Professor Says US Unfunded Liabilities Leading to a Financial Disaster

Whilst the US’s staggering “official” $22 trillion government debt pile grabs the headlines we often remind readers of the unfunded liabilities that aren’t included on their balance sheet like any company or institution would be required to do under GAAP (Generally Accepted Accounting Principles). These liabilities, such as pension commitments, social welfare and medicare, are no less real than any other future committed cost.  They simply don’t ‘go away’ unless they simply can’t be funded.

Boston University economics professor Laurence Kotlikof has warned that the US is poised for a financial disaster because of it.  In an interview with CNBC:

"The evidence is in front of our eyes that we're bankrupt," Kotlikoff said. "It's not bankrupt in the future. It's bankrupt right now."

“Consumers will largely bear the brunt of the country's financial ruin, according to Kotlikoff, which is why it is crucial to give them the power to make better financial decisions.

While the United States' official debt is $20 trillion, the fiscal gap is really 10 times larger — $200 trillion. That comes from adding in off-the-book liabilities, including debt that's in the Federal Reserve's hands, Kotlikoff said.

The entire U.S. fiscal operation is 52 percent underfunded, according to Kotlikoff. Social Security is short by 32 percent, he said.

"It's not like the rest of the fiscal operation can bail out Social Security," Kotlikoff said. "So when you look at these numbers, you realize we're Argentina in 1910."

At that time, the South American nation had the fifth highest per capita GDP. In one century, Argentina went from super rich to super poor.”

Around half of all Americans have nothing saved for retirement.  There is no compulsory super like in Australia.  They are relying on a government pension that is just not funded and medical support that is just not funded.

How do you think that will end?