SPECIAL REPORT ON THE U.S. ECONOMY - The $44 Trillion Abyss

SPECIAL REPORT ON THE U.S. ECONOMY
The $44 Trillion Abyss
The baby-boomers are about to retire, and it's going to cost us—big. Here's what the government doesn't want you to know.
By Anna Bernasek


Last fall Paul O'Neill, then Secretary of the Treasury, wanted a simple answer to a thorny question: How prepared was the nation today to pay all its future bills? Two government experts worked for months to calculate the answer. Their findings, which shocked even them, were never published—the Bush administration made sure of that. The reason for the silence was that by the time the two researchers had completed their study, O'Neill had been thrown out of the Treasury and replaced by the more politically astute John Snow. No savvy administration power player would dare point out, right in the middle of tax-cut season, that there was a huge hole in the country's finances—a $44 trillion hole.

That's the kind of Washington tactic that makes Larry Kotlikoff angry. So angry, in fact, that the normally composed and carefully spoken academic starts ranting about a government conspiracy to keep us all in the dark. He even refers to this particular episode as "the great Treasury cover-up." And once you start Kotlikoff on the subject, it's hard to stop him. "I hate politicians," he says, without pausing for breath. "These people are so... Continue

http://www.fortune.com/fortune/investing/articles/0,15114,538789,00.html

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another review

White House Shelved 44 Trillion Deficit Report?
By Peronet Despeignes of the Financial Times
May 30, 2003, 10:21



Thursday 29 May 2003

Study commissioned by O’Neill sees $44 trillion in red ink

The Bush administration has shelved a report commissioned by the Treasury that shows the U.S. currently faces a future of chronic federal budget deficits totaling at least $44 trillion in current U.S. dollars.

The study, the most comprehensive assessment of how the U.S. government is at risk of being overwhelmed by the “baby boom” generation’s future healthcare and retirement costs, was commissioned by then-Treasury secretary Paul O’Neill.

But the Bush administration chose to keep the findings out of the annual budget report for fiscal year 2004, published in February, as the White House campaigned for a tax-cut package that critics claim will expand future deficits.

The study asserts that sharp tax increases, massive spending cuts or a painful mix of both are unavoidable if the U.S. is to meet benefit promises to future generations. It estimates that closing the gap would require the equivalent of an immediate and permanent 66 percent across-the-board income tax increase.

snip

http://www.chewinthefat.com/artman/publish/article_271.shtml
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AND the actual Federal Reserve Report Documenting the $44 Trillion!

http://www.ngiweb.com/FiscalReport.pdf

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This is a "ticking timebomb" that our government is avoiding. I listened to a one hour review of this issue today on the Financialsence.com saturday interview take a listen:

http://www.netcastdaily.com/fsnewshour.htm (the interview with Laurence Kotlikoff)

The $41 trillion is a "equity between generations" number that O’Neill pulled from his ass so as to show that tax increases - as in killing the Bush tax cuts - were not enough - and that we needed to kill entitlements (never defense - just kill Medicare and Social Security).

I reviewed the calculations - and I should not have said they were pulled from O’Neill's ass. They are correct - but the media never says what they really suggest - namely the accumulation of non-government bond assets in trusts controlled by the federal government so as to get dollars thrown off as investment earnings that would be used to fund those entitlements.

Now you know Bush and O’Neill were not interested in the gov owning and controlling a huge amount of the wealth of the US - that would be "socialism by the backdoor" replacing Bush's preferred "Rich folks control everything so they are happy and contribute to the GOP".

So why do we again, today, hear of the O’Neill numbers?

Can we say preperation with smoke and mirrors of the media, so as to sell the media on the need to cut Social Security - sorry - wrong phrase - to "modernize with private accounts replacing only some of the guaranteed income" (I love sounding like a GOP "moderate". Gee, this sounds just like the way he is trying to modernize Medicare by allowing Insurance companies to pick out the health old folks and insure them at low rates - while medicare takes the sick and must charge higher rates - thus pushing everyone to private insurers. who then raise cost way above medicare levels as they add profits and CEO compensation and GOP contribution needs to the overall cost.

But will the US Media = or the AARP - say anything - or are they both too well controlled by the need for customer money?

O'neil was fired and the report was shelved....maybe we will never know the truth behind this.

