Another opinion that falls into the “things are even worse than you think” category, this time from PIMCO‘s Bill Gross:
Nothing in the Congressional compromise reached over the weekend makes a significant dent in our $1.5 trillion deficit. “Out year” fantasies, as opposed to “current year” realities, is an apt description of the spending cuts that characterize this compromise. The Office of Management and Budget (OMB) estimates that future deficits will be reduced at most by .5%, and if so, it would be welcomed, but that .5% comes with no new taxes and a continuation of the belief that we don’t have to pay for our trespasses. Like many a Banana Republic, we may one day be invoking the Lord’s Prayer, pleading – “Forgive us our debts, as we forgive our debtors,” yet at the same time looking towards the heavens á la Saint Augustine with a fervent “let me be chaste, but let it be tomorrow.”
Treasury Secretary Tim Geithner noted last week that it would be unthinkable that the U.S. would not meet its obligations on time. Now that the timeliness has temporarily been put aside, an investor must logically ask how we will meet our obligations, and how much they really are. In addition to an existing nearly $10 trillion of outstanding Treasury debt, the U.S. has a near-unfathomable $66 trillion of future liabilities at “net present cost.” As shown in the following table from a Mary Meeker “USA Inc.” study, and validated by the Department of Treasury and Congressional Budget Office (CBO) calculations, the combined present cost “payment due” from Medicaid, Medicare and Social Security is over six times our current obligations of Treasury debt. The press and most professional investors are accustomed to measuring “paper” debt as opposed to walking/living liabilities in the form of people. I call these liabilities “debt men walking” because as long as 330 million living Americans require promised entitlements – the $66 trillion that wear shoes are as much of a liability as the $10 trillion on paper. [Emphasis in the original]
Greg Hudson says:
Thanks for the uplifting reflection, Marc. And if you want to add to the joy you bring, include some of the troubling numbers estimating Medicare and Medicaid fraud in a recent “Out of the Box” piece from John Mauldin: “Entitlement Bandits” by Michael Cannon.
“How can there possibly be so much fraud in Medicare and Medicaid that even the “comfortingly low” estimates have ten zeros?” Just sayin’.
August 2, 2011, 3:48 pm