In part 3 of this series, we showed that our government owes somewhere around $20 trillion in debt from various sources. This number is growing rapidly as they continue to spend more than they get in revenue — the deficit.<\/p>\n
$20 trillion sounds like a lot of money, and it is, but there is an additional problem \u2013 unfunded liabilities. Unfunded liabilities are what the government has promised to pay for in the future, but does not have money set aside to make those payments. The largest parts of the unfunded liabilities are Social Security, Medicare, and Medicaid, which is split between the Federal and State governments. Current credible estimates for the money needed to cover these liabilities include 86.8 trillion dollars* and 122 trillion dollars**. A precise number can\u2019t be determined because the actual cost of the programs depend on future projections. Liabilities are expressed in net present value<\/i>. Net present value is a calculation of how much money would be needed in today\u2019s dollars to cover payments over time in the future, so it\u2019s a lot like having a debt and calculating the monthly payment. The cost of social programs such as Social Security and Medicare are not fixed, since they vary according to political choices, and even random events, but they can be estimated using past data as a model. The future projections used to get the $86.8 trillion and $122 trillion estimates are for 75 years, meaning what we would need in cash today to cover the expenses in these programs for the next 75 years. Going between some of the estimates, let\u2019s use $100 trillion as the amount needed \u2013 five times the current total debt level of $20 trillion.<\/p>\n Let\u2019s go back to our fictitious example of Joe, who makes $25,000 a year but spends $24,000 a year and is already $200,000 in debt. Now we add a new and more serious problem \u2013 Joe\u2019s parents are retiring, and don\u2019t have enough in savings, so Joe has promised to pay a portion of their expenses for the rest of their lives. Unfortunately, Joe is already spending more than he makes, and has nothing in his own savings account to cover his parents\u2019 expenses. Joe\u2019s accountant explains that to cover these expenses for as long as his parents are expected to live, Joe would need a million dollars in the bank today. Joe\u2019s debt is $200,000, but when you add his unfunded liabilities Joe\u2019s on the hook for more like $1,200,000 \u2013 unless he chooses not to keep his promise to his parents.<\/p>\n There\u2019s the escape clause \u2013 in theory, the government could choose to lessen or even stop paying Social Security, Medicare, and Medicaid, just as Joe could choose not to pay the promised share of his parents\u2019 expenses. In practice, this is nearly impossible. People have come to depend on these programs to survive. By itself, Social Security doesn\u2019t provide a standard of living too much better than bare subsistence. Lowering its benefit value in any substantial way would almost certainly push those without hefty retirement savings into abject poverty or worse, homelessness and death. Does anyone think that today\u2019s young generation is going to assume the burden of taking care of their elders in large numbers? If not, what happens to them? Do we let people die in the street?<\/p>\n Lowering the cost of Medicare or Medicaid is also an extremely difficult proposition. Under the current health care system, we have little to no control over medical costs, which are increasing more rapidly than the official rate of inflation. We have some uncomfortable and difficult choices to make, but so far, people have shown little appetite for such changes. Unless health care in the United States is overhauled completely in a way that controls costs, the unfunded liabilities that relate to it will remain. The longer they remain, the more money we spend that we don\u2019t have, and the higher the debt will go.<\/p>\n Imagine we do nothing and the unfunded liabilities actually do<\/i> have a net present value of $100 trillion. This would mean that our current debt is really $120 trillion instead of $20 trillion. If it isn\u2019t possible to pay $20 trillion, how can we pay $120 trillion?<\/b><\/p>\n","protected":false},"excerpt":{"rendered":" In part 3 of this series, we showed that our government owes somewhere around $20 trillion in debt from various sources. This number is growing rapidly as they continue to spend more than they get in revenue — the deficit. $20 trillion sounds like a lot of money, and it is, but there is an […]<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[],"class_list":["post-80","post","type-post","status-publish","format-standard","hentry","category-financial","category-2-id","post-seq-1","post-parity-odd","meta-position-corners","fix"],"_links":{"self":[{"href":"https:\/\/thelitfuse.com\/blog\/index.php?rest_route=\/wp\/v2\/posts\/80","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thelitfuse.com\/blog\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thelitfuse.com\/blog\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thelitfuse.com\/blog\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/thelitfuse.com\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=80"}],"version-history":[{"count":8,"href":"https:\/\/thelitfuse.com\/blog\/index.php?rest_route=\/wp\/v2\/posts\/80\/revisions"}],"predecessor-version":[{"id":88,"href":"https:\/\/thelitfuse.com\/blog\/index.php?rest_route=\/wp\/v2\/posts\/80\/revisions\/88"}],"wp:attachment":[{"href":"https:\/\/thelitfuse.com\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=80"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thelitfuse.com\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=80"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thelitfuse.com\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=80"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
* From a recent Wall Street Journal article, \u201cCox and Archer: Why $16 Trillion Only Hints at the True U.S. Debt\u201d. Their $16 trillion figure does not include state, local, and structural debt.<\/span>
\n** From The US Debt Clock<\/a><\/span><\/p>\n