I encourage you to listen to the last link with the Financialsense interview today.

We need answers. If the numbers are real..which they appear to be...this is a huge issue and it is up to govt to come up with solutions.

And yes the solutions are brutal:

* higher taxes
* privatize social security
* reduce medicare and other expenses

I don't have the answers...but we have a presidential campaign around the corner and the damn well better address these issues. I know bush's response will be delay becuase these issue will not hit on his watch. The lastest medicare reform just makes this worse.

* higher taxes - restore taxes to pre-Bush tax cut and end wage cap on Social Security (OASDI) payroll taxes

* privatize social security - keeping current system as is with only a repeat of the Reagan increase in "normal retirement" age - with Reagan it was from 65 to the soon to be current 67, and this time it will be from 67 to 70 (a 30% cut in benefits at 62) to take effect in 2043. Add separate private accounts with their own new tax or with-holding if that floats your boat.

* reduce medicare and other expenses - by saving 15% minimum by going to single payer Universal Health, and reducing "other - as in Defense" by returning to co-operation with the UN.

Now that was not so brutal - was it?

:-)

:-)

:toast:

:-)

is privitizing social security. as has been made abundantly clear over the last few years, someone would be a fool to assume that the market is self-regulating, and insider trading and corrupt accounting procedures, and special after-hours trading makes the stock market a horrible place for those with little disposable income and no insider connections to place their faith in the future....just ask the Enron pensioners with their .88 cent pension checks.

as long as people like Bush can take the presidency and protect these people, rather than protecting the interests of the American public majority, why should any American support privitization of social security?

I absolutely agree on lifting the cap on social security deductions. those people making more than...what is it now? 75K? still take the max they can from soc. sec. payments, so why should they be exempt from a portion of their payroll being included?

in fact, it makes much more sense to me to exclude all income under, say 30k from social security taxes. this would be a boon to small biz owners and to entrepeneurship and would help those who are part of the poorest segment of this society to cope with day to day expenses.

as far as a stop to Bush's tax cuts...the dems need to get out some charts and read Paul Krugman to find ways to explain to the American people how Bush is lying to them about the benefit of this tax cut, and for whom.

Like the use of the term "average tax break" --with the Krugman example of..say you and me are in a bar and Bill Gates walks in... our average tax break has just increased dramatically, but you and I are still getting the same actual amount of dollars back...and so is Bill.

????

Gokhale is with the American Enterprise Institute-- a rightwing think tank that's been preaching the mantra of fiscal responsibility.

It kind of gives the lie to the idea that the present administration is in the pockets of Corporate America. Greedy and shortsighted as some may be, I can't imagine that all of them want such a dim future.

This is a very depressing report, and it should be causing agida in boardrooms across the country.

evil future that $44 Trillion implies -

so conclusion - $44 Trillion is bull shit - there is no evil 44 trillion future - it is put out to scare folks into having less in Dem type expense, and to agree to more(!- yes this will come also) in GOP expenses, with lower taxes on the rich staying around.

the mention of discretionary expenditures mentioned prominantly.

Not that there are that many discretionary expenditures any more anyway, but that's always a good starting place for them to go when arguing.

Fact remains, though, that even if the report is corrected for some obvious errors or misconceptions-- we are in big trouble.

Capital will find a way to save itself-- it usually does. And the ways it finds to benefit itself will not necessariy benefit the rest of us. The boardrooms may look at this, make some adjustments in the numbers, and bail-- leaving us in the lurch. Or, they may find ways to survive that do benefit us, as classical economics tells us they should.

Foreign capital outflows, current account deficit, massive future expenditures, possible smaller tax base... The problems are massive and will take some corrective action. There's no way they can fix themselves.

The question is just what corrective action to take, and how much.

We really don't have an answer to that.

to bail - IMHO :-)

I agree our path must be changed and we must get back to a solution person like Clinton, and away from a "make the problem worse so my political concept can be sold" person like Bush.

And while I agree "We really don't have an answer to that" (I do not guarantee even my answers !! :-) !! ), we need not do more than start making approx. correct changes - (noting those that do not turn out to be approx correct - like tax cuts for the rich that were a disaster in 81-83 with Reagan, and now again with Bush)- and we will as the Brits say - muddle through!

