November 25, 2006

On our way to insolvency (or hyperinflation) - a picture of US debt, revenue and expenses as % of GDP



I know, I know, nobody cares, "deficits don't matter", screw future generations, we're having a great party now, and "it'll all take care of itself over time". I know, I know.

But there's just one thing.

I do care.

Under the assumptions CBO made for this 125-year picture of the federal government's finances, the projected rise in expenditures for Social Security, Medicare, and Medicaid would drive total federal outlays well above the level that they have been throughout much of the post-World War II period.

The core costs of the federal government--that is, ignoring net interest on the debt--could rise from approximately 18 percent of GDP today to 24 percent in 2050 and 28 percent in 2075.

Left unattended, that steady escalation in spending could cause major deficits to emerge and thereby push the government's debt and interest expenditures to unprecedented levels.

The total cost of government, including interest expense, could more than double as a share of the economy, rising from 19 percent of GDP today to 40 percent in 2075

33 comments:

Anonymous said...

Get those printing presses ready!

kilgore said...

This, along with the problem of world overpopulation, is the single most important story of our time. When will the msm catch on and start holding politicians accountable?

The truth is that any politician who is running for federal office should be REQUIRED IN EVERY SINGLE INTERVIEW HE OR SHE EVER DOES to put out a specific plan as to how he or she would balance the budget. Because the fact is that the principle duty of federal officials is to raise and allocate money, and yet that's the one thing they're never asked about.

Butch said...

The problem with these long-term projections is just that: they are too long term for people to get excited over.

However, what IS worthy of worry is the current situation:

1. An "on the books" U.S. federal debt of $9 trillion.

2. Overall U.S. debt of $43 trillion.

3. A trade deficit of approx. $800 billion per year, which means:

4. That the U.S. has to borrow from it's "vendors", China, Japan, OPEC almost a trillion dollars a year just to keep the game going.

5. A housing bubble that, as well-documented here, is clearly collapsing, which will lead to:

6. Chaos in the banking, mortgage, securitization and derivatives markets--which, by the way, is no small issue, since we are talking $9 TRILLION dollars in mortgage debt, plus the multi-trillion dollar derivatives bets.

Finally, the smallest upset in the complicated chain of events that comprise today's worldwide economic system can send the whole thing crashing down. A case in point is the last few days in the currency markets, where the dollar has taken a pounding. This could set off a chain reaction of derivatives defaults and systemic crisis.

Conclusion: We probably won't even make it to the long-term!

Anonymous said...

Nothing to worry about. Gen X gets cut out of the picture.

buzz kill said...

When will the msm catch on and start holding politicians accountable?

When will you catch on that the same people who own the msm own the politicians as well?

Anonymous said...

How about social/political instability?

I was in a hurricane last year in Miami Beach. There were gas lines. In a blink, people lost patience and a shooting exchange occured--that right, bullits flying over gas.......

Let's see what happens when people run out of credit. How about when retired people go into bankruptcy?
How about when inflation makes it impossible for anyone to own a home?

This is what happened to Germany in the 30's. How do you think the Third Reich came to power? It wasn't because Jews were evil. They needed a scapgoat. The Jews were convenient. The whole ordeal eas about money--the breakdown of the financial system.

We are headed that direction.

Anonymous said...

War is Peace, Freedom is Slavery, Ignorance is Strength.

Anonymous said...

Question: In the case of hyperinflation, who is screwed more, renters or home owners? Is it a good argument for buying a home?

buzz kill said...

Gotta give the sheep credit, they made a whole economy out of easy credit. Now the game is ending badly because some people won't participate. Why won't you people play with the sheep? Meanies, you've gone and ruined everything.

Anonymous said...

The present terms of debt contracts favor borrowers in any inflationary spiral. That will likely change. If I were signing mortgage papers today, I would look very carefully for inflation clauses hidden in the fine print.

Anonymous said...

Butch hit the nail on the head. The dollar was hit hard in the past few days. The mother of all financial crises is on our doorstep and sheeple will start the stampede.

Anonymous said...

