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The US is Bankrupt - Kotlikoff

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August 11, 2010 – Comments (7)

Interesting piece in Bloomberg

Kotlikoff references the International Money Fund on paper that says:

“The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It adds that “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.” 

And then he goes on that current taxes are about 14% of GDP, so basically to fill the gap taxes have to double.

How it ends in his view:

"And it 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."

 And finally:

"My reaction? Get real, or go hang out with equally deluded supply-siders. Our country is broke and can no longer afford no- pain, all-gain “solutions.”  "

 My thoughts, government is not and never has been the magic black box that people so consistently treat it as.  Media does a horrible job when you read how often they report someone saying the government should pay for it, they never come back and say how should tax payers pay for it, should taxes go up and what should be cut.  It is just always magic black box reporting.  Media could do so much to change perceptions by instead pushing the question towards "so what you are saying is we should raise taxes to pay for this" kind of thing and report it like that.

As a youngster I was taught that government was a magic black box.  My teacher would say that developing countries have large families because they don't have social programs and people depend on their children as they age.  Here, we have social programs that pay a pension so we don't have to depend on families.  And duh, instead you have a black box that has a small number of children paying into it to support an aging population.  


 

7 Comments – Post Your Own

#1) On August 11, 2010 at 8:06 PM, alstry (35.09) wrote:

The problem with doubling taxes, mathematically speaking of course, is that any gain in balancing the budget will be offset by reducing the GDP and shrinking tax receipts further.....

The real question is why are American government workers getting a paycheck when their private sector counterparts are getting unemployment checks....

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#2) On August 11, 2010 at 9:28 PM, outoffocus (22.81) wrote:

LOL I read this article earlier. Good article. I about to post it to facebook. I was going to make a blog too but I decided not to.

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#3) On August 11, 2010 at 10:45 PM, guiron (20.43) wrote:

The real question is why are American government workers getting a paycheck when their private sector counterparts are getting unemployment checks....

Yeah, fire the government workers! Because nothing helps unemployment like putting even more people out of work.

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#4) On August 12, 2010 at 8:47 AM, safefool1 (< 20) wrote:

@guiron, government workers do not product any economic output. The pay they receive comes from tax payers who, conversely, do produce economic output. We should have as few governement workers as is required to keep it operational. Not only that, but there should be no pensions and their salaries should be slashed to below the average taxpayer salary. Right now, if you include their benefits, they make double the average taxpayer.

We became the strongest country in the world because of our industrial might. We made things that the rest of the world wanted. Now we've squandered our position, moved almost entirely to an economy based on consumption and services, and your government ridiculously spends $4 trillion a yea, just trying to keep the illusion going that, somewhere, the US is actually a productive nation.

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#5) On August 12, 2010 at 12:12 PM, imobillc (< 20) wrote:

Let's keep the dream alive?

 

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#6) On August 12, 2010 at 12:14 PM, TDRH (99.66) wrote:

What dream?  The dream of upside down home ownership?

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#7) On August 12, 2010 at 1:47 PM, leohaas (32.07) wrote:

Bankruptcy is a cash flow problem. As long as the US can print money, it will not go bankrupt.

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