James Hamilton, an economics professor at the University of California, San Diego, just published his best estimate of the federal government’s “off-balance-sheet” liabilities, in which he concludes that the real national debt, popularly estimated to be $16.9 trillion, is in fact more than four times larger: $70.086 trillion. This is because of decisions to leave out certain unfunded liabilities when the national debt is counted. He explains:
This paper examines the growth of federal liabilities that are not included in the officially reported numbers. These take the form of implicit or explicit government guarantees and commitments … housing, other loan guarantees, deposit insurance, actions taken by the Federal Reserve, and government trust funds….
The biggest items in this category come from Social Security and Medicare which, if current policy is maintained, will require enormous sacrifices from future taxpayers.
He includes the implicit mortgage guarantees of Fannie Mae and Freddie Mac: ”With the federal government today being the sole owner of Fannie and Freddie, it seems appropriate to consider both the direct debt obligations … as well as their outstanding mortgage guarantees [which are now treated] as an off-balance sheet liability.” Added together, housing guarantees ($7.5 trillion), FDIC guarantees ($7.4 trillion), Social Security ($26.5 trillion), Medicare ($27.6 trillion), and other government trust fund liabilities ($1.8 trillion) come to $70 trillion. That’s an increase of $13.5 trillion just since 2006, and is growing by more than $2 trillion a year.
When the Government Accounting Office (GAO) issued its own report on the government’s finances back in January, it was 270 pages long and was filled with disclaimers about its estimates:
Certain material weaknesses in internal control over financial reporting and other limitations … prevented GAO from expressing an opinion on the fiscal years 2011 and 2012….
Because of significant uncertainties … GAO was unable to express opinions on [those years’] statements on Social insurance.
Nevertheless what they did uncover appeared on pages 46, 47, and 48, deep into the report: When adding up the unfunded liabilities of all “social insurance,” the present value of future expenditures in excess of future expected revenue came to $38.5 trillion, more than twice what is publicly admitted.
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