Saturday, November 9, 2013

A Conspiracy to Hide the Truth: Why the True U.S. Government Debt is $205 Trillion

Dr Laurence Kotlikoff , professor of economics at Boston University and a research associate at the  National Bureau of Economic Research, was recently interviewed by the Financial Sense Newshour  about the true state of fiscal affairs in this country. He explains how the government uses accounting tricks to hide the truth and keep everyone in the dark about the US's actual debt-load, which runs $205 trillion versus the $17 trillion you often here in the news.
Kotlikoff also details the ongoing pattern of obfuscation, censorships, and firings of government personnel attempting to disclose budgets of prior Presidents when doing so is deemed politically inconvenient. This is a must-listen interview. Here we present a few key excerpts:
Jim Puplava: Professor, officially we’re in debt over $17 trillion but underneath it there’s a bigger problem. I wonder if you might explain to our listeners what that bigger problem is?
Professor Kotlikoff: The liabilities the government owes are mostly off the books. We have a true debt picture which is about $205 trillion. This is recording all the future obligations the government has, whether they are official obligations or not, such as paying for your social security benefits, mine, or your mother’s Medicare benefits, defense spending, etc. All of these things are really obligations that aren’t recorded on the books as debt, whereas paying off future principal and interest payments on Treasury bills and bonds are recorded. So, anyway, if you take the value of all of those commitments and subtract all the taxes coming 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; the official debt is only $17 trillion. So, most of the problems we’re facing, most of the debt we have, the vast majority of it is off the books and Congress has done bookkeeping to make sure the public doesn’t see it. So, when we have these big fights over the debt ceiling, it’s really laughable because at the same time we may not be expanding our official debt at a very rapid rate, we are expanding our unofficial debt or off-the-book debt, unrecorded debt, at a very high rate.
Jim Puplava: Professor, when the CBO publishes its projections they use something called the extended baseline forecast. They also have something called the alternative fiscal scenario, which is basically more realistic. This year they reported only the extended baseline forecast. Why did they do that?
Professor Kotlikoff: I don’t know. They claim it wasn’t for political reasons and I believe them. There are very good economists at the CBO. The director is a very good economist, but you have to wonder why is it that for the last 6 or 7 years they put out the extended baseline as well as the alternative fiscal scenario at the same time so everybody could see what they really project versus what really amounts to a lie about the fiscal future of the country.
I sent him [head of the CBO] an email and asked whether he was under some sort of political pressure to withhold this information and he said that was a big insult, and he was very upset with me for suggesting that. But then he said that the reason he hadn’t released it was because they didn’t think anyone was interested. I said, well obviously we’re interested—it’s the only thing worth looking at.
Everybody should be calling the CBO and asking why they’re doing this. This is a pattern, you know. The Clinton administration—we put out the fiscal gap studies for a couple of years on the President’s budget. The Clinton administration then censored it. The guys who’s now head of the National Economic Council, the Chief Economic Advisor to President Obama, was the one who did the censorship back in 1994. President Bush’s Treasury Secretary O’Neil wanted us to do a fiscal gap accounting for the President’s budget in 2003 and he was fired in December 7, 2002, and that study was censored two days after he was fired. 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 reelected and leave a bigger mess for our kids to handle.
The rest of this MUST-LISTEN interview with Professor Laurence Kotlikoff  aired Thursday, November 7th on the Newhour page. If you would like to hear it in full, CLICK HERE 

8 comments:

  1. What is the net present value of the $205T? That would be the most realistic estimate of the debt. (I suspect that is only somewhat less untenable, but still untenable.) This will not end well.

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  2. Good question StarGazer. I've heard the 200T estimate before, but I'd like to better understand what that means. Is that what is owed over the next 10, 20, 30 years? Thanks to anyone who helps me better understand what the 200T represents. PS: I have not listened to the interview yet, sorry if it was answered in there.

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    1. from what I understand the long term budget estimates from the CBO are 75 years out, Prof. Kotlikoff's projections are also 75 years I think.

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  3. I believe 75 years out is correct, also. I think the $205Trillion figure is the PV of the federal liabilities out 75 years and assuming a 5% return. So, if you were able to invest $205T today and earned 5% per annum, you could cover your costs and end at zero in 75 years.

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  4. Does it really matter? They are going to keep printing money as long as they can get away with it. It's lasted 100 years so far, so there's no telling how long it could keep going.

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  5. Wags, it didn't matter as much until 1971 when the last semblance of discipline disappeared along with Bretton Woods. Since then, we've been on a runaway train with no brakes. Works fine until that last sharp curve atop a sheer drop. It will end.

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    1. It ends when the dollar ceases to be used as the global reserve currency. When that happens the dollar will be completely worthless and no one will accept it outside of our country for payment. Which means no oil, no food imports, no merchandise imports, no.. well you get the idea. The only thing, and really it's the only thing, that gives the U.S. dollar any value whatsoever is the fact that it is used as the reserve currency of the world. Once that stops, it will be worth nothing and the United States will be economically wiped out.

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  6. So in order to meet the future debt obligations or implied obligations (since SS and some others are not technically owed to us right?) the US gov would need to have 205T in the bank right now earning 5% over the next 75 years. Thanks!

    To Wags, I think it does matter, because better understanding of the his massive debt obligation may help to open other peoples eyes to this crazy monetary/welfare/warfare system we get to live in.

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