A 50 trillion debt? In dollars?

David Walker may have the un-sexy title of Comptroller General of the United States and head of the Government Accountability Office (GAO), but he knows budgets. I heard him speak on the fiscal fortunes of America this week and his 10-minute speech showed the power of high-content, compelling arguments. Walker argued that there are 4 deficits that government must address: budget, balance of trade, savings, and leadership (I'll discuss two).

Budget
The United States may have deficits of $400 billion and a debt of eight trillion, but right now it has unfunded liabilities of $50,000,000,000,000 - 50 trillion dollars. That's $440,000 for every household in the United States (and unlike your mortgage, there's no house to back it up).

What are unfunded liabilities? Money promised to Americans through Medicare, Medicaid and Social Security (entitlement programs) that the government has insufficient resources to pay for. That's $32 trillion in Medicare (parts A-C), $6.4 trillion in Social Security, and $8 trillion to the new Medicare prescription drug benefit.

Savings
For two years running, Americans have spent more money than they earned. The last time this happened was in 1933-34. As Walker noted, these were not good years for the U.S. economy.

Why is this a problem?

• It's a lack of stewardship. The baby boom generation is at risk of being the first generation to leave their children in worse shape than their predecessors.
• It's unsustainable. You simply cannot spend more than you earn every year. Eventually you run out of money.
  
• Increasing amounts of U.S. debt are held by foreign countries. If you don't understand how that could be a problem, see this excerpt from Wikipedia on the Suez Canal Crisis:

Part of the pressure that the United States used against Britain was financial, as President Eisenhower threatened to sell the United States reserves of the British pound and thereby precipitate a collapse of the British currency.

What can be done?

1. Reform the base Social Security program, preserving its use as basic social insurance (and probably raising the retirement age)
2. Add supplemental savings accounts on top, with an additional 2% payroll tax.
   
3. Adjust Medicare premiums so that recipients, particularly wealthier ones, have to put in more than the current 25% of expenses covered by premiums.
   

If you want to hear more on this topic, Walker will be appearing on the Colbert Report on Wednesday, April 25th.

Update 4/26: Here is the Colbert Report video