Addison Wiggin's I.O.U.S.A.: The Coming Entitlement Meltdown

by Alexander Green

During the current economic crunch, top executives at Bear Stearns, Lehman Brothers and other financial giants received hundreds of millions of dollars in compensation… just before their firms keeled over.

This is galling to many. But the excessive and unwarranted compensation at Bear Stearns and Lehman doesn’t bother me, personally. Why? Because I never owned a share of either one of them.

However, we all have a stake in the future of the U.S. economy. No one can afford to ignore how Uncle Sam spends money. Fiscal policy will play a key role in determining the strength of the economy, the performance of our financial markets and the value of the dollar.

The incoming Obama administration is talking about spending up to a trillion dollars - a temporary shot in the arm - to get the economy moving again.

But looking beyond the current crisis, an even greater challenge looms. I call it “The Coming Entitlement Meltdown.”

Why We Face $53 Trillion in Unfunded Liabilities

According to the Treasury Department’s 2007 Financial Report, we currently face $7 trillion in unfunded liabilities for Social Security, $34 trillion in unfunded liabilities for Medicare and $12 trillion in unfunded liabilities for public debt and civilian and military benefits.

That’s $53 trillion… or $455,000 per U.S. household.

If serious steps aren’t taken (and soon), this crisis could make the subprime one look like just a rainy day.

Some argue that we can grow our way out of this problem. That is not realistic. To do so, our economy would have to grow by double digits in real terms for decades. That’s never happened before. (Even during the long stretch of prosperity in the 90s, the economy grew at an average rate of only 3.2% per year.)

Every investor needs to understand the scope of this problem and how it affects our long-term financial prospects.

That’s why I strongly suggest you read Addison Wiggin’s new book “I.O.U.S.A.”.

I.O.U.S.A. - Washington’s Spending & The Upcoming Fiscal Crisis

I.O.U.S.A. takes a hard look at Washington’s out of control spending habits and the fiscal crisis that looms ahead of us.

(I used to say Congress spends our tax receipts like a drunken sailor with four hours of shore leave. That was before a reader wrote to say my comments were “an insult to besotted sailors everywhere. After all, the sailor is confessedly drunk and spending his own money. What’s your Congressman’s excuse?”)

Every American is now burdened with more than $175,000 in federal liabilities and unfunded government promises.

Looking ahead, the current $53 trillion will automatically grow by another $2 trillion to $3 trillion per year - or $6,600 to $10,000 per person - unless serious reforms are made.

Think about this for a moment: 53 trillion. It’s the kind of number astronomers should be throwing around, not legislators.

Yet these are the official numbers straight from the U.S. Government Accountability Office.

As you may know:

• I.O.U.S.A. started out as a superb and entertaining documentary about the financial crisis created by the U.S. Government. Wiggin does a bang-up job of describing the scope of the problem. (Everyone from Alan Greenspan to Warren Buffett gets an opportunity to weigh in on the problem.)
• I.O.U.S.A. was a smash in theaters and was nominated for the prestigious Critic’s Choice Award. It was short-listed for an Oscar for Best Documentary.
• And while the film has not yet been officially released on DVD, Addison has put together a package that offers the book (which hit #1 on Amazon), the DVD and a two-year subscription to Capital & Crisis, an investment letter that shows investors how to protect and enhance their assets through the current crisis and beyond. Follow the link to learn more about I.O.U.S.A.

The non-profit Peter G. Peterson Foundation calculates that the sum of America’s debts and other financial commitments is about to exceed the collective net worth of its citizens.

That’s scary. Please don’t make the mistake of believing this won’t affect your financial security or that the problem is “way down the road.”

Markets are always forward-looking. For a sobering look at what lies ahead, I strongly suggest you read, watch - and share - Addison Wiggin’s I.O.U.S.A.

Comments

[Here's a th...:]

nice comercial

2008 Dec 23 01:33 PM

[notsosmart:]

sounds like more bs.there are no entitlements.ss & medicare have been & are paid for. the congress robbed the trust funds with their phony borrowing.if the y had left the trusts alone all would be well. the sheeples are fed these lies as they are fleeced.the dumb-dumbs are busy swilling beer(consumption is up) & filling the stadiums.as almost the same scoundrels & crooks get reelected year after year.the world must be laughing at the new usa socialism.not to worry-the insiders have their assets safely stored in switzerland or lichtenstein etc.as the taxpayers help them to get billions more.

2008 Dec 23 03:45 PM

[veryold:]

Even if I understand the pressures on the budget and all the ins and outs of all the dire situations you mentioned, what can I do about it?

2008 Dec 23 09:33 PM

[Gedankonomist:]

Peter G Peterson (namesake of the foundation related to IOUSA) was chairman of the Council on Foreign Relations (CFR). AIG is a CFR corporate member. So is Goldman Sachs and Lehman Bros.

There are about 3000 CFR members; about 1/3 are in the Federal Government. Many of these CFR members (and past ones) are directly responsible for the mess we are now in. E.g. Alan Greenspan (although technically not a Federal employee.).

But CFR members are not just involved in the credit bubble collapse, but also the bogus "free trade" schemes which have entrapped the US and destroyed our industry.

Therefore I'm suspicious about the motives of IOUSA. I guess I would have to see the film.

2008 Dec 25 01:55 AM

[Stephen Kanitz:]

The Pay As You Go Social Security system is a misnomer. It actually means the younger generations pays, as you go in retirement. Hope the younger generation finds out.

2008 Dec 26 12:26 PM

[Jason Rines...:]

Few of my colleagues my age (35-40) expect anything out of Social Security at this point. Paying for the older generation of boomers means less productivity from the working class, it's as simple as that. Boomers retiring is going to mean less consumption of discretionary items. It's likely we will simply have our own lost decade, but I expect a decent bull market in 2013.


On Dec 26 12:26 PM Stephen Kanitz wrote:

> The Pay As You Go Social Security system is a misnomer. It actually
> means the younger generations pays, as you go in retirement. Hope
> the younger generation finds out.

2008 Dec 27 09:09 AM