There is a profound difference between on-budget and off-budget debt. In the United States, for example, government expenditures related to Social Security, Medicare and Medicaid do not count toward on-budget debt. But it is owed all the same.
Every year, Professor Lawrence Kotlikoff of Boston University calculates the present value of the unfunded liabilities of the United States government over a 75-year time horizon. Note, this is not the total liability extended over 75 years. It is the present value of the investment required today to convert unfunded liabilities into funded liabilities.
It is important to teach this concept to our children. After all, the current expectation is that this burden will eventually be heaped on them. To this end, Sesame Street can successfully teach your children to count to four.
There is no way for the government to come up with $222 trillion in cash apart from permanent hyperinflation: the sale of $222 trillion in 75-year bonds to the Federal Reserve. But permanent hyperinflation is impossible. At some point, people adopt a replacement form of money.
There is no way for the capital markets to absorb $222 trillion.
There is no way that the world’s capital markets will earn a post-tax rate of return — never mentioned — over the next 75 years to pay off the bonds.
Default is coming. Make no bones about it.
As the Cookie Monster says, “Cookie Monster thief, not liar.”
Gregory Cummings writes about Canadian monetary and economic policy. His writing has been featured at the Ludwig von Mises Institute of Canada and the Ludwig von Mises Institute's Mises Daily publication. Read more.