Mar 5, 2010 0 Comment
Already, America’s dept will reach $13 trillion this year. By 2020, this will increase to $22 trillion. If this figure isn’t disturbing enough, consider the hidden cost of debt. There are potential debt bombs that aren’t included within the budget analysis of the US economy.
When talking about US debt, it typically includes two figures including the debt held by the public and what the federal government owes to trust funds such as Social Security and Medicare. Revenues from those programs were used to cover other outlay. Debt to these establishments is approaching $5 billion.
These figures may be big but what’s even more worrying is the debts that are not included in the books. Among these are:
Fannie Mae & Freddie Mac Losses
As giant mortgage lenders, these companies have enjoyed implicit government backing for years. As a result, investors were falsely assured that if anything went wrong, Uncle Sam would step in. Something did go wrong, and it went wrong in a big way.
The Congressional Budget Office (CBO) did an account for both companies. Though the figure isn’t clear what the total impact of the companies will have on the congressional budget, Amherst Securities said that it can reach $448 billion – with some portions covered by outside parties. Total loss to the government may reach $370 billion in 2020.
The accrued debt of the government to Social Security and Medicare won’t be easy to pay, especially given the increase in government spending and drop in revenue. Len Burman from the Syracuse University said that “Lawmakers need to acknowledge they have no way of funding them right now.”
But this future entitlement was not included in the current budget. Within the next decade for Medicare and by 2037 for Social Security, these organizations won’t be able to collect enough to cover the benefits promised. The government will need to make up for the difference by borrowing.
Cost of Tax Breaks
People love tax breaks. However, for the government, this means lower revenue. While no one wants to abolish tax breaks, the government budget should treat it as discretionary spending to reflect to true cost of tax breaks. Through this, lawmakers can look at figures and recognize the cost associated with their decision.