Why the US is as busted as a busted flush – IMF analysis suggests the US is fiscally bankrupt

Prepare for collapse:

John Williams: ‘Times That Try Our Souls’ (U.S. Bankruptcy – Hyperinflation – Great Depression), Preparedness Can Save Your Life:

The government is effectively bankrupt. Using GAAP accounting principles, the annual deficit is running in the range of $4 trillion to $5 trillion. That’s beyond containment. The government can’t cover it with taxes. They’d still be in deficit if they took 100% of personal income and corporate profits. They’d also still be in deficit if they cut every penny of government spending except for Social Security and Medicare. Washington lacks the will to slash its social programs severely, to change its approach to ever bigger government. The only option left going forward is for the government eventually to print the money for the obligations it cannot otherwise cover, which sets up a hyperinflation.


why-the-us-is-as-busted-as-a-busted-flush
IMF analysis suggests the US is fiscally bankrupt (Photo: Getty)

And you thought we’d got problems here in the UK. Have a read of this terrifying article by Professor Laurence Kotlikoff of Boston University, which using recent IMF analysis pretty convincingly demonstrates that the US is as fiscally bankrupt as a busted flush. No wonder stock markets are in meltdown again.

I have to confess to missing this at the time of publication, but apparently the IMF in its “selected issue paper” on the US economy calculates that “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.” As Professor Kotlikoff notes, the entire Federal tax base amounts to 14.7 per cent of GDP, so to close the gap from a revenue perspective would require the authorities to double the rate of taxation in the US.

Of course, it won’t work out that way in practice. Many future spending pledges and entitlement promises will simply be cancelled instead. What this article highlights is quite how irrelevant much of the US debate around the merits of further fiscal stimulus really is. The Obama administration seems to have its head buried in the sand. The same might be said about the Republican opposition, which is fiercely resistant to anything in the way of tax rises.

There is little sign of fiscal stress in the US right now. To the contrary, bond yields have rarely been lower. But if nothing is done, this won’t remain the case for long. There is surely a limit to how much the world is prepared to lend even to the mighty US.

By Jeremy Warner Economics
Last updated: August 12th, 2010

Source: The Telegraph

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