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Treasury Study Puts US Government's Liabilities at $44.2 Trillion

June 2, 2003

Scottish philosopher Alexander Fraser Tytler, writing nearly two hundred years ago about the fall and decline of the Athenian Republic, proclaimed, "A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury."

Although Tytler was writing about a great republic that had fallen two thousand years earlier, he could have been predicting the decline and fall of the United States. Can anyone name, in all of Congress, ten senators and representatives who do not campaign on promises of delivering "the bacon" back to their home states or to special interest groups?

Such a lead-in could go into the politics and the persons responsible for our current financial woes. However, CMI's commentaries are reserved for observations about protecting oneself from the financial and economic challenges ahead, regardless of who caused them.

Now, in case you missed it, the White House "shelved" a Treasury Department commissioned study that showed the net liabilities of our FedGov to be $44.2 trillion. By comparison, our current official debt stands at about $6.4 trillion. Other comparisons: $44.2 trillion is roughly equivalent to four years of US economic output or more than 94% of all US household assets. Truly, voters have voted themselves largesse from the public treasury.

Originally, the results of the study were to be included in the Bush administration's budget report for fiscal 2004. But politics being what they are, it was deemed not wise to give such powerful ammunition to the opponents of the president's tax cut, which was part of the bill that set forth the 2004 budget. (Although White House spokespersons have denied "shelving" the study, they have not yet attempted to repudiate the study's findings.)

The liabilities arise from "fiscal imbalances" because of "generational imbalances." In short, the US population is no longer growing fast enough to keep the FedGov's Ponzi scheme going. Stated another way, politicians have promised too much to too many. Further, if no remedial action is taken before 2008, the "imbalance" rises to $54 trillion. Medicare will consume--if no changes are made--80% of the imbalance. Social Security and federal retirement programs make up the rest of the liabilities.

The authors of the study suggested some remedies. One, double payroll taxes (FICA, or Social Security, if you prefer) immediately and forever; two, raise income taxes by more than a third; or three, cut Social Security and Medicare benefits in half.

Tim Wood of Mineweb wrote, "Hell will freeze over before the budget crisis is addressed ahead of next year's national elections." Tim Wood is an optimist to think that this matter will be addressed before it becomes a real crisis, i.e., there is no money left in the Treasury. The politicians in Washington couldn't care less what happens after they leave office.

The FedGov's unfunded liabilities have been written about before. The Taxpayers Union used to do annual studies, which were ignored by the media. Only gold bugs paid attention. Now with the Treasury having commissioned this doomsday study, will the media ignore is it? Probably.

Years ago, in CMI's hard copy newsletter Monetary Digest, we warned that Social Security was the greatest Ponzi scheme ever devised. There is no way our FedGov can meet the obligations imposed by Social Security and now Medicare. CMI believes that one measure to reduce the FedGov's liabilities will be to declare Social Security and Medicare welfare programs, eligible only to the indigent.

This means that despite having paid into Social Security your entire working life, you may not receive a penny if you have also set aside funds for your retirement. If you can't declare yourself indigent, you do not get Social Security.

Tim Wood also wrote that the "projected shortfall is manna for gold bugs who are predicting American economic woes to restore the metal's monetary mojo." (Obviously, Tim is an Austin Powers fan.) However, if the media ignore the study, it may not have a major impact on the price of gold, but it should put some upward pressure on precious metals, especially gold.

Some investors will find out about the study and will comprehend the seriousness of its implications. Those who do so will seek safe havens. Because gold and silver have stellar track records as safe havens during times of fiscal insanity, many investors who today have never considered gold or silver will turn to them.

There is also the probability that the conclusions of the study will be discussed more abroad than in the US. Approximately 85% of world central bank reserves are in dollars. And, some studies estimate that 85% of the world's commerce is conducted in dollars, which means that millions of foreign individuals own dollars. Those individuals should be interested to know that the issuer of dollars has nearly seven times the liabilities that it publicly admits.

Considering the massive foreign holdings of dollars, the study's findings should increase interest in gold (and silver). And, rightfully so. How widely the report is discussed will determine its impact on the metals.


Bill has been a precious metals dealer since 1973.
He can be emailed at [email protected]
His primary website is

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