aspect of the problem is that the US government keeps its books on a cash basis. Hence those annual deficit numbers reported in the newspapers do not include the increase each year in the government’s future obligations. The government does report the real numbers each year, calculated on a accrual basis: “Understanding Similarities and Differences between Accrual and Cash Deficits.” Here is the Update for Fiscal Year 2007.
Taking it one step further, corporations report annual balance sheets, including the value of all assets and liabilities. Computing the value of the government’s assets is difficult. For example, what is the value of its land? Its liabilities, however, can be calculated — and that is what matters, unless we plan to sell off our inheritance. The GAO reports each year on the increase in the government’s — our — liabilities: here is their current report (December 2007). Terrifying numbers.
Usually the media ignores those, preferring the numbers spoon-fed them by the government. The rare exceptions deserve our attention. Such as “Taxpayers’ bill leaps by trillions“, USA Today (18 May 2008) — Excerpt:
The federal government’s long-term financial obligations grew by $2.5 trillion last year, a reflection of the mushrooming cost of Medicare and Social Security benefits as more baby boomers reach retirement.
That’s double the red ink of a year earlier.
Taxpayers are on the hook for a record $57.3 trillion in federal liabilities to cover the lifetime benefits of everyone eligible for Medicare, Social Security and other government programs, a USA TODAY analysis found. That’s nearly $500,000 per household.
When obligations of state and local governments are added, the total rises to $61.7 trillion, or $531,472 per household. That is more than four times what Americans owe in personal debt such as mortgages.
The $2.5 trillion in federal liabilities dwarfs the $162 billion the government officially announced as last year’s deficit, down from $248 billion a year earlier.
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For more information about this subject
A brief note on the US Dollar. Is this like August 1914? (8 November 2007) — How the current situation is as unstable financially as was Europe geopolitically in early 1914.
The post-WWII geopolitical regime is dying. Chapter One (21 November 2007) — Why the current geopolitical order is unstable, describing the policy choices that brought us here.
We have been warned. Death of the post-WWII geopolitical regime, Chapter II (28 November 2007) — A long list of the warnings we have ignored, from individual experts and major financial institutions (links included).
Death of the post-WWII geopolitical regime, III – death by debt (8 January 2008) – Origins of the long economic expansion from 1982 to 2006; why the down cycle will be so severe.
Geopolitical implications of the current economic downturn (24 January 2008) – How will this recession end? With re-balancing of the global economy, so that the US goods and services are again competitive. No more trade deficit, and we can pay out debts.
- A happy ending to the current economic recession (12 February 2008) – The political actions which might end this downturn, and their long-term implications.
- What will America look like after this recession? (18 March 208) — More forecasts. The recession might change so many things, from the distribution of wealth within the US to the ranking of global powers.
The most important story in this week’s newspapers (22 May 2008) — How solvent is the US government? They report the facts to us every year.
To see the all posts on this subject, go to the archive for The End of the Post-WWII Geopolitical Regime.