MATH IS HARD – THAT IS WHY WE’RE SCREWED

Did you ever wonder where the term FISCAL CLIFF came from? All of a sudden it was immediately adopted by the entire MSM and all the politicians and corporate CEOs as the mantra to scare Americans into believing it must be avoided. It is clear to me that the powers that be did focus group testing to develop the proper term that would strike fear into the hearts of non-critical thinking ignorant Americans across the land. Nevermind that this fake crisis was created by the very people who are running around like chickens with their heads cut off warning of the dire consequences. The fiscal cliff is just another diversion created by the ruling oligarchs to keep the masses distracted. If we did nothing, taxes would go up, the arms industry would lose some profits, and Federal spending would be modestly cut all the way back to 2010 levels. The economy would suffer a short recession and would be growing again by the 4th quarter of 2013. Sounds horrific. The truth is that the lowlife politicians, their corporate puppeteers, and the Wall Street cabal don’t want to cut spending, pay more taxes or see their profits reduced. Therefore, a grand bullshit compromise will ultimately be announced to great fanfare and a 500 point stock rally will ensue.

But, as the story below clearly and factually details, nothing will be solved. The entitlement can will be kicked down the road like it has been for 30 years. No one in Washington DC gives a shit about the long-term future or unborn generations. They care about the next election. They depend on the fact that 99% of the public don’t understand deficits, debt, unfunded liabilities or accrual accounting. The American public wants to be lied to and mislead. They don’t want to think. They don’t want to do the math. It’s hard and won’t give them the answer they want. I wonder what percentage of Americans actually understand the concept of net present value? If you stopped a person on the street, they would probably think you were asking about net pleasant value. Our politicians have promised the American people $86 trillion more in entitlements than they have the money for. And this is based on an unrealistic discount rate of 8%. If we use a realistic discount rate of 4%, the unfunded liability will be north of $150 trillion for Medicare and Social Security. When you add in all the State and local unfunded liabilities, you approach $200 trillion. These figures are so mind numbingly large, that Americans just tune it out. This is what the oligarchs depend upon. They will slowly destroy your lives through their man made inflation and eventual decision to not honor their entitlement promises.

The sheeple will not rise up. They will passively be led to slaughter. Math is hard.

Cox and Archer: Why $16 Trillion Only Hints at the True U.S. Debt

Hiding the government’s liabilities from the public makes it seem that we can tax our way out of mounting deficits. We can’t.

By CHRIS COX AND BILL ARCHER

A decade and a half ago, both of us served on President Clinton’s Bipartisan Commission on Entitlement and Tax Reform, the forerunner to President Obama’s recent National Commission on Fiscal Responsibility and Reform. In 1994 we predicted that, unless something was done to control runaway entitlement spending, Medicare and Social Security would eventually go bankrupt or confront severe benefit cuts.

Eighteen years later, nothing has been done. Why? The usual reason is that entitlement reform is the third rail of American politics. That explanation presupposes voter demand for entitlements at any cost, even if it means bankrupting the nation.

A better explanation is that the full extent of the problem has remained hidden from policy makers and the public because of less than transparent government financial statements. How else could responsible officials claim that Medicare and Social Security have the resources they need to fulfill their commitments for years to come?

As Washington wrestles with the roughly $600 billion “fiscal cliff” and the 2013 budget, the far greater fiscal challenge of the U.S. government’s unfunded pension and health-care liabilities remains offstage. The truly important figures would appear on the federal balance sheet—if the government prepared an accurate one.

But it hasn’t. For years, the government has gotten by without having to produce the kind of financial statements that are required of most significant for-profit and nonprofit enterprises. The U.S. Treasury “balance sheet” does list liabilities such as Treasury debt issued to the public, federal employee pensions, and post-retirement health benefits. But it does not include the unfunded liabilities of Medicare, Social Security and other outsized and very real obligations.

As a result, fiscal policy discussions generally focus on current-year budget deficits, the accumulated national debt, and the relationships between these two items and gross domestic product. We most often hear about the alarming $15.96 trillion national debt (more than 100% of GDP), and the 2012 budget deficit of $1.1 trillion (6.97% of GDP). As dangerous as those numbers are, they do not begin to tell the story of the federal government’s true liabilities.

