patrick.net

http://www.101languages.net/swedish/ or

http://shop.ebay.com/i.html?_nkw=Rosetta+Stone

Actually, most (~$100T) of that $124T is simply medicare:

so the hedge would be to invest in senior care facilities and drug companies etc.

But people actually thinking that this nation can even contemplate paying how-many hundreds of trillions (in today's money) on senior healthcare is quite humorous to me.

Health care is no more than 30% of the economy, so these trillions of dollars would be flooding into a minority of the population. Every nurse would be a millionaire. Every doctor would be a billionaire. Some hospital system owners would become trillionaires. it is entirely ludicrous.

But the demographic challenge this country faces is in fact dire.

Right now there are 12 million people aged 65-69. Each year this is going to increase by a million or so until in 2020 there will be 20 million people that age, and the 70-80 cohort will rise from 16M to something close to 40M.

People say Japan's demographics are scary but ours are much worse since our baby boom is a LOT bigger than theirs.

I don't understand how investing in Senior Care and drug companies will be a good hedge if neither industry will be able to collect the money if we can't pay. I'm open to learning and other views.

Troy says

http://www.101languages.net/swedish/ or

http://shop.ebay.com/i.html?_nkw=Rosetta+Stone

LOL. Yeah, the Get The Fuck Out Of Here hedge has crossed my mind from time to time.

Those medical costs actually are not really committed liabilities yet, since they can be reduced with legislation. Withing 10 years we will know if USA is governable and can make the hard compromises. I'm still betting we'll pull away before we run over the cliff, but it's going to tumultuous.

Also, all the figures are deceptively huge, since they don't represent unfunded costs to the existing population, but present value discounted unfunded costs projected to all future generations (infinite time horizon).

If you want to compare apples to apples, you have to compare to the present value of the entire economy projected to an infinite horizon, which is on the order of $1 quadrillion.

That’s 1.2 million per tax payer.

See my post above. That is actually incorrect, because the numbers are an accounting calculation that must be properly understood before you can draw any conclusions.

Original sources that throw around figures like "1.2 million per tax payer" are frequently just right-wing spin outfits, but the numbers are echoed endlessly on the internet.

BTW, I'm not at all suggesting it's not a serious problem.

Bare with me..

"entire economy projected to an infinite horizon, which is on the order of $1 quadrillion."

1 Quadrillion = $10 million per US worker. Can you help me understand that number. I doubt on average each working US citizen is generating that much.

Is this the global economy? Of derivatives of dollars? Is this global GDP? If so obviously GDP does not = enough free money to cover 112 trillion.

newhomebuyer7 says

1 Quadrillion = $10 million per US worker. Can you help me understand that number. I doubt on average each working US citizen is generating that much.

It's the economic output from all US workers that are alive today and will ever be alive in the future. That would be infinite in theory, but all future output is discounted to "net present value".

http://en.wikipedia.org/wiki/Net_present_value

The same method is used to discount all unfunded liabilities in the future. Obviously you have to make a lot of assumptions about the future, including the "discount rate", which makes me pretty weary of the whole concept.

In real terms, taxes would have to be raised anywhere from 5% to 15% of GDP just to cover medical liabilities assuming current projections, if nothing changes.

I will have to research this a lot more. I'm not sure economic output = cash on hand to pay liabilities. I would think economic output = a lot of non-liquid goods and services. Perhaps not. Do you have a link or author who can explain how a tax increase of 15% will allow us to pay 112 trillion in liabilities? I know the devil is in the detail and I don't mind reading through data. I just haven't run into anyone mainstream that has offered a good answer.

including the “discount rate”, which makes me pretty weary of the whole concept.
That's easy, just use the rate on Treasuries. It's risk free. :-)

newhomebuyer7 says

I know the devil is in the detail and I don’t mind reading through data. I just haven’t run into anyone mainstream that has offered a good answer.

The main devil in the details is the explicit assumption that productivity is going to grow 1.7% year-on-year from now through the rest of the century.

Ie. they expect GDP to be $20T/yr (in today's dollars) by 2030, $6T more than today. So additional 15% taxation on that extra $6T in the national income can cover another $900B/yr of health spending by 2030, right when the baby boom begins dying off.

fwiw, IIRC the SSA is projecting the average SSI check is going to be ~$6000/mo in 2070. This is partially due to inflation and partially due to increased wage base in the future.

I'm not really buying it, but we'll see . . .

newhomebuyer7 says

Do you have a link or author who can explain how a tax increase of 15% will allow us to pay 112 trillion in liabilities?

Take a look at something like this:

http://www.nationalreview.com/critical-condition/48539/house-bill-10-trillion-unfunded-liability/james-c-capretta

Assuming a discount rate of 5.7 percent per year, the bill would add more than $10 trillion over seventy-five years in new unfunded government obligations.

An extra tax that was 15% of GDP right now would be about $2.1T/year. If you keep things simple and assume the economy isn't growing and use that 5.7% discount rate above, each year's tax revenue is worth 5.7% less.

$2.1T + $1.98T + $1.88T + ........ to infinity = $2.1T * (1/(.057)) = $37T.

You're basically adding up all the extra tax revenue that would be collected forever, but "discounting" all the future revenue.

Of course that's assuming the discount rate of 5.7% they were using in 2009. Now it's lower since interest rates are lower. Not sure what the rate used was for your $124T number or any other assumptions, but the discount rates make a huge difference. For example if I lower it to 2%, that $2.1T of tax revenue projected into infinity is $105T.

It's mostly a bunch of bull crap if you ask me. You have to make too many assumptions about the future. Just the selection of the "discount rate" alone makes the number suspect. Medicare underfunding was reported at $36T just a few years ago and now it's like a $100 Trillion, mostly just because somebody used a lower discount rate.

government bonds right? after all if cost of borrowing goes up, so will the payouts? But I don't completely understand how these work, since I've never bought those.

