Wednesday, June 08, 2011
Government's Unfunded Obligations Reach $62 Trillion
There's been a lot of focus given to the country’s $14.3 trillion debt, which has now reached the government's legal borrowing limit.
However, that amount is chicken scratch compared to what the government really owes.
The federal government's total unfunded obligations — the gap between spending commitments and revenue — has reached a record $61.6 trillion, or $534,000 per household.
These unfunded commitments include programs like Medicare and Social Security.
The federal debt only includes what the government owes to Treasury holders. It doesn't take into account what's owed to seniors, veterans and retired government employees.
This problem — this liability — is so big that it's hard to comprehend.
For perspective, $61.6 trillion represents more than one-third of the market value of all the goods and services produced in the United States.
It's also more than five times the amount that Americans have borrowed for ALL other debt, including mortgages and car loans.
The government has promised pension and health benefits worth more than $700,000 per retired civil servant. Yet, the government has no money set aside to pay for those benefits.
For example, military health care costs more than doubled in the past decade. They account for $52.5 billion in next year's proposed budget. Retired veteran's pay represents another $50 billion or so a year.
But the problem of unfunded obligations isn't just limited to civil servants and veterans.
The number of people on Medicare and Social Security is going to double in the next 10 years. The Baby Boomers — roughly a quarter of the US population — begin retiring next January and will swamp the Social Security and Medicare systems over the following two decades.
While Social Security collected $2.6 trillion more in revenues than it paid out in benefits over the past three decades, that surplus — the infamous Social Security "Trust Fund" — has already been spent by the government on other programs.
The Social Security trustees say this "Trust Fund" — which amounts to nothing more than IOUs, or government bonds — will be exhausted in 2036.
But remember, this money doesn't even exist. The government will have to make budget cuts, taking money from other programs, to come up with the $2.6 trillion (plus interest) to repay the American people the money it owes them.
The takeaway here is that the government has made promises it cannot possibly keep. It will never be able to come up with $62 trillion. Those monies do not even exist.
That's why they are referred to as "unfunded" obligations.
Remember, these unfunded obligations amount to $534,000 per household. So every American household could sell their home (if they even own one), plus all of their worldly possessions, and it still wouldn't cover the amount due.
The government's choices are to simply not pay the future medical and retirement costs of its senior citizens, or heavily tax its citizens to acquire the money needed to repay them for the previous debts it already owes them.
Either choice is a horrible one for the American people.