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	The Real Federal Deficit: $2.3 trillion a Year   (June 2005) For your consideration: a surefire recipe for fiscal catastrophe. The "official" Federal deficit (the difference between what the government collects in taxes and what it spends each year) is -$412 billion, meaning that the Federal government borrows $400 billion from somebody (mostly the Japanese and Chinese central banks) each year. Ours is not the only government running huge deficits; most major economies, including China, support central government deficits on the order of 3-4% of GDP. Some, such as Japan, are creaking under the weight of much higher deficits. You have to wonder who's saving enough to support these enormous deficits; it certainly isn't Americans. It turns out the "official" deficit is woefully under-reported--for the obvious reason that the truth would scare the daylights out of anyone not drooling over the Big Screen TV ads in a semi-comotose state. As the chart below shows (courtesy of analyst Bud Carson), the deficit as it would be accounted for in a private firm (i.e. according to GAAP standards) would have to include the Social Security surplus which is spent by the government ($200 billion), the interest on the Social Security "trust fund" (i.e. the Social Security taxes we all pay which have been theoretically set aside for future retirees), and then the future liabilities which have been accrued that year, which in our government's case, includes the Social Security and Medicare costs of those reaching retirement age in that year (as well as those new benefits extended to existing retirees, i.e. the drug plan). In the corporate world, this would be the money the company has to pay into its pension fund to cover future pension payments to retirees. (Many corporate pension plans are underfunded, but that's another story.) But alas, our government has a "pay as you go" system, where no money is actually set aside for future Social Security or Medicare expenses; all expenses for current retirees are paid by tax receipts and borrowing in this year. As those retiree benefits increase, so must either taxes or borrowing. Our leadership's largesse last year in granting an open-ended "drug benefit" to Medicare recipients--along with existing Medicare benefits--means that the future liabilities accrued just this past year are $1.6 trillion. In other words, the Federal government "owes" its current retirees $1.6 trillion in future benefits which will have to paid by future workers. And this liability will only skyrocket as Baby Boomers (those born between 1946 and 1964) start retiring in their teeming miilions. This is the perfection of irresponsibility--granting huge benefits to current elderly voters by obligating younger generations to an entirely unsustainable fiscal burden. Take this to the bank: the entire system of huge deficits and low interest rates supported by Asian central banks will implode next year, taking the "housing boom" and the U.S. economy with it. I cannot predict the month, but I can safely predict the year: 2006 will be the year when the inevitability of our folly comes home to roost. * * * copyright © 2005 Charles Hugh Smith. All rights reserved in all media. I would be honored if you linked this wEssay to your site, or printed a copy for your own use. * * *
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