>>our nation has 112 trillion in unfunded liabilities.

I call bullshit on this one.

My take on this is that the poster (newhomebuyer7) and the web site (usdebtclock.org) are full of it. Until they define their terms ("unfunded liabilities") and show their calculations, this will be my assumption.

Where does the 112T number come from? Is it supposed to be the net present value of all future public expenditures? Have they accounted for all future public income (taxes)?

Look, this propaganda serves only one constituency: The rich who have gotten big unfunded tax breaks, and who are now on the warpath to blame the public deficit on poor people and to shrink public spending to prevent that taxes are increased back to where they should be.

The headline should read, if anything:

112T IN UNFUNDED TAX BREAKS FOR THE WEALTHY.

Phew. Why do people bother even discussing this kind of crap as if it is is serious analysis? This post should have been exposed foir what it is and verbally SHUT DOWN right away.

Here is the source if the $123T as best as I can tell:

Estimates for Social Security are compiled from the official 2009 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds. The $15.1 trillion figure presented here is the amount by which promised benefits exceed expected revenues, primarily from payroll taxes, over the infinite horizon using a long-run discount rate of 2.9 percent.
Estimates for Medicare are compiled from the official 2009 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. The $88.9 trillion cumulative figure presented here is the amount by which promised benefits for Medicare Parts A, B and D exceed expected revenues over the infinite horizon using a long-run discount rate of 2.9 percent.

Neither estimate incorporates the value of program trust funds, currently estimated at $2.4 trillion for Social Security and $0.3 trillion for Medicare. Because spending down these trust funds will require the use of general revenue, some budget analysts include them when calculating unfunded liabilities. If this is done, then the total figure would rise from $104 trillion to $106.7 trillion.

These figures also do not include current or projected future nonentitlement debt, including the $10.7 trillion national debt as of the end of 2008, the $1.8 trillion deficit for this year, the $3.8 trillion in projected debt between 2010 and 2014, and any future debt that might be compiled after 2014. If projected debt between now and 2014 were added, and no further nonentitlement debt were accumulated in the future, then the total figure would rise from $106.7 trillion to $123.0 trillion.

Present value of the economy is $1.3 Quadrillion according to this:

The present values of GDP for 2009-83 and for 2009 through the infinite horizon are $788.4 trillion and $1,309.0 trillion, respectively.

http://www.ssa.gov/oact/tr/2009/tr09.pdf

It's not clear though what discount rate they're using, but it's probably higher than 2.9%.

Assuming it using the same 2.9% $123 trillion in unfunded liabilities in a $1.3Q economy is about 9.5% of GDP. I'm just doing doing quick google research though. Other people have spent lots of time on this:

Some analysts estimate that the fiscal gap for the entire federal government today is between 6.5 percent and 7.5 percent of the present value of GDP.(9)

http://www.cbo.gov/doc.cfm?index=5771&type=0&sequence=1

MarkInSF says

Assuming it using the same 2.9% (==discount rate, ed. Justme), $123 trillion in unfunded liabilities in a $1.3Q economy is about 9.5% of GDP. I’m just doing doing quick google research though. Other people have spent lots of time on this:

Thanks, Mark. The problem with the 112T scare number is that it is ill-defined and taken completely out of the 1300T net-present-value of all future economic activity, assuming your quoted numbers are correct.

I think everyone should understand that while unfunded TAX BREAKS are a problem, the 112T is also just a misleading scare tactic.

justme says

I think everyone should understand that while unfunded TAX BREAKS are a problem, the 112T is also just a misleading scare tactic.

This study found that the cost of the tax cuts was $10T. That was back with the discount rates used were ~6%. At 2.9% it's roughly double that.

So even if the Bush tax cuts were left to expire, there would still be a huge gap. Let it expire for just the top bracket, like Obama was proposing, and you're talking 1/3 of that.

http://www.cbpp.org/cms/index.cfm?fa=view&id=1713

Taxes are going to have to go up, but that will only partly solve the problem. Something has to give with medical costs.

justme says

I call bullshit on this one.

My take on this is that the poster (newhomebuyer7) and the web site (usdebtclock.org) are full of it. Until they define their terms (”unfunded liabilities”) and show their calculations, this will be my assumption.

What is it with so many self absorbed, self worshiping, narcissists who just assume they have an extreme level of hyper intelligence because they don't understand something so everyone else must be wrong. If the information is wrong or you have information to add to the discussion great! I'll review it! I want to grow, learn, and become more educated. But to name call, cuss, and pretend like you are an intellectual is pure non-sense until you can refute the information. But using third grade name calling tactics is easier.

MarkInSF says

justme says

I think everyone should understand that while unfunded TAX BREAKS are a problem, the 112T is also just a misleading scare tactic.

This study found that the cost of the tax cuts was $10T. That was back with the discount rates used were ~6%. At 2.9% it’s roughly double that.
So even if the Bush tax cuts were left to expire, there would still be a huge gap. Let it expire for just the top bracket, like Obama was proposing, and you’re talking 1/3 of that.
http://www.cbpp.org/cms/index.cfm?fa=view&id=1713
Taxes are going to have to go up, but that will only partly solve the problem. Something has to give with medical costs.

Thank you for the constructive replies and information. So we still have a major issue even if we increase taxes. 1/3rd of a gap of 123 trillion is still huge (41 trillion). Thanks for offering useful information and refraining from name calling and belittling those who don't have some of the information you have produced.

Anyone has any hedge advice on this?

Dual citizenship would be a good start.