The entity responsible for publishing the financial statements of the U.S. government, the General Accounting Office, has released its fiscal 2011 annual report.
When companies and governments have bad news to release, they try to release it at the moment when journalists and the public are paying the least amount of attention — thus, hopefully, generating the least possible amount of grumbling and complaints.
So it's no surprise that the GAO released its 2011 report on the Friday before Christmas, possibly the day of the year on which the country was paying the least amount of attention.
As you might expect, the GAO's annual report on the financial condition of the United States contains tons of bad news.
The country can print its own money, so it's not "broke" in the classic sense of the word (can't pay its debts, can't fund its operations).
But the country is also clearly on an unsustainable course.
We will highlight sections of the report over the coming days.
For now, here are the highlights:
- The U.S. ran a $1.3 trillion budget deficit in 2011, flat with 2010 and the third year in a row of deficits over $1.3 trillion
- The U.S. federal debt load continues to climb as a percentage of GDP and is expected to explode over the next few decades
- The big problem in our current and future finances is NOT spending on Defense, Education, the Environment, and the other government programs that Democrats and Republicans love to fight about.
- The big problem in our budget is a combination of:
- Taxes that are currently off their peak as a percentage of GDP
- Future unfunded commitments to Medicare and Social Security
To be perfectly clear: The amount of the "unfunded liability" for our Social Insurance programs (Medicare and Social Security) is now $34 Trillion. This is an increase of $3 Trillion from last year. This number has increased at about $1.7 Trillion per year for the past 10 years. If not for some absurd assumptions about how Congress is going to eventually chop the cost of Medicare (the so-called "doc-fix" that pays doctors more for Medicare procedures that Congress passes every year), the liability would be $46 Trillion.
So, what's the implication and solution?
Over the long haul, the intelligent solution is a combination of modestly higher taxes and reductions in Medicare and Social Security benefits.
The other option is bankruptcy.