Economist Kotlikoff: 'Our Country Is Broke'
Wednesday, 11 Mar 2015 07:40 AM
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.
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