by William Edstrom at Stealthflation.org
The United States (US) government often cites $18 trillion as the amount of money that they owe, but their actual debts are higher. Much higher.
The government in the USA owes $13.2 trillion in US Treasury Bonds, $5 trillion in money borrowed by the US Federal government from Federal government trust funds like the Social Security trust fund, $0.7 trillion for state bonds issued by the 50 states, $3.7 trillion for the municipal bond market (US towns, cities and counties), $1.97 trillion still owing by Freddie Mac and Fannie Mae, mostly for bad mortgages in years gone by, $6.23 trillion owed by US government authorities other than Fannie Mae and Freddie Mac, $1.04 trillion in loans taken out by the US Federal government (e.g. government credit card balances, short term loans) and $0.63 trillion in loans owed by government authorities (e.g. their government credit card balances, short term loans). As of April 1, 2015, according to the Federal Reserve Bank’sFinancial Accounts of the US report, the government in the USA has $32.77 trillion in debt excluding unfunded government pension debts and unfunded government healthcare costs
Debt is money that has to be paid. The government in the USA also has to pay $6.62 trillion for unfunded pension liabilities, as of April 1, 2015. There are thousands of government pension plans in the USA (e.g. County, State, Teacher’s, Police). The Federal Employees Pension Plan is now short $1.9 trillion according to the Fed’s March 2015 statement plus $4.7 trillion in unfunded state and municipal pension liabilities according to State Budget Solutions which calculates on actual pension returns (approx. 2.5% per year from 2009 to 2014, instead of the fantasy ‘assumption’ of an 8% return used by the Fed to guesstimate pension fund money). The largest governmental pension fund in Puerto Rico ran out money (became insolvent) in 2012 and the government now has to pay $20.5 billion for that. Pension contributions into government pension plans have been less than what these pension plans pay out to retirees which is why the government was short by $6.62 trillion for government pensions as of April 1, 2015.
The DJIA has gone down 9.5% since the Spring. $6.3 trillion in governmental pension plan money was invested in wall street as of April 1st. Additional government pension plan losses have been, so far this year, $0.6 trillion. As of August 29, 2015, the government in the US owes $7.2 trillion for pensions. Every additional 10% the DJIA drops is another $0.6 trillion in unfunded pension costs that the government has to pay.
The Federal government owed $1.95 trillion in unfunded entitlements for the Federal Employees Pension Fund as of April 1, 2015. Unfunded entitlements are health care benefits for retirees above and beyond Medicare benefits. States, municipalities and governmental authorities owe an additional $4.2 trillion for retiree health benefits. Medicare and Medicaid costs, about $0.83 trillion in 2014, escalate 6% a year and Obamacare adds $0.18 trillion a year in governmental health costs, mostly for subsidies. Medicare, Medicaid and Obamacare costs will escalate to $1.28 trillion in 2018.
Bottom line, as of August 29, 2015, the government in the USA owes $46.1 trillion (bonds, unfunded pension costs, unfunded healthcare costs, credit card balances and loans).
Footprints. The US government has paid wall street’s way when wall street can’t pay it’s own way. Wall street has promised to pay more than the US government has promised to pay. $0.5 trillion in margin loans and $3.95 trillion in repurchase agreements pale in comparison to $21 trillion in open credit default swaps, a type of derivative. Bankruptcy legislation in 2005 gave derivatives “super priority” status to be paid first when banks go bankrupt. According to BIS, there were $630 trillion in outstanding derivatives earlier this year, about half in the USA. Since wall street doesn’t have $315 trillion to pay their derivatives, who will pay this amount? And how? Even if only 15% of US derivatives go bad, that’s $47 trillion. How would the US government pay for that? The derivative liabilities arising, due to ongoing wall street instability, is an elephant in the room.
US government officials, who I contacted, have not responded to questions about how they intend to pay for $46.1 trillion they owe nor have they responded to questions about what their contingency plans are to pay for wall street derivatives gone bad. The possibility exists that US government officials don’t have plans in place to pay the $46.1 trillion they now owe or any plans in place for payment of derivatives gone bad.
Investigative reporters have to push the envelop with elected and un-elected government officials in the USA to get honest answers to honest questions about how the government plans to pay the $46.1 trillion they owe, even more money they owe with each passing month and to find out what their contingency plans are for payment of wall street derivatives in a moderate case, worse case and worst case scenario (like the Deagle Inc. forecast). Have they done planning, will they do planning or will they wing it? Pensions and healthcare are too vital for them to wing it. They should have plans and they should tell us what their plans are.
Freedom of Information Act (FOIA) requests may lead to discovery of what their plans are. Although, if they don’t have any plans for payment of current debts and future debts, then, no amount of FOIA requests will reveal plans that don’t exist. The point of FOIA requests is brought up because government officials have been evasive in omitting mention of many of their debts. Although the government in the USA currently owes $46.1 trillion, several government officials routinely claim $18 trillion as the US government’s debt figure, omitting government credit card balances, government loans, the debts of government authorities, state debts, municipal debts, unfunded pension debts and unfunded healthcare debts.
