Earlier today, I had an exchange with a friend of mine about the ongoing European sovereign debt crisis. I opined that an important reason why the European sovereign debt crisis has been going on for such a long period of time (several years now) is due to the political class’s preference (was well as incentives) for applying triage by implementing half-measures; such triage enables policymakers to kick the can far enough down the road so that the European sovereign debt crisis becomes someone else’s problem.
After thinking about a bit further about this, we Americans obviously similar governance problems as the Europeans which, quite tragically, have similarly put the US on an unsound and completely unsustainable fiscal footing. Debt owed by the US federal government now stands at more than $15.7 trillion. Putting this number into perspective, US federal government debt stood at $5.7 trillion on the day that George W. Bush was first inaugurated (January 20, 2001), and grew by $4.9 trillion (to $10.6 trillion) by the time of Barack Obama’s inauguration on January 20, 2009. In just three years and five months, US federal government debt has grown by an additional $5.1 trillion, to $15.7 trillion (you can verify these numbers by using the “Debt to the Penny” app located on the treasury.gov website (see http://www.treasurydirect.gov/NP/BPDLogin?application=np). So Bush 43 accounts for 31.2%, Obama accounts for 32.5%, and the previous 42 presidents cumulatively account for 36.3% of total US federal government debt.
As bad the US federal government debt problem is, we have a far worse entitlement problem which no one (other than perhaps Paul Ryan (R, Wisconsin) and Ron Wyden (D, Oregon)) are even talking about these days. According to an authoritative (but dated) source located at http://www.pgpf.org/Special-Topics/Download-the-Citizens-Guide.aspx (see Figure 10 on page 30 of that document), in January 2009 the present value of Social Security and Medicare promises stood at $45.8 trillion; $7.7 trillion of this total was due to Social Security, and the remaining $38.1 trillion was attributable to Medicare. According to the recently published (April 2012) Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, the present value of unfunded Social Security obligations now stands at $8.6 trillion, which represents an 11.7% increase over the January 2009 amount. Since I haven’t been able to locate a current estimate of the present value of unfunded Medicare promises, I’ll assume for the time being that the present value of unfunded Medicare promises has also grown 11.7% since January 2009. Thus, the January 2012 present value of Social Security and Medicare promises probably now stand at or around $45.8 trillion x 1.117 = $51.2 trillion. (If anyone knows of an authoritative, up-to-date source for the present value of Medicare promises, please let me know! ).
This means that as a country, our total indebtedness now stands at roughly $15.7 trillion plus $51.2 trillion, or $66.9 trillion. Since there are (according to the US Census Bureau) 117,538,000 households in America, if you do the arithmetic this works out a per household debt of (gulp) $569,178.