The Biggest Ponzi Scheme on the Planet-The U.S. Government
"American Economic Exceptionalism Explained"                     USAPonzi                                      by John W. White   Mar 29, 2013

The Department of the Treasury Assessment
May 2013

Each year the Department of the Treasury prepares a short form summary of the complete U.S. Government Financial Report called the Citizen's Guide.  The Citizen's Guide to the 2012 Financial Report of the United States Government is an 8 page summary of the 260 page complete report and can be accessed via the above indicated link.

This summary report supports the thesis of this website (and the associated White Papers) that the current fiscal policy of the United States Government is unsustainable.  Page v of this report (Where We Are Headed) and Chart 5 show that extending current policy will cause Net Interest Expense to rise indefinitely as Total Spending exceeds Total Receipts throughout the 75 year period.  

Extending current policy not only increases Government spending (due to interest expense) but also causes an ever expanding deficit and, as Chart 6 on page vi of the report indicates, causes our national debt to spiral out of control throughout the 75 year planning horizon.  As page vi of the Citizen's Guide states, it is estimated that preventing the debt-to-GDP ratio from rising over the next 75 years would require some combination of expenditure reductions and revenue increases that amount, on average, to 2.7 percent of GDP over each of the next 75 years.  The report also states the obvious that the longer we delay closing the fiscal gap the more significant the reforms will have to be.

So how significant is a 2.7% action if we started taking this required action in 2013.  Our current GDP is $15.7 Trillion so 2.7% of that would be $424 Billion per year.   If I relate this back to my Sequester unit of monetary measure (that being $85 Billion per year) this $424 Billion per year would equate to 5 Sequesters ($424 Billion/$85 Billion = 5).  These actions, according to the Department of Treasury, would take 75 years of this average level of fiscal gap closure to stop the increase in debt-to-GDP ratio but it would still not reduce the debt-to-GDP ratio to the 50% of GDP that I think is necessary to provide some margin of error for extrodinary economic and/or geopolitical events.   My 65 Sequester plan (see Sequester-A Drop in the Bucket!) achieves a balanced GAAP-basis budget right away and gets to a debt-to-GDP ratio of 50% in 20 years.

It should however be noted that we already have a one Sequester action underway in 2013 so we only have 4 more Sequesters of fiscal gap closure and in just 75 short years our debt-to-GDP will stop going up BUT we will still have a massive debt to pay off that will by that time be much much greater than the 107% of GDP that we have today.

The problem is, and as this Citizen's Guide states, if we make these fiscal gap closure actions too quickly it could derail the economic recovery.   But if we delay taking the actions we have to make bigger tax increases and spending reductions when we do start.   We are between the proverbial rock and a hard place.  According to this Citizen's Guide, if we wait 10 years to start these cuts we will need 20% larger gap closure and if we wait 20 years to start it will take a 50% larger gap closure.  And of course if we wait that long to start the fiscal gap closure we will have a much much much much larger national debt to deal with even though the debt-to-GDP ratio stops going up by the end of the 75 years.

The Department of the Treasury Plan is a "fairy tale"!!

To borrow a phrase from David Stockman, the Treasury plan to close the fiscal gap with only 2.7% of GDP tax increases and cost reductions is a "fairy tale"!   First of all, taking 75 years to correct this problem is absurd since the Congress will override any such plan at the first opportunity because they feel that they can pass the problem on to the next President and the next Congress.  Secondly, they make no estimate as to the level of debt (debt-to-GDP) we would have at the end of 75 years when we finally get to the point where the debt-to-GDP ratio stops increasing.  Thirdly, they do not present a strategy to start a constructive plan for actually reducing our debt-to-GDP ratio to a sustainable level.  And finally, our fiscal problem is an exponential problem not a linear problem.  Just cutting expenditures and raising taxes will not fix the problem in the long term.  We have to take massive action on our entitlement promises so that they do not continue to rise exponentially.   Defined benefit plans can only exist for a very small percentage of the population.  We must move to defined contribution plans for the most part and those must be clearly affordable within our Federal Government's GAAP-basis budget.

This is serious stuff!!!!

Citizen's Guide to the 2012 Financial Report of the United States Government
Citizen's Guide to the 2013 Financial Report of the United States Government

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