Unfunded Liabilities Growth Increases Odds of Severe Wiedemer type Aftershock Economy


Unfunded Liabilities Growth Increases Odds of Severe Wiedemer type Aftershock Economy

US creditors must be closely monitoring our explosive growth of ‘unfunded liabilities’, comparing that to measly 2% (or less) GDP growth.  In June 2013 our largest foreign creditors were net sellers of our Treasuries.  Private foreign investors sold a net $81.6 billion in long-term securities in June, nearly double the previous record selloff in May, according to a U.S. Treasury Department report released August 15. That included net selling of $25.5 billion of U.S. equities–the biggest monthly pullout since August 2007—and $40.1 billion of U.S. Treasury bonds and notes. The figures are not adjusted for inflation.

Source:  http://blogs.wsj.com/economics/2013/08/15/foreigners-stampede-out-of-u-s-securities-ahead-of-fed-tapering/?KEYWORDS=June+2013+net+sellers+Treasury+debt+China+Japan

 ‘Unfunded Liabilities” may be over $80 Trillion –  at $84 Trillion (see WSJ link below) or at $90 Trillion by analysis via American Business Analysis and Research LLC or ABAR (shadowstats link below) .

Shadowstats Table:

image006unfunded

The U.S. Treasury “balance sheet” does list liabilities such as Treasury debt issued to the public, federal employee pensions, and post-retirement health benefits. But it does not include the unfunded liabilities of Medicare, Social Security and other outsized and very real obligations.

Unfunded liabilities are:

The amount, at any given time, by which future payment obligations exceed the present value of funds available to pay them. For example, a pension plan’s payment obligations, including all income, death and termination benefits owed, are compared to the plan’s present investment experience, and if the total plan obligations exceed the projected plan assets at any point in time, the plan has an unfunded liability.

Social Welfare states collapse when wealth distribution and promises of additional wealth distribution exceed wealth creation.  Per ABAR our unfunded liabilities are increasing at rate of approx $5 Trillion per year while our GDP barely grows $300 Billion per year.  This is unsustainable (and may be a factor behind recent run up in the 10 year Treasury to 2.9%  (Aug 19).  Solutions to this quandary call for multiple solutions.  One quick take on this is to allow up to 1% real GDP wealth creation per year by allowing US corporations to develop our newly found natural gas and oil on public land with new environment safe technologies. Investors Business Daily cited the 1% GDP increases (sorry do not have that link).  Clearly we need multiple wealth creation strategies if we intend to finance our large Social Welfare state.

Sources:

http://www.shadowstats.com/article/no-500-special-commentary-us-government-gaap-based-2012-financial-data
http://www.investorwords.com/19346/unfunded_liability.html#ixzz2cRaJWNKL

http://online.wsj.com/article/SB10001424127887323353204578127374039087636.html

For details about what an Aftershock may be please read – https://economics501.wordpress.com/2011/11/25/aftershock-economy-book-review/

Twitter@Economics501

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About economics501

1 - free market Capitalist; 2 - Fitness Entrepreneur; 56 years old, VP at an Investment Bank in NYC, ex Venture Capitalist, happily married with 2 girls. Education: Rutgers and NYU. I allow Ted Hruzd, my friend to blog at will here. He has many posts here. I have known Ted since we were both students at NYU. Ted also works for an Investment Bank as a VP in Equity Global Markets. ------------------------- I was very very Socialist leaning as a 22 year old. I then strongly believed in Gov role in helping the poor. However, as a USDA Child Nutrition Programs, I personally accounted for millions of fraud, abuse, and waste of tax payer money. I came to believe that the poor would be best served with less Gov programs and more with direct aid via tax system. Then after 5 years I became a free market capitalist, was a venture capitalist in 2007 and helped start 2 high tech companies. I dedicate this site to champion free market capitalism as the best road to Prosperity. Please join in. If you disagree, fine, but please post with dignity and class and be civil. Argue with facts always.
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