::In the case of hyperinflation, who is screwed more, renters or home owners?

In traditional hyperinflation, home owners are in great shape esp with a fixed rate mortgage. The home, in this case, is a true asset class.

The problem is that we're not approaching a traditional hyperinflation. We're entering a long term bear market on numerous assets classes (with RE at the top of the ladder). The USD is going down in the manner of the British Pound, post 1945 (ala end of the Crown's empire). Since so many parties own USDs, the currency won't fall like the Deutchemark of the 20s because of the number of intl banking and institutional parties which hold on to it for both collaterialization and lending purposes. So, what we'll see are cascades/ranges of declining values over the course of some 20 or more years where the final resting place can be anywhere from 10% to 50% of its current valuation against like currency pairs (Euro, Corona, Aussie, etc).

Now, with the RE class oversold and in high inventories nationwide, the crash in RE prices won't cause the rents to skyrocket to take in all the foreclosured upon former homeowners since there's all this inventory lying around to rent out. Nonetheless, in this situation, there is some bifurication where there are some neighborhoods which garner a higher rent differential than others but then again, with so many RE investors holding on to property with less re-sale value, they'll probably have to keep rents relatively stable, even in nice areas, to attract reliable tenants.

Also, foreclosed upon former homeowners won't have a high credit score (with all the liens and bankruptcy filings) and may be barred from the safer regions whereas bubble sitters with 700+ FICOs will probably have all kinds of access to places to live in down the road. Realize, being able to make steady payments (the purpose of a credit score anyways), is important to RE investors in good areas because a bankrupt person has nothing to lose by not paying rent on time and playing the complaint games with the local housing authorities to stay at the apartment free of charge for months at a time.

bozonian said...

The first thing journalists need to do is stop interviewing people who have a vested interest in the outcome.

Real estate agents, mortgage brokers etc cannot tell the truth. It would be like advertising, "Hey, don't buy my product or you'll be screwed".

Anonymous said...

Overpopulation?

The biggest problem facing the world is proliferation of nuclear weapons. If that gets out of hand millions will die.

Some of you people have a strange sense of priority.

FlyingMonkeyWarrior said...

A Federal Bailout

Housing is so important to the U.S. economy and the American dream that it's very hard to believe that a collapse of the size we foresee could occur without a significant reaction from the Administration and Congress. With a 25% drop in existing median single-family house prices nationwide, sales will fall 60% or more from their June 2005 peak. Many homebuilders will go out of business and lending will switch from smiling distributors of more-than-ample funds to chastened tightwads who won't lend to anyone except those who don't need to borrow. Delinquencies on subprime mortgages will probably double from their current 8% rate.

What might Washington do? So many mortgages have been securitized in recent years that investment risk has been spread beyond conventional lenders. But that doesn't reduce the damage of foreclosures to hapless homeowners. Washington may end up using moral suasion and good old money to encourage lenders not to foreclose and otherwise mitigate dire consequences for homeowners that would lead to even weaker house prices as foreclosed houses are dumped on the market

Banks and other mortgage lenders will be only too happy to cooperate with government bailout efforts, which will save their skins too. Nevertheless, the lucrative fees they make for residential real estate lending will be history.

For housing/economy crash analysis with graphs:

http://tinyurl.com/y5gh8p

Anonymous said...

Over at housing doom is a very ominous posting by an anonymous postal employee talking about his/her observations on the types of mail going through, especially big increases in foreclosures, repossessions and desperate home builders.

http://housingdoom.com/2006/11/25/what-the-sorters-are-seeing/#more-308

Anonymous said...

>> War is Peace, Freedom is Slavery, Ignorance is Strength.

Anyone else tired of anons posting famous quotes so as to make themselves seem intelligent?

Anonymous said...

Why do the medical expenses keep rising after all the baby boomers die off, hmmmm??

Anonymous said...

