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America is headed for a fiscal cliff at the end of this year.
If Congress does not act, $1.2 trillion in automatic spending cuts will take effect as will a number of tax hikes on Jan. 1. Many economists believe this so-called fiscal cliff could send the country back into recession.
Boston University economics professor Larry Kotlikoff describes just how bad America's finances are as a result of trillions of dollars in unfunded entitlement liabilities in his new book The Clash of Generations: Saving Ourselves, Our Kids, and Our Economy. He joined The Daily Ticker's Aaron Task to discuss the nation's indebtedness and his solutions for how to fix America's ongoing fiscal crisis. He details the seriousness of the problem in the post below.
By Laurence Kotlikoff
The 78 million-strong baby boom generation is starting to retire in droves. On average, each retiring boomer can expect to receive roughly $35,000, adjusted for inflation, in Social Security, Medicare, and Medicaid benefits. Multiply $35,000 by 78 million pairs of outstretched hands and you get close to $3 trillion per year in costs.
This is not a partisan issue. The dirty little secret that neither President Obama nor Mitt Romney is telling you is that our kids, who are being stuck with the bill, can't afford it. They are at the end of the great postwar chain letter that has been benignly labeled 'Pay As You Go' but is properly called 'Take As You Go.'
One administration after another has bought oldsters' votes by letting them take resources from the young while appeasing the young with the prospect of taking their turn at generational theft.
This is not to knock government involvement in retirement saving and healthcare. Uncle Sam has a legitimate role in making sure people save and get health insurance. But that's different from robbing Peter's generation to pay Paul's.
All Ponzi schemes end and Uncle Sam's will end particularly badly by blowing up in the baby boom's face. Their kids can't remotely cover what's needed, so the baby boomers -- who, as a group, are incredibly poorly prepared for retirement -- won't get the benefits they've been promised.
In June, the Congressional Budget Office (CBO) released its Alternative Fiscal Scenario (AFS) — the CBO's projection of the government's finances into the future. The projections are truly scary, but they received zero press coverage — not a word from the NY Times, Wall Street Journal, Washington Post, or any other major media outlet.
The latest projection shows massive fiscal deficits as far as the eye can see. In less than a dozen years, the CBO projects federal debt will exceed 100 percent of GDP. By the time today's 20 year-olds have reached middle age, the debt to GDP ratio will be 200 percent, a figure that would make Greece blush.