8/11/2010

The US is Bankrupt

If you believe this article, and I do, the US is in a much worse situation than Greece.

From the IMF

The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates (Table 2). Using the same discount rate (3 percent) used by the Trustees of the Social Security Administration (2009) in their own Social Security-specific fiscal gap analysis and by CBO (2010e), and the infinite horizon definition, the U.S. fiscal gap is about 14 percent of the present discounted value of U.S. GDP under the Staff’s Scenario. This implies that closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP, that is to say that fiscal revenues and spending would need to change so that the primary balance predicted under that scenario improves by this amount every year into the indefinite future starting next year.2 Using the Alternative Scenario the fiscal gap increases to about 141⁄2 percent of the present discounted value of GDP (owing to the assumption that tax cuts are made permanent).


And guess what the IMF thinks are the "main drivers" of the problem are.

The main drivers of the fiscal gap are rising healthcare costs that under current law will boost mandatory spending to above 18 percent of GDP by 2050. Since the federal government has historically collected about 18.4 percent of GDP in tax revenues, this means that mandatory programs may absorb all federal revenues sometime around 2050, or as early as 2026 when the cost of servicing the debt is added. As a result, future entitlement reforms will be necessary to restore fiscal sustainability.


By contrast, the Fiscal Gap for Greece is 11.5 percent.

the fiscal gap, or the present value difference between all future expenditures and receipts. The Greek fiscal gap is staggering. Calculations developed with my colleagues at Freiberg University put it at 11.5 per cent of the value of Greece’s future GDP. . . .

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1 Comments:

Blogger be603 said...

let the "re-org" start in November 2010. Not sure it's bad enough yet to get support of the needed restructuring of entitlements and "divesting" of unconstitutional Fed level depts.

Well, if there was hope at Helm's Deep...

8/12/2010 11:50 PM  

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