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Oops! U.S. Debt Almost $100 Trillion

Back on July 22 I wrote a post about a San Francisco Chronicle article which stated the U.S. government is $53 trillion in debt (factoring in long-term liabilities), which translates to $455,000 per U.S. household.

Turns out, the situation might be worse. A lot worse. To the tune of $99.2 trillion, to be exact.

On August 7, a piece appeared on LewRockwell.com referencing a speech about the debt by Richard W. Fisher, the President and Chief Executive Officer of the Federal Reserve Bank of Dallas. Fisher told the Commonwealth Club of California in San Francisco back in May:

In the distance, I see a frightful storm brewing in the form of untethered government debt. I choose the words—“frightful storm”—deliberately to avoid hyperbole. Unless we take steps to deal with it, the long-term fiscal situation of the federal government will be unimaginably more devastating to our economic prosperity than the subprime debacle and the recent debauching of credit markets that we are now working so hard to correct.

How did the head of the Dallas Fed come up with a number like $99.2 trillion? First, he accounted for Social Security liabilities:

Now, fast forward 70 or so years and ask this question: What is the mathematical predicament of Social Security today? Answer: The amount of money the Social Security system would need today to cover all unfunded liabilities from now on—what fiscal economists call the “infinite horizon discounted value” of what has already been promised recipients but has nofunding mechanism currently in place—is $13.6 trillion, an amount slightly less than the annual gross domestic product of the United States.

Then, he worked out Medicare entitlements:

Please sit tight while I walk you through the math of Medicare. As you may know, the program comes in three parts: Medicare Part A, which covers hospital stays; Medicare B, which covers doctor visits; and Medicare D, the drug benefit that went into effect just 29 months ago. The infinite-horizon present discounted value of the unfunded liability for Medicare A is $34.4 trillion. The unfunded liability of Medicare B is an additional $34 trillion. The shortfall for Medicare D adds another $17.2 trillion. The total? If you wanted to cover the unfunded liability of all three programs today, you would be stuck with an $85.6 trillion bill. That is more than six times as large as the bill for Social Security. It is more than six times the annual output of the entire U.S. economy.

Fisher adds it all up, and, voila:

Add together the unfunded liabilities from Medicare and Social Security, and it comes to $99.2 trillion over the infinite horizon. Traditional Medicare composes about 69 percent, the new drug benefit roughly 17 percent and Social Security the remaining 14 percent.

And just to make his prediction a little bit more personal:

Let’s say you and I and Bruce Ericson and every U.S. citizen who is alive today decided to fully address this unfunded liability through lump-sum payments from our own pocketbooks, so that all of us and all future generations could be secure in the knowledge that we and they would receive promised benefits in perpetuity. How much would we have to pay if we split the tab? Again, the math is painful. With a total population of 304 million, from infants to the elderly, the per-person payment to the federal treasury would come to $330,000. This comes to $1.3 million per family of four—over 25 times the average household’s income.

Somehow, $455,000 per household seems a lot more manageable at this point…

Source:

“Storms on the Horizon: Remarks before the Commonwealth Club of California”
Richard W. Fisher
Federal Reserve Bank of Dallas, May 28, 2008