Government debt figures repeated often by US govenrment officials are too low and US GDP figures repeated often by government officials are too high. The government changed how GDP is calculated. The US Federal government decided as of 2013, to count Research and Development (R and D) twice each year when adding up the GDP number. Since GDP was first calculated, scientist salaries get added in with everyone else’s salaries and R and D equipment spending gets added in with all other equipment spending. Now each component of R and D gets added into the GDP number, then, the total R and D spending number gets added to the GDP number too. The US Federal government added $0.5 trillion in R and D costs (like scientist salaries, R and D equipment) then they added $0.5 trillion in total R and D costs when calculating total US GDP. Counting R and D spending only once, the US GDP was $17.02 trillion in December 2014.
A bigger gimmick is to count $2.627 trillion in “equipment depreciation” as current year GDP income. Equipment depreciation is the number that corporations use for corporate tax forms as a corporate tax deduction. In 2014, corporations wrote down $2.627 trillion on tax forms to deduct from their profits, so that corporations didn’t have to pay taxes on that $2.627 trillion. The actual $2.627 trillion is for equipment that was purchased years ago. None of the $2.627 trillion in equipment depreciation went into the economy in 2014. None of the $2.627 trillion in equipment depreciation was income (or spending) in 2014, but the Federal government accountants counted $2.627 trillion in equipment depreciation as income in 2014; it makes the USA’s GDP number look bigger by $2.627 trillion. They add “equipment depreciation” into their GDP number every year.
Subtracting equipment depreciation ($2.627 trillion) and R and D spending that was counted twice ($0.5 trillion), gives a more accurate USA GDP figure of $14.4 trillion as of December 2014. Correcting the 2nd Quarter 2015 BEA figure for GDP of $17.9 trillion minus $0.5 trillion (R and D counted twice) minus $2.627 trillion (equipment depreciation write-downs for equipment spending years ago) equals $14.77 trillion actual GDP as of July 1, 2015.
Red alert. 100% government debt to GDP is the threshold where countries are in danger of collapse from too much debt. Figures often repeated from US government officials of US government debt ‘being $18 trillion’ and ‘US GDP of $17.52 trillion’ would equal 103% government debt to GDP in the USA, a little over the 100% threshold for a country to collapse from too much debt. Greece was at just over 100% government debt to GDP in 2008 when their slow motion economic collapse began.
But, the government in the USA owes $46.1 trillion (not $18 trillion) and the US GDP is $14.77 trillion (not $17.9 trillion), as of June 2015, truth be told. 46.1 / 14.77 = 312%. Total government debt in the US is at 312% of GDP, which is well past the point of collapse for any country.
Why have government officials in the US been understating debt figures in press releases and press conferences and why have government officials in the US been overstating GDP figures? Why don’t they tell us the truth?
Before the 2008 collapse, the Fed Funds interest rate was 5.25%. The Fed lowered this interest rate to 0% to encourage lending to large banks to encourage re-lending, spending and hiring. The US Treasury printed $4.5 trillion in money out of thin air, called Quantative Easing (QE), from December 2008 to October 2014, to make more money available for no-interest lending to large banks.
Fed interest rates have been 0% since December 2008, so the Fed cannot lower rates this collapse around and printing too much money leads to hyper-inflation which leads to things worse than hyper-inflation. Brazil, for example, printed too much money in the late 1970’s. It worked out for a little while. Then hyper-inflation set in. Then Brazil’s economy collapsed and their government fell. Germany printed too much money in the 1920’s, after World War I. We all know what happened after that. So, since the Fed cannot lower interest rates and the US Treasury shouldn’t print too much money, then what will the government do to ‘rescue’ the US economy from debt collapse? US Treasury and Federal Reserve Bank officials didn’t respond to my requests for information.
A moderate case scenario is a wall street decline of 15% (from it’s May 2015 peak) and a GDP contraction of 3% by the Summer of 2016. Tax receipts would decline by 3%, which is a $0.1 trillion decline, government borrows $0.7 trillion every 12 months for routine government operating costs, unfunded government pension liabilities will increase by $0.9 trillion and unfunded government health benefits for retirees will increase by another $0.3 trillion. Government in the USA will then owe $48.0 trillion and GDP (BEA 7/2015 figure of $17.9 trillion minus $0.5 trillion for R and D counted twice minus $2.6 trillion for equipment depreciation) equals $14.8 trillion. 48.0 / 14.8 = 324% US government debt to GDP. More realistic scenarios show US government debt to GDP escalating to 350% by Fall 2016.
