On the current state of America’s public finances…

Today, on the day after the election, US federal government debt stands at $16.2 trillion. Putting this 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. Three years and 10 months later, US federal government debt has grown by an additional $5.6 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)).

As bad as the US federal government debt problem is, we have a far worse entitlement problem which hardly anyone is bothering to talk about these days; indeed, I don’t recall any substantive discussion about this topic during the past several months leading up to yesterday’s election. According to an authoritative 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 stands 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, total indebtedness due to claims on the federal government stands at roughly $16.2 trillion plus $51.2 trillion, or $67.4 trillion. Since there are (according to the US Census Bureau) 117,538,000 households in America, if you do the arithmetic this works out to a per household debt of (gulp) $573,432. If you throw in unfunded liabilities from state employee pensions (estimated by Stanford University finance professor Joshua Rauh to total roughly $4 trillion; cf. http://www.econtalk.org/archives/2012/11/joshua_rauh_on.html), this works out to an additional $34,031 for a total of $607,463 per US household. Since the average net worth per US household is roughly $80,000 (see http://money.cnn.com/2012/06/11/news/economy/fed-family-net-worth), this means that the average American household effectively has a (negative) net worth in excess of half of a million dollars…

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