U.S. effectively bankrupt, economist says

August 12, 2010
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Laurence Kotlikoff, an opinionated Boston University economist with a history of criticizing fiscal policies of both Democrats and Republicans, has posted a chilling column on Bloomberg.com saying the United States is not hurtling toward bankruptcy, like some pessimists say, but already is effectively broke.

You heard that correct, we’re broke. Actually worse off than Greece, Kotlikoff says.

Kotlikoff reaches the conclusion by pointing to other authorities, namely the International Monetary Fund and the Congressional Budget Office.

Buried in an IMF document this summer was the assertion that in order for the U.S. to meet all of its financial obligations, including its debt payments, taxes must be doubled immediately and permanently on personal income, corporate, federal and payroll.

CBO data shows the U.S. is on the hook for $202 trillion, 15 times the official debt level. The figure is so much bigger than the one normally bandied about because it includes the burdens of such future benefits as Social Security, Medicare and Medicaid.

The deluge of baby-boomer retirements is about to collapse the system, Kotlikoff warns. No longer will younger generations be able to support old folks.

“Uncle Sam’s Ponzi scheme will stop. But it will stop too late,” he said. “And it will stop in a very nasty manner.”

The upshot is that the U.S. faces huge benefit cuts just as boomers hit retirement, massive tax increases that would leave little incentive for young people to work and save, and the temptation to crank up the presses that print money.

“This is an awful, downhill road to follow, but it’s the one we are on,” Kotlikoff said. “And bond traders will kick us miles down our road once they wake up and realize the U.S. is in worse fiscal shape than Greece.”

What do you think? Is he a Chicken Little or sage prophet?

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  • What took them so long to figure that out?
    Any fool can understand that when you spend more than you take in that eventually you go bankrupt. Washington has been talking about green shoots and the summer of recovery-who are they kidding? Sadly, most Americans are more in tune with Snookie & Lindsey Lohan that our messed up and broken system. it will come crashing down soon enough.
  • Look Out !!!!!
    I just hope I can get into cash, before the latest stock market crash comes booming down on all of us. Ever watched "Life Without Humans" on cable. Get your survivle skills tuned, so you can get back to being a hunter-gatherer or a farmer.
  • Close, but not yet.
    I am not too sure I can agree with him entirely. Especially when he takes into consideration that the Social Security problem, though it is real and will be a burden for sure, has us in bankruptcy already. You can't take how much we have no and then compare it to what we owe now and in the next 30 years. If so, then taking on almost any significant debt would automatically put you in bankruptcy. There's a plethora of austerity measures the Central Bank and law-makers can use to finagle our way out of this. If not, buy some ink and teach congress how to spell "seigniorage!"
  • Close, but not yet.
    I am not too sure I can agree with him entirely. Especially when he takes into consideration that the Social Security problem, though it is real and will be a burden for sure, has us in bankruptcy already. You can't take how much we have no and then compare it to what we owe now and in the next 30 years. If so, then taking on almost any significant debt would automatically put you in bankruptcy. There's a plethora of austerity measures the Central Bank and law-makers can use to finagle our way out of this. If not, buy some ink and teach congress how to spell "seigniorage!"
  • Anonymous

    $202 trillion is the highest estimate I've seen, but even if it's ONLY $100 trillion or so makes no practical difference, because it's light years ahead of our ability to cover.

    ' course, Congress COULD alter or abolish ANY of these entitlement programs at any time. All these articles start with the implied or expressed premise that these programs are set in stone or that retirees have this money set aside for them in their name, which of course is WRONG.

    The Moron-in-Chief today is bragging about these programs, and implying that those mean, evil, rich Repubs are just dyin' to abolish 'em, so those old folk can eat dog food and keep those filthy rich scuzballs in the lap of luxury.

    It'll take a complete collapse to stop these monsters from spending money we don't have.

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  1. Apologies for the wall of text. I promise I had this nicely formatted in paragraphs in Notepad before pasting here.

  2. I believe that is incorrect Sir, the people's tax-dollars are NOT paying for the companies investment. Without the tax-break the company would be paying an ADDITIONAL $11.1 million in taxes ON TOP of their $22.5 Million investment (Building + IT), for a total of $33.6M or a 50% tax rate. Also, the article does not specify what the total taxes were BEFORE the break. Usually such a corporate tax-break is a 'discount' not a 100% wavier of tax obligations. For sake of example lets say the original taxes added up to $30M over 10 years. $12.5M, New Building $10.0M, IT infrastructure $30.0M, Total Taxes (Example Number) == $52.5M ININ's Cost - $1.8M /10 years, Tax Break (Building) - $0.75M /10 years, Tax Break (IT Infrastructure) - $8.6M /2 years, Tax Breaks (against Hiring Commitment: 430 new jobs /2 years) == 11.5M Possible tax breaks. ININ TOTAL COST: $41M Even if you assume a 100% break, change the '30.0M' to '11.5M' and you can see the Company will be paying a minimum of $22.5, out-of-pocket for their capital-investment - NOT the tax-payers. Also note, much of this money is being spent locally in Indiana and it is creating 430 jobs in your city. I admit I'm a little unclear which tax-breaks are allocated to exactly which expenses. Clearly this is all oversimplified but I think we have both made our points! :) Sorry for the long post.

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