When trillions in wall street liabilities (e.g. derivatives gone bad) come due again, as they did with Lehman, Bear Stearns and AIG in the 2008 collapse, how will government pay for that? China has dumped $0.2 trillion in US Treasury bonds the past 12 months and oil producing states in the Middle East have dumped tens of billions of dollars in Treasury bonds the past 12 months too. With fewer investors willing to lend money to Uncle Sam, borrowing costs for the US government will rise. The Fed Funds interest rate is 0%, it cannot be lowered. How many trillions of dollars can the US Treasury print out of thin air before hyper-inflation sets in? The Ghost of 1937 will come back if the Fed raises interest rates. There is nothing the US government can do this collapse around to rescue the US economy.
Much of the $46.1 trillion owed by the US government is because of military and intelligence expenses. All of the $5.5 trillion owed by the US Federal government in 1996 was found by the Brookings Institute to be because of $5.5 trillion in costs for US nuclear weapons from 1940 to 1996. Since 1996, the military / intelligence budgets (including war costs) have averaged $0.85 trillion a year. $0.85 trillion x 20 years plus $5.5 trillion equals $22.5 trillion. The US Federal government’s direct portion of the $46.1 trillion owing by all government in the USA is $13.2 trillion in US Treasury bonds plus $5 trillion borrowed from government trust funds plus $1.04 trillion in loans owed by the Fed’s plus $1.9 trillion in unfunded Federal Employees pension costs plus $1.95 trillion in unfunded Federal Employees healthcare costs (money is fungible, money taken from Federal Employees pensions and healthcare can be spent on current military/intel spending instead) equals $23.1 trillion. The $22.5 trillion (in pre-1997 nuke costs plus military/intel costs since 1996) is almost all of the $23.1 trillion in US Federal government debts from Treasury bonds, borrowing from government trust funds, loans plus unfunded Federal Employees pension and health benefits costs. Military costs are draining Americans.
A better system is needed in the USA. A single payer health plan like Medicaid for All will cover everyone and extend our lifespans. Building enough new medical schools and university hospitals will end the doctor shortage. Together with lowered drug and device costs attained by trimming the patent monopoly from 17 years to 3 years will save the US economy $1.1 trillion a year. Raising the Social Security minimum monthly payment to $2,000 a month (plus annual increases) and having one pension for all Americans will eliminate thousands of redundent government pension plans, saving the USA $0.5 trillion in annual pension costs while eliminating poverty among Elderly Americans.
Governmental debt to GDP exceeded 100% after World War II, when income tax rates were raised to 90% to pay off much of the war/military/intel costs. We can cut taxes for the poor and middle class by raising the income tax standard deduction to $90,000 (plus annual increases). Raise the income tax rate and capital gains rate to 90%. 6.2% payroll taxes on all income over $117,000 a year plus a temporary nationwide 8.875% sales tax (same as the NYC sales tax) on all financial sales (e.g. stocks, derivatives) will have the government debt in the USA paid off within a decade. Cutting military/war/secret police spending in half in the USA will help to pay off the government’s debt faster, when taxes can again be cut for all. Greater wall street oversight, especially on derivatives and hedge funds is requisite.
The Roman Empire declined and fell due to excessive military costs. The US empire will decline and fall if military/intel/war/secret police costs are not reigned in. Eliminating money in politics, via public financing of elections, is needed as is effective oversight of wall street. Unregulated hedge fund vultures and wall street bankers writing hundreds of trillions of dollars in derivatives without the money to pay and without any oversight is a recipe for financial collapse in the USA. Health costs can be reigned in with a single payer system, enough doctors and trimming (or eliminating) the patent monopoly. Pension costs can be effectively controlled by having the single payer health system provide all health benefits and merging thousands of government pension plans into one Social Security pension plan that provides a minimum of $2,000 a month plus annual increases.
The solutions exist. The first step towards effective solutions is to clearly identify the problems. The government in the USA borrowed too much money and wall street wrote too many derivatives. With unregulated and unlimited powers to write hundreds of trillions of dollars in derivatives coupled with unlimited money in politics means the wall street people have the upper hand and can at any time collapse both the US economy and the US government.
The debts of the government in the USA are $46.1 trillion and the USA’s actual GDP is $14.77 trillion, which makes the US government debt to GDP ratio 312%. The reason why the US government borrowed too much money is because of too much military/war/secret police spending. The endless wars need to end. The secret police state USA needs to end too. We want peace. We want our freedom back too.
A financial and economic collapse in the USA is imminent if steps are not taken immediately to pay down the gigantic governmental debt in the USA. Steps to accomplish this were outlined: healthcare reforms, one Social Security pension for all with enhanced benefits and higher taxes on the rich. Then there’s the weakest link. The hundreds of trillions of dollars worth of derivatives, written by the wall street people, will be terminal to the USA when even a small fraction of those derivatives go bad, intentionally or unintentionally.