The actual liabilities of the federal government—including Social Security, Medicare, and federal employees’ future retirement benefits—already exceed $86.8 trillion, or 550% of GDP. For the year ending Dec. 31, 2011, the annual accrued expense of Medicare and Social Security was $7 trillion. Nothing like that figure is used in calculating the deficit. In reality, the reported budget deficit is less than one-fifth of the more accurate figure.

Why haven’t Americans heard about the titanic $86.8 trillion liability from these programs? One reason: The actual figures do not appear in black and white on any balance sheet. But it is possible to discover them. Included in the annual Medicare Trustees’ report are separate actuarial estimates of the unfunded liability for Medicare Part A (the hospital portion), Part B (medical insurance) and Part D (prescription drug coverage).

As of the most recent Trustees’ report in April, the net present value of the unfunded liability of Medicare was $42.8 trillion. The comparable balance sheet liability for Social Security is $20.5 trillion.

Were American policy makers to have the benefit of transparent financial statements prepared the way public companies must report their pension liabilities, they would see clearly the magnitude of the future borrowing that these liabilities imply. Borrowing on this scale could eclipse the capacity of global capital markets—and bankrupt not only the programs themselves but the entire federal government.

These real-world impacts will be felt when currently unfunded liabilities need to be paid. In theory, the Medicare and Social Security trust funds have at least some money to pay a portion of the bills that are coming due. In actuality, the cupboard is bare: 100% of the payroll taxes for these programs were spent in the same year they were collected.

In exchange for the payroll taxes that aren’t paid out in benefits to current retirees in any given year, the trust funds got nonmarketable Treasury debt. Now, as the baby boomers’ promised benefits swamp the payroll-tax collections from today’s workers, the government has to swap the trust funds’ nonmarketable securities for marketable Treasury debt. The Treasury will then have to sell not only this debt, but far more, in order to pay the benefits as they come due.

When combined with funding the general cash deficits, these multitrillion-dollar Treasury operations will dominate the capital markets in the years ahead, particularly given China’s de-emphasis of new investment in U.S. Treasurys in favor of increasing foreign direct investment, and Japan’s and Europe’s own sovereign-debt challenges.

When the accrued expenses of the government’s entitlement programs are counted, it becomes clear that to collect enough tax revenue just to avoid going deeper into debt would require over $8 trillion in tax collections annually. That is the total of the average annual accrued liabilities of just the two largest entitlement programs, plus the annual cash deficit.

Nothing like that $8 trillion amount is available for the IRS to target. According to the most recent tax data, all individuals filing tax returns in America and earning more than $66,193 per year have a total adjusted gross income of $5.1 trillion. In 2006, when corporate taxable income peaked before the recession, all corporations in the U.S. had total income for tax purposes of $1.6 trillion. That comes to $6.7 trillion available to tax from these individuals and corporations under existing tax laws.

In short, if the government confiscated the entire adjusted gross income of these American taxpayers, plus all of the corporate taxable income in the year before the recession, it wouldn’t be nearly enough to fund the over $8 trillion per year in the growth of U.S. liabilities. Some public officials and pundits claim we can dig our way out through tax increases on upper-income earners, or even all taxpayers. In reality, that would amount to bailing out the Pacific Ocean with a teaspoon. Only by addressing these unsustainable spending commitments can the nation’s debt and deficit problems be solved.

Neither the public nor policy makers will be able to fully understand and deal with these issues unless the government publishes financial statements that present the government’s largest financial liabilities in accordance with well-established norms in the private sector. When the new Congress convenes in January, making the numbers clear—and establishing policies that finally address them before it is too late—should be a top order of business.

Mr. Cox, a former chairman of the House Republican Policy Committee and the Securities and Exchange Commission, is president of Bingham Consulting LLC. Mr. Archer, a former chairman of the House Ways & Means Committee, is a senior policy adviser at PricewaterhouseCoopers LLP.