Why am I not surprised? I read part of the pamphlet, and it makes it clear from the outset that we should have NO deficits. (Natually, put together by a Hindu visiting scholar).

I can certainly see why the Half-wit Bush administration would sweep this one under the rug. They do not want us to see what is happening to the government.

It sounds like one of the biggest governmental expenditures is Social Security, and Medicare second. Expect both of these two to tank, once their insane spending starts to catch up with them. Give it, 10 years or so? Maybe sooner, if they really go bonkers with the checkbook.

This means that there probably will be only 5 cents left by the time I get ready to retire, and all other DU:ers here.

Scary as that may sound, it still is not the worst of it. Picture us as a ship. We've started to take on water. The passengers are getting scared, they're looking at the water line moving up. The captain is busy reassuring the passengers that "everything's fine. Don't worry. Turn on your radio, or go to bed. We've got it covered".

As we start to take on more water, other countries are starting to look at us. They see what's happening. Not ALL countries are our friends. Imagine what some of them, like maybe North Korea, might be discussing behind closed doors.

discussion.

A discussion that needs to take place...especially with the upcoming election.

This is a "huge hole" thanks to our politicians.

pay as you go.

With our current pay as you go, reverse the Bush tax cuts and all is well.

Only if you want a huge gov controlled Trust Fund of Non-government assets do you need to pay attention to this shit!

My discussions with this group - and other actuaries discussions with this group - back when ex-Senator Moynihan was chair - are open to the public if you want to catch up on the theory - and bull shit -of what this is all about.

Why are you pushing Medicare and SS are in trouble when it is not true? Do you really want to be part of the GOP push to confuse folks? If you DU mail me I'll be happy to answer whatever questions you may have about why this is bull shit. Perhaps we could get a media person involved in a roundtable and get some PR out about why this is bull shit!

Now that might annoy our GOP friends!

:-)


By the way, Laurence Kotlikoff, kotlikof@bu.edu ,
http://econ.bu.edu/kotlikoff of the Department of Economics
Boston University, has many generational papers out - all very interesting reading. The "errors" he makes are not math errors - they are concept errors. For example, in the papers below he does not do the minimum adjustment needed for SS projections of assuming a change to a "normal" retirement age of 70 - meaning a 30% reduction in benefits at 62, in 2043.

Alternatively the removal of the wage cap on payroll taxes does not seem to float his boat.

Likewise the savings of single payer Universal Health seems to have not caught his eye.

He also does not see any reason to change the rip-off levels of expense at Defense brought to the table by Bush, and reduce them to the co-operate with UN and friends level of expense that Clinton achieved.

Now of course he "sees" the above - it is just that in his need to raise taxes or cut benefits charts, the above does not seem his first thought.

I suggest you read some of the papers - oh, not that econ profs are not smart - they are - but business wise actuaries might be a good source of info, also.

http://econ.bu.edu/kotlikoff/Fixing%20Social%20Security%20and%20Medicare%20for%20Good.pdf

Laurence J. Kotlikoff, 2001. "Generational Policy," NBER Working Papers 8163, National Bureau of Economic Research, Inc

Jagadeesh Gokhale & Laurence J. Kotlikoff & Mark J. Warshawsky, 2001. "Life-Cycle Saving, Limits on Contributions to DC Pension Plans, and Lifetime Tax Benefits," NBER Working Papers 8170, National Bureau of Economic Research, Inc

whenever the republicans start screaming that we cannot afford to fund social security, could you book yourself on Lou Dobbs? :)

...not that tv wants anyone to hear a different message.

but what about the contention that bizzes have underfunded their pension programs?

(to make their bizzes look better and pay stockholders?)

Why is such a massive redistribution of wealth okay when the middle class pays for the richest of the rich to game the system?

Isn't this is basic message that democrats need to get out...that the really rich are scamming the middle class? I think that would get voters' attention.

come election time.

Gore/Perot style graphs and charts are just gonna turn them off.

that the rank and file US citizen can't handle a simple graph or chart.

How much do things need to be "dumbed down?"

Also, as an aside, I have heard that the social-security decuctions from our paychecks don't go 100% to pay for social-security?

Is this true?

and can be made to lie like a god when manipulated.

A clasic example of this is called clipping that chart. Such as when you look at stocks, it starts low and proceads up and up and up and up. It look convincing, until you ask what happend before the chart was "cliped"