In the first six months of fiscal 2021, the U.S. government ran a record budget deficit of $ 1.7 trillion.
And there is no end in sight to borrowing and spending. Last month, the national debt eclipsed $ 28 trillion for the first time. But it’s even worse than that.
When you include unfunded liabilities like Social Security and Medicare, that actual U.S. debt stands at $ 123.11 trillion, according to the 2021 Union Financial Statement released by Truth in Accounting.
In order to pay off all of Uncle Sam’s debts, every taxpayer in the United States would have to issue a check for $ 796,000.
I don’t know about you, but I don’t have it.
The federal government has $ 5.95 trillion in assets and $ 129.06 trillion in liabilities. If it were a private company, the US government would be bankrupt.
Here’s a breakdown of Uncle Sam’s responsibilities into broad categories.
- Medicare Benefits – $ 55.12 trillion
- Social Security Bonds – $ 41.2 trillion
- Public debt – $ 21.08 trillion.
- Military and civilian pension benefits $ 9.41 trillion
- Other liabilities – $ 2.25 trillion
According to the analysis by Truth in Accounting, the financial position of the US government has deteriorated over the past year. Based on the latest available audited financial reports, its financial position deteriorated by $ 9.84 trillion in 2020.
Interestingly, the Treasury Department only includes $ 175.30 billion in Social Security and Medicare liabilities on the federal balance sheet; according to government documents, beneficiaries are not entitled to benefits beyond the benefits currently being paid and laws to reduce or stop future benefits may be passed at any time. The truth of accounting does not assume any change in current social security or health insurance regimes. This is a fairly safe assumption given that these programs are generally considered to be the “third rail” of politics. In other words, politicians dare not touch them.
Truth in Accounting’s conclusion sounds a lot like an understatement.
“Because the federal government would need such a large amount of taxpayer money to cover this debt, it was given an ‘F’ rating for its financial situation.”
Can we go with an F-?
The only thing that keeps the federal government solvent is the fact that the Federal Reserve supports the bond market and monetizes debt. The central bank buys US Treasuries on the open market with money created from scratch (debt monetization). This creates an artificial demand for bonds and keeps interest rates low. All this new money is pumped into the economy, causing inflation to rise. We see this playing out before our eyes as the Fed continues to expand the money supply by record amounts.
Last week, Jerome Powell admitted that the federal budget was on an “unsustainable trajectory”. But he insists that the current debt is sustainable. “There is no question of our ability to service and issue this debt for the foreseeable future,” said Powell.
Of course, this is only true as long as the Fed continues to monetize. And that could become problematic if inflation got out of hand. The only way to fight inflation is to tighten monetary policy. And the only way to feed the voracious monster of the federal budget is to keep monetary policy loose.
What will Powell choose?
We can be sure of one thing: the US government will not suddenly stop spending money.
There is always an excuse to borrow and spend more. Today, it is the economic emergency caused by the coronavirus. And when times are good, politicians will tell us it’s time to “invest in our future”. There is never a time to “prioritize concerns” about budget deficits and paying down the national debt. It’s still “kicking the road,” as Powell now recommends. It works fine – until you run out of road.
This road seems very short.
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