Incomprehensible liabilities

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.”

https://www.justfacts.com/nationaldebt#_ftn26

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 US GDP from the Bureau of Economic Analysis is $22.05 trillion.  Therefore, if total unfunded liabilities (UL) are $147.684 trillion then the UL to GDP ratio is 670%.  This means that if the total economic production of the USA were dedicated to paying down the unfunded liabilities it would take 6.7 years to achieve 100% funding.

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.

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