Economist Kotlikoff: ‘Our Country Is Broke’

Wednesday, 11 Mar 2015 07:40 AM | By Dan Weil

To those who say that U.S. government debt is easily manageable,?Boston University economist Laurence Kotlikoff?has a sobering reply.

“Our country is broke. It’s not broke in 75 years or 50 years or 25 years or 10 years. It’s broke today,” he told the Senate Budget Committee. “Indeed, it may well be in worse fiscal shape than any developed country, including Greece.”

And what about official figures showing that federal government debt is “only” 74 percent of GDP? “Unfortunately, the federal debt is not an economic measure of anything, including our nation’s fiscal position,” Kotlikoff argued. “Instead, the federal debt and its annual change, the deficit, are purely linguistic constructs that reflect how members of Congress choose to label government receipts and payments.”

For example, that figure omits the almost $750 billion the government is collecting this year in Social Security payroll taxes from workers and the future Social Security transfer payments these FICA contributions secure, he explains.

“Were we to go back in time and re-label all past Social Security taxes as borrowing, official federal debt held by the public would not be $13 trillion, but $38 trillion, which is 211 percent of U.S. GDP.”

In reality we’re facing a fiscal gap of $210 trillion, Kotlikoff proclaimed. That’s 16 times larger than official U.S. debt, “which indicates precisely how useless official debt is for understanding our nation’s true fiscal position,” he noted, and almost 12 times the current GDP of $18 trillion.

Looking at the global horizon, from 2007 through the second quarter of 2014, debt grew by $57 trillion, raising the global debt-to-GDP ratio by 17 percentage points to 286 percent, according to the?McKinsey Global Institute.

The endgame of this global cesspool won’t be pretty, says?Jeremy Warner, assistant editor of The Daily Telegraph. “The world is sinking under a sea of debt, private as well as public, and it is increasingly hard to see how this might end, except in some form of mass default,” he wrote.

And it won’t just be sovereign nations, but the corporate sector as well, Warner says.

“You might have thought that a financial crisis as serious as that of the past seven years would have ended the world economy’s addiction to debt once and for all. It has not. If anything, the position has grown even worse since the collapse of Lehman Brothers [in 2008].”

Governments in advanced economies have borrowed heavily to fund bailouts and boost demand. Private sector debt also has climbed rapidly in many countries.

The massive debt burden makes the global economy very vulnerable to financial crises, Warner maintained.

These articles are provided for informational purposes only and were obtained from publicity available sources on the Internet. These articles do not constitute financial advise or trading recommendations by Global Asset Management ("Global"). Global neither warrants the accuracy or completeness of the information contained in these articles, undertakes to update them, nor is it responsible for any omission or error contained in these articles. Viewers are encouraged to conduct, and should only rely on, their own independent research.
The purchase or sale of precious metals involves substantial risk and volatility. If you are contemplating purchasing and/or selling precious metals, you should consult with an independent financial advisor to learn about the inherent risks. Global does not render, and nothing in this website should be construed as, financial advise, a trading recommendations or a solicitation for the purchase or sale of precious metals.

Daily Chart : Gold

Daily Chart : Silver

Daily Chart : Platinum

Daily Chart : Palladium


Copyright © 1996-2015 Global Asset Management. All rights reserved.

2425 Hollywood Blvd. Suite 100. Hollywood, Florida 33020 :: info@globalam.net

Phone: 954.921.1021 :: Fax: 954.921.1536 :: Toll Free: 1.888.421.1021