The Crash Course - Chris Martenson [65]
And [the Ponzi scheme] will stop in a very nasty manner. The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills.
Most likely we will see a combination of all three responses with dramatic increases in poverty, tax, interest rates and consumer prices. This is an awful, downhill road to follow, but it’s the one we are on.10
Two things are perfectly clear: There will be less money to go around in the future, and standards of living will fall as a result.
In case you’re harboring the notion that there’s some money socked away in a special U.S. government account, like in some kind of lockbox, I regret to inform you that there’s no “trust fund.” All of the excess Social Security receipts collected over the years have already been spent. The “trust fund,” such as it is, consists of several three-ring binders, locked in a filing cabinet in an otherwise-unremarkable government building in Virginia, which are filled with slips of paper representing IOUs from the government to itself.
Some people are confused by the fact that these IOUs are known as “special Treasury bonds” that promise to pay the funds back when needed in the future, with interest. That certainly sounds official and trustworthy. But the problem is, it’s not possible for the government to owe itself money, especially money upon which it has promised to pay interest. It’s not possible for any entity to owe itself money; by definition there cannot be any value in a promissory note issued by an entity from itself to itself. It would be an accounting fiction to suggest otherwise, and in private industry this practice is considered fraud (e.g., Enron).
All government revenue either comes from taxpayers or from borrowing, so when the time comes to pay off those “special” bonds, those funds must either come from taxpayers or from additional borrowing. The funds won’t come “from the government”; they’ll come from taxes or additional indebtedness. Therefore the “special” bonds have no value beyond how much future taxpayers will have to pay due to their presence. They’re not an asset of the government; they’re a liability of its people. There is a big difference between the representation of the Social Security holdings as a “trust fund” versus a multitrillion-dollar future liability of taxpayers. It’s as vast as the difference between night and day.
Depending on whose numbers you use, the federal shortfall in (mainly) entitlement funding is anywhere from $53 trillion (U.S. Treasury, 2009) to $99 trillion (Federal Reserve, 2009) to $202 trillion (Kottlikoff, 2010). Even the lowest estimate is nearly four times the total GDP of the nation. There are no painless ways to close even that gap.
Summing It Up
Putting it all together, we find that a personal failure to save is coincident with a failure to save at the state and local levels, which is mirrored by a corporate failure to save. And all are dwarfed by a colossal failure to save at the federal government level. Adding to this predicament is a profound failure to invest in and maintain existing infrastructure. All of these deficits will exert demands upon our national wealth in the relatively near future, and this leads me to conclude that the next 20 years are going to be completely unlike the last 20 years.
Here are the deficits:
1. A savings rate near zero
2. State and municipal pension deficits of up to $3 trillion
3. Corporate pension deficits of $400 billion
4. Federal shortfalls of somewhere between $60 and $200 trillion
5. Needed infrastructure investments of $2 trillion (or more)
How did we get here? How did this happen? As a former consultant to Fortune 500 companies,