Laurence Kotlikoff: The US Fiscal Gap Is $200 Trillion
Posted on 12-Sep-2013
Topics: Economic Warnings  The INFORM Act
Highlights from the interview (from Zero Hedge):
I estimate the US fiscal gap at US$200 tn, 17 times the reported US$12 tn in official debt in the hands of the public. And this incorporates this yearís tax increases and spending sequestration. What would it take to come up with US$200 tn in present value? The answer is tax hikes or spending cuts, or a combination of the two, amounting to 10 percent of GDP, starting immediately and continuing indefinitely. To do so via spending cuts, alone, would require an immediate and permanent 36% cut in all non-interest spending. To do so via tax hikes, alone, would need an immediate and permanent 55% increase in all federal taxes. Hence, a description of the fiscal adjustments made over the last year could be ďtoo little too late.Ē In terms of generational accounting, were we to leave our kids and future descendants to cover the entire fiscal gap, theyíd face tax rates over their lifetimes around twice as high as those we face.
The US is arguably in worst fiscal shape than any other developed country. But Greece, the UK, and Japan are close runner ups. As mentioned, our fiscal gap is 10% of the present value of our future GDP. In Germany itís around 5%, while Canada, Australia and New Zealand are close to zero. Even Italy's long-term fiscal gap is just half of the USís, yet Italian government bonds sell at a much lower price than US government bonds simply because people don't understand the pension reforms that Italy has rolled out or that Italy has much better control of its healthcare spending.
Our country is broke. Itís not broke in 50 years or 30 years or 10 years. Itís broke today. Six decades of take as you go has led us to a precipice. Thatís why almost the entire economics profession is talking as one at www.theinformact.org. Economists from all political persuasions are collectively sending our government a warning about what is, effectively, a nuclear economic bomb. Iíve been around economics for a long time. Iíve never seen such a strong response to a proposed Congressional bill. This is the profession sending a statement to the President and Congress thatís not unlike the warning physicists sent via Einstein to Roosevelt about the bomb.
 'Laurence Kotlikoff: "The US Fiscal Gap Is $200 Trillion... Our Country Is broke"', Zero Hedge, 11-Sep-2013