Your Family’s Slice of Government Promises…$534,000…and Growing
That USA Today article linked to by Drudge this morning is downright remarkable.
The federal government’s financial condition deteriorated rapidly last year, far beyond the $1.5 trillion in new debt taken on to finance the budget deficit, a USA TODAY analysis shows. The government added $5.3 trillion in new financial obligations in 2010, largely for retirement programs such as Medicare and Social Security. That brings to a record $61.6 trillion the total of financial promises not paid for.
All these numbers can get a little confusing, so let’s clarify and put in perspective. The additional $1.5 trillion is new bonded debt, the $5.3 trillion is that bonded debt plus $3.8 trillion in “just plain promises” (unbonded) embedded in entitlements programs and other stuff like pensions. Forget the other stuff, Social Security and Medicare are responsible for $3.2 of that $3.8 trillion in “promises.”
So how big are these numbers? First let’s remind ourselves that these numbers are promises we’ve made in just this past year, so $3.2 trillion is just new promises that these two programs have made this year. The total value of private savings in things like 401ks and IRAs is $9.2 trillion. So in just one year, just these two programs have made promises equal to 35% of the total accumulated retirement savings, built up over decades, in these standard retirement mechanisms. Stated another way, in just three years, the government can promise away, via just these two entitlement programs, the full value of a lifetime of private retirement savings. (Granted, 401ks and IRAs aren’t the only retirement savings out there, many folks’ retirement savings is tied up in a house or a business, but the point is just the same…if the government were to require hard assets to make good on these promises, it would gobble up private savings in no time and have to move on to devour our homes and businesses.)
But still, this is nothing…
The $61.6 trillion in unfunded obligations amounts to $534,000 per household. That’s more than five times what Americans have borrowed for everything else — mortgages, car loans and other debt. It reflects the challenge as the number of retirees soars over the next 20 years and seniors try to collect on those spending promises.
This is where we are today without even getting too deep into the baby boomer generation, to whom promises are set to skyrocket. You can’t tax your way out of this…at what rate do you tax a $14 trillion economy to fill a $62 trillion dollar hole that is getting $5 trillion deeper every year? There is no conceivable way to make good on these promises – and promises accruing as I write this and you read this – without massive expropriation of private property, on a scale that the world has never seen. The logistics and politics of such an effort make it an impossibility – we would have armed revolt before savings, houses and businesses were commandeered on the scale required by the dimensions of the problem.
These promises will be scaled back, quite possibly reneged on. The Dems can run a “Mediscare” electoral strategy until the cows come home, but it won’t change the numbers and the raw physics of money. Medicare and Social Security “as we know them” are dead entitlements walking. And as much I dig Paul Ryan, his plan might just prove to be too wimpy. We very well may have two political parties, 100% of our political class, in total denial.