"Washington may end up using moral suasion and good old money to encourage lenders not to foreclose and otherwise mitigate dire consequences for homeowners that would lead to even weaker house prices as foreclosed houses are dumped on the market"

At a local level here, the fu*king politicians here have decided that houses are "unaffordable", and their answer is to spend $20M-$40M of taxpayer money to help losers buy houses they couldn't otherwise afford. Like handing out free food to homeless people with no strings attached, this idiotic program will generate the opposite outcome from the desired result. But it's not their money so who gives a sh_t, right?

Now that the Dems have taken Congress and will likely get the presidency in '08, translate that do-gooder mentality into a national "American Ownership Security Act" where the fu*king politicians spend $2-$4 trillion bailing out all the assholes (aka less fortunate) who took out mortgages they can't afford.

It's coming, mark my words.

Anonymous said...

The answer will be simple.

Old people vote more than young people, and with the boomers retiring and demanding their "fair share" (koff koff) they will vote themselves all the assets and labor of the younger generations.

They will get everything they want: lavish socialized medicine for the old, with an "born-by date" cutoff, like how new workers in wealthy firms get a Dickensianly meager retirement 'benefit' and older workers, and big executives get lavish guaranteed pensions.

Born after a certain date, no Medicare for you. You'll get outsourced HMO crap.

Taxes will be very high, and then the government will put on some more "national service" requirements to extract more free labor from the young. You'll be spongebathing demented grandmas In Your Nation's Service, and living in communal barracks (with video surveillance, so you can't get drunk, high or laid).

If you refuse, you're off to fight Caliph Osama in Arabia, Somalia, Egypt, Iraq and Afghanistan. Watch out for those nuclear IEDs!

Anonymous said...

>>>Anyone else tired of anons posting famous quotes so as to make themselves seem intelligent?

Yeah right, it's all one big ego trip. Or, we might just be trying to lift the veil of darkness that surrounds the thinking for many "anon" dumbasses like you.

Budvar said...

"Question: In the case of hyperinflation, who is screwed more, renters or home owners? Is it a good argument for buying a home?"

It all depends, in Weimar Germany rents were frozen, and although mortgages were paid off for the price of a loaf of bread, once stability in the currency arrived, these home owners were heavily taxed on their properties.

keith said...

Why is everyone posting as "anon"? You take so much time and thought with your post, and then you lazily click on Anon.

Have some courage, some class and some blogging manners and click on "other" then assign yourself some name - daffy duck for all I care - so we can respond to you

Peace out

kennyb said...

75 year projections are worth almost nothing.

How much does it cost if SS is adjusted for increased life expectancy? And they reform the SSDI part to get rid of the non disabled parasites?

How about if they start rationing medicaid (poor people) to only basic services?

How about if they make old people pay for more of their medicare especially the richer older people?

Small changes now will cause big reductions in future liabilities.

It's just a question of having the will now to do something about it. Medicaid has no spending limits on it at all, no cost to the 'poor' who get it. No limits on services. No wonder it's out of control.

Daffy Duck said...

Quack!

AmazingRuss said...

"Why won't you people play with the sheep? Meanies, you've gone and ruined everything."

I'll start playing with them when I get hungry for mutton.

College Republicans for JEB said...

Old people are easy to kill. Murder about 15% of the elderly and threaten the rest with the same if they don't give up their SS bennies. They will comply and the soc. sec. problem will be solved.

bubble_watcher said...

"On our way to insolvency (or hyperinflation) - a picture of US debt, revenue and expenses as % of GDP"

Rome didn't collapse overnight either, so that looks about right.

we're screwed said...

This is an older study: it shows the feds running a surplus until 2020 and paying off all the debt. We all know what really happened.

The Repubs aren't incompetent and corrupt: they're intentionally trying to destroy the federal government. Although this would destroy everything else too, they think an Ayn-Randian utopia will rise from the ashes. Just like in Iraq.

Anonymous said...

To Anons
Saturday, November 25, 2006 5:01:43 PM Saturday, November 25, 2006 6:16:52 PM,

Thank you.

Anonymous said...


Old people are easy to kill. Murder about 15% of the elderly and threaten the rest with the same if they don't give up their SS bennies.

Interesting idea, I suppose one could replace food stamps with McDonalds gift certificates... Do you want to supersize that heart attack?

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