A new report from the US Treasury Department (pdf) released 12/15/06 claims that the United States owes 4 times what it makes each year. On page 152, in section "The Nations Fiscal Imbalance", GAO Chief Walker states:
...the U.S. government’s total reported liabilities, net social insurance commitments, and other fiscal exposures continue to grow and now total approximately $50 trillion, representing approximately four times the Nation’s total output (GDP) in fiscal year 2006, up from about $20 trillion, or two times GDP in fiscal year 2000.
He further states that the situation is unsustainable:
As this long-term fiscal imbalance continues to grow, the retirement of the baby boom generation is closer to becoming a reality with the first wave of boomers eligible for early retirement under Social Security in 2008. Given these and other factors, it seems clear that the nation’s current fiscal path is unsustainable and that tough choices by the President and the Congress are necessary in order to address the nation’s large and growing long-term fiscal imbalance.
The tough choices that the President and Congress must face amount to three choices:
- Raise taxes
- Lower government spending (less benefits)
- Print more money (Inflate the dollar)
As Lawrence Kotlikoff pointed out in his paper titled “Is the US Bankrupt?” posted to the St. Louis Federal Reserve website, the insolvency of the US will minimally require some combination of lowered entitlement payouts and higher taxes.
What This Means For Employees
What this means to employees is that the spending power of their take home pay will be reduced, there will be more fees and co-payments cropping up (since fees and co payments are easier to slip through than taxes), their benefits will be reduced, and prices will go up.
Combine this situation with the falling housing market and employees will be left with less money, more expenses, and more debt (especially for employees with adjustable rate mortgages and those that cashed in and spent their equity).
What This Means For Employers
What this means for employers is higher costs for benefits as companies are forced to fill the gap between reduced federal benefits and increased benefit costs. Higher borrowing costs, higher raw material costs, higher payroll costs. Human resource professionals should expect to see more employee bankruptcy and related financial issues.