An Indian Civilizational Perspective

Has US gone Bankrupt?

We have already had warnings from Warren Buffett (& this)and others about the unsustainable levels of the US Debt and still many a self-indulgent analysts are busy trying to fool everybody in complex incomprehensible economic globeddygook theories about how this deficit is actually good for the US economy! So, it is quite interesting when the Head Accountant/Auditor (Comptroller) of the Government himself comes out to lay the situation bare in front of everyone! What follows in this article based on the Government Report is fairly clear – US is as close to going bankrupt as it can. And this situation is far from getting better because:

– Iraq is still on and IMHO there is NO way that US can come out of it!
– Baby Boomer "IOUs" are yet to be presented!
– The Infrastructure of the country is getting older by the day as Katrina proved abundantly! When was the last time that a power plant was built in the country (and haven’t the electricity rationing and blackouts during summers risen over the years?)?

This is just the Fiscal Deficit inside the house – in other sense the credit card debt of the Government that it has amassed to buy its "groceries" or sustainables! The Trade Deficit is an altogether a different story. That has risen to almost 7% of the GDP too! That means 7% of what the US makes is actually owed to the outside guys to just go by the day "under the roof" (or in personal households terms – the mortgage for the house!). In fact one economist predicted that this trade deficit is bound to rise to 12% of the GDP by 2010 if things dont improve.. and that doesnt seem likely.. in short term at least! For there is no way that the trade with China is coming to a halt .. is it? Or Walmart going out of business?

The US is insolvent. There is simply no way for our national bills to be paid under current levels of taxation and promised benefits. Our federal deficits alone now total more than 400% of GDP.

That is the conclusion of a recent Treasury/OMB report entitled Financial Report of the United States Government that was quietly slipped out on a Friday (12/15/06), deep in the holiday season, with little fanfare. Sometimes I wonder why the Treasury Department doesn’t just pay somebody to come in at 4:30 am Christmas morning to release the report. Additionally, I’ve yet to read a single account of this report in any of the major news media outlets but that is another matter.

But, hey, I understand. A report this bad requires all the muffling it can get.

In his accompanying statement to the report, David Walker, Comptroller of the US, warmed up his audience by stating that the GAO had found so many significant material deficiencies in the government’s accounting systems that the GAO was “unable to express an opinion” on the financial statements. Ha ha! He really knows how to play an audience!

In accounting parlance, that’s the same as telling your spouse “Our checkbook is such an out of control mess I can’t tell if we’re broke or rich!” The next time you have an unexplained rash of checking withdrawals from that fishing trip with your buddies, just tell her that you are “unable to express an opinion” and see how that flies. Let us know how it goes!

Then Walker went on to deliver the really bad news:

Despite improvement in both the fiscal year 2006 reported net operating cost and the cash-based budget deficit, the U.S. government’s total reported liabilities, net social insurance commitments, and other fiscal exposures continue to grow and now total approximately $50 trillion, representing approximately four times the Nation’s total output (GDP) in fiscal year 2006, up from about $20 trillion, or two times GDP in fiscal year 2000.

As this long-term fiscal imbalance continues to grow, the retirement of the “baby boom” generation is closer to becoming a reality with the first wave of boomers eligible for early retirement under Social Security in 2008.

Given these and other factors, it seems clear that the nation’s current fiscal path is unsustainable and that tough choices by the President and the Congress are necessary in order to address the nation’s large and growing long-term fiscal imbalance.
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