Fed's Fisher: Unfunded Liabilities now at 104 Trillion

We have been talking a lot about debt to GDP ratio.  The debt to GDP ratio is about as bad as it has ever been during peacetime and is about as bad as it was toward the end of World War II.  Scary enough on its face. 

There are two problems this analysis that make the problem much more concerning: 
  1. They were in a time of war and knew that, in peacetime, military and other expenditures would be going down significantly.  We are in a relatively peaceful time, but expect expenditures to increase.
  2. At that time the unfunded liabilities was practically nil (Social Security was in its infancy and Medicare/Medicaid had not been contrived).  We have an unfunded liability at least 8 times what our official debt.  That makes our total liabilities to GDP ratio 8 times what we saw at the end of World War II.
The number that the Richard Fisher of the Dallas Fed uses is 104 Trillion.  How much is 104 Trillion Dollars?  The number is so big it boggles the mind. I hate those how much is a trillion games, but let's play anyway. 

How much is 104Trillion Dollars, the value of the unfunded liabilities of the United States?
  • 5.2 million new houses at 200k each
  • 347K per man, woman and child in the United States
  • If one dollar is one mile, 104 Trillion miles is 17.7 light years away. 
You could make a round trip to Alpha Centauri - the closest star to Earth - twice.

Read the whole release from the Fed if you want to stay awake at night.  Medicare is the mother of all unfunded liabilities, and could lead to our nation's financial undoing. It is not just me seeing gloom and doom (I am an optimist), but prominent economists and even the Fed (See http://bit.ly/c6RUAs):
Pundits and analysts like to focus on the year in which Social Security will go permanently into the red on an annual cash flow basis—which recently was projected to occur in 2019 but could occur as early as 2016. But they largely ignore the severity of the broader problem: accumulated entitlement debt over the infinite horizon. According to our calculations at the Dallas Fed, that unfunded debt of Social Security and Medicare combined has now reached $104 trillion—trillion with a 'T'—in discounted present value. And while much attention in recent years has been devoted to Social Security, the lion's share of the total entitlement shortfall (nearly $90 trillion) actually comes from Medicare. This is a prodigious number. Others—like Pete Peterson's foundation, which uses a different time horizon in its methodology—calculate the unfunded liability at north of $40 trillion, growing by a sum of $2 trillion to $3 trillion per year. No matter. The problem is frightful, whether you take his numbers or ours.

Medicare is by far the most serious fiscal storm cloud on the horizon, and it is a storm we are poorly positioned to weather given the rapidly deteriorating medium-term deficit outlook. Yet maintaining economic growth over the long term requires us to do so.


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