A recent conversation about the US Federal Government's
unfunded liabilities caused me to reexamine a statistic that I absorbed several
years ago. Boston University economics
professor Laurence Kotlikoff stated that the US Federal Government's unfunded
liabilities exceed 200 trillion dollars.
This number is quoted many times, and in many places, but I was not able
to find any published details that provide the calculations that establish this
number.
During my research, I found that there is a publication by
the US Treasury each year titled “Financial Report of the United States Government” which provides financial statements for the Federal Government in a
format like an annual report for a public corporation. When reading this report, it is important to
note that some of the amounts are listed in trillions and some in
billions. Also, note that trillions and
billions are sometimes commingled in the same table or chart.
I am not accustomed to working with numbers this large and I
was having trouble keeping the decimal places straight, so I created a chart:
The interesting details of the “Financial Report of the
United States Government” are in the notes.
You will find a frank opinion in Note 24 on page 157 (pdf page 166) under
the heading:
Sustainability and the Fiscal Gap
“This report presents data,
including debt, as a percent of GDP to help readers assess whether current
fiscal policy is sustainable. The debt-to-GDP ratio reached 100 percent at the
end of FY 2020” …. “As discussed further
in the unaudited RSI, the projections based on this report’s assumptions
indicate that current policy is not sustainable. If current policy is left
unchanged, the projections show the debt-to-GDP ratio will rise to 200 percent
by 2042 and reach 623 percent in 2095. Moreover, if the trends that underlie
the 75-year projections were to continue, the debt to-GDP ratio would continue
to rise beyond the 75-year window.”
If you are not a fan of tables and charts you can read the highlight of the “Financial Report of the United States Government” in plain English
and in 1 sentence on page ii (pdf page 9):
An Unsustainable Fiscal Path
“The continuous rise of the debt-to-GDP
ratio projections based on the assumptions in this Financial Report indicates
that current policy is not sustainable.”
A recent report from Truth in Accounting titled Financial State of the Union 2020 calculates the Federal Government's unfunded liabilities as $123.11 trillion ($123,110,000,000,000).
Also, there is the US debt clock
website that displays a real-time calculation of US Unfunded Liabilities. This calculation is the sum of unfunded
liabilities in Social Security, Medicare Part A, B, and D, Federal Debt held by the public, Federal Employee Benefits, and Veteran Benefits. The total at the time of writing this blog
post is $147.684 trillion ($147,684,000,000,000). Note that this number is increasing by 12
million dollars every minute so when you visit the US Debt Clock webpage the
number will be larger.
The current estimate of world GDP is $30.191. Therefore, if US total unfunded liabilities are $147.684 trillion then the UL to world GDP ratio is 490%. This means that if the total production of the world were dedicated to paying down the US unfunded liabilities it would take 4.9 years to achieve 100% funding.
The current population of the USA is 330,246,485. Therefore,
if US total unfunded liabilities are $147.684 trillion then the total UL per
person living in the USA is $447,193. You
might be inclined to think that such a level of unfunded liabilities for each
man, woman and child is not possible, but if the Federal Government continues deficit
spending and continues to increase future obligations, there is no upper limit
to how high this number can go until there is a complete collapse of the
monetary system.
Since the financial crisis of 2008 interest rates have been lower
than historical averages. If (when)
interest rates rise to historical averages the increase in US total unfunded
liabilities will accelerate due to larger interest payments on the outstanding
national debt.
I could not find proof that supports 220 trillion dollars as the US total unfunded liabilities. Based on the sources listed above, I am confident that the Federal Government's unfunded liabilities are rapidly approaching $150 trillion.
Please use the comment button below to provide questions,
comments, or clarifications on this topic.
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