The Dollar: Back to Monopoly Money Status?

[DontSayBanana]

There are different sets of accounting rules for private companies and the government. Private companies must include discount pension benefit obligation, net of any funding, on the balance sheet. The government doesn't have to do that, but has to include disclosures. You inspired me to dig through the financial statement disclosures for the government and I found that over the next 75 years,  "From the Governmentwide perspective, the present value of the total resources needed for the Social Security and Medicare Programs equals $40,848 billion, in addition to payroll taxes, benefit taxes, and premium payments
from the public." There is a table showing we expect the total costs to be $93.2 trillion, offset by $52.3 trillion in expected revenues.

http://www.gao.gov/financial/fy2007/07frusg.pdf

Thanks for the clarification. That accounts for $40 trillion; is he estimating on the high side or did we suddenly pile on another $5 trillion for FY 2008 and 2009?

[Zanza]

Planning for the next 75 years seems exceedingly pointless. Did Roosevelt think of 2009 when he did his New Deal in 1934?

[DontSayBanana]

Planning for the next 75 years seems exceedingly pointless. Did Roosevelt think of 2009 when he did his New Deal in 1934?

Bad example. There's a big potential for a paradigm shift with regard to government accounting in the US; we're slowly realizing that we hadn't been planning as far ahead as we should have and that when we tried to do so, we were overly optimistic.

[alfred russel]

Thanks for the clarification. That accounts for $40 trillion; is he estimating on the high side or did we suddenly pile on another $5 trillion for FY 2008 and 2009?

I have no idea. My guess is that he is taking a more up to date government estimate than I was looking at, and the economic downturn would logically make things worse. Still, there are so many estimates that go into the model that differences of $5 trillion are well within any reasonable range of uncertainty.

A few things to keep in mind: the value is discounted, and it seems to be using a discount rate of about 5.7%. What they are saying is if $45 trillion magically appeared in a bank account, we earned 5.7% on the money, and only took money out to cover our deficits for Medicare and Social Security, we would run out of money in 75 years. Our net deficit over 75 years is not $45 trillion; it is much higher. For example, a net deficit of $100 in 75 years would be $1.56 when discounted at that rate.

Also, 75 years is arbitrary. They also calculate the "infinite" deficit which is over $90 trillion, again discounted. That is a silly calculation, but why not use 50 years, or 60?

The whole exercise is somewhat artificial: why not calculate the future military, police, and education spending to be recorded as an "unfunded liability?" But in the calculation's defense, traditionally payroll taxes have paid for Medicare and Social Security, and what this shows is that our country has a huge financial problem if we aren't going to either cut those programs or eliminate other types of spending to make way for them.