The REAL Debt Crisis

Our Government Ignores Generally Accepted Accounting Principles

With current spending rates, our national debt, and ever increasing spending by politicians, it is hard to see how America will climb out of this hole. Fourteen trillion dollars in debt seems unbearable, but that number sugar coats the hidden debt that Washington does not reveal.

The fact of the matter is 14 trillion reflects the national debt at the CURRENT time. What businesses do that the government does not is account for future unpaid liabilities. Below are the daunting figures of the unfunded debt liabilities of future entitlement expenses not recorded in current debt:

• Entitlements. Combining both Social Security and Medicare there is about 106 trillion in future liabilities. In order to pay for these lofty expenditures, taxes would have to be vamped up an incredible amount. With lofty taxes of the sort, our economy would exceed the already devastating numbers in GDP growth and unemployment.
• GSEs. Roughly estimated, bailouts of Freddie Mac and Fannie Mae account for a half trillion in liabilities.
• And then there are the states. State pension funds are driving their debt into the ground. Kevin Williams of National Review explains that states are ignoring the amount needed to be saved and invested in order to be able to pay the future benefits. With states facing empty pension funds in the future, their only options would be to increase taxes immensely or to be bailed out by the Federal Government. Combining this with already accumulated state and local debt we get a total of around 5.5 trillion.
• States also are responsible for 1 trillion in retiree health care and other benefits.

This report from National Review totals about $130 TRILLION in unfunded debt liabilities. Other reports, such as The Heritage Foundation, show more modest numbers of around $63 trillion. Regardless, $63-130 trillion is unfathomable and unsustainable.

It is not just the debt that America should be concerned about. Interest payments on borrowed money must be paid off. Interest payments are already incorporated into our federal budget. But, with America’s credit rating already downgraded once (and with the looks of our spending and lack of solutions, it is likely that it will be downgraded again), rising interest rates are highly possible. Once this happens, Americans should fear not being able to pay off the interest, which could lead our country into default.

Greece’s welfare state is the perfect example. In 2009 Greece was issued a bailout after news of Greece’s debt turned out to be far worse than the previous leader had projected. Greece agreed in an austerity plan that would slash spending, increase taxes, and issue pay cuts for government employees. Although Greece received these bailouts from European leaders and the International Monetary Fund, this did not decrease the uncertainty due to its financial predicament. Interest rates on Greek bonds skyrocketed deepening the financial burden.

The hole that Greece has dug itself into is too large for major budget cuts and bailouts to fix. The economy continues to plunge and is failing to meet the standards laid out in the austerity plan. Greece is very likely to face default in the near future.

This leads back to America’s financial crisis. With the REAL debt of the country lying somewhere between $63-130 trillion and its anemic economic growth, common sense shows that a mere $1.2 trillion in spending cuts that the Super Committee is to come up with is not going to be enough. With Uncle Sam facing another potential credit downgrade, these cuts will be swallowed up in the rising interest payments. America needs to undertake serious financial and economic reform FAST or we too could face default.