How Big Is A $205 Trillon Hole?

That’s $205 followed by 12 zeros. It’s a number so big that the average person can not wrap their mind around it. And, that’s okay. The only thing a person needs to understand about a $205 trillion hole is that there is no way to climb out of it. None!

So, where does this huge number come from? It comes from economist Dr. Lawrence Kotlikoff, as reported here,  using data from the Congressional Budget Office (CBO) called the Alternative Fiscal Scenario (AFS), which is described as follows:

This forecast is what CBO actually projects future taxes and spending to be given not just the laws in place, but also how Congress and the Administration have been bending and changing the laws through time. In short, the Alternative Fiscal Scenario (AFS) is what the CBO thinks we’re facing absent a truly dramatic and sustained shift in fiscal policy.

What Kotlikoff did was take that data and calculate the present value of all US debt and liabilities and he came up with $205 trillion. The article explains what that means this way:

Understand, this is not the unfunded liabilities added up in all future years. This is the present value of the unfunded liabilities, discounted to today. This means that the government needs $205 trillion, cash on hand, to invest in the private sector, in order to fund its legal liabilities. This is not the deficit long after we are dead. This is the present value of the deficit long after we are dead. _ (Bold added)

So, from a perspective of present value, our boys and girls in Washington have dug a hole we can never get out of and all they can do is to keep on digging. For what it’s worth, America is not alone in this dilemma. Relatively speaking the EU is in worse shape and Japan even more so. Brazil, Russia, and India are digging their own holes. And, less you think China is primed to take over the world, you may want to read China Fooled the World (But It Cannot Last). I’m reminded of the old refrain: space is a vacuum because the whole world sucks!

Enjoy the ride wwhile it last, my friends. But, prepare for the worst as best you can. What  can’t last, won’t.

Well, that’s what I’m thinking. What are your thoughts?

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8 thoughts on “How Big Is A $205 Trillon Hole?

  1. Seems to me the CBO also just forecast that just the interest rate on the national debt alone will grow to 100% of federal income in the year 2038 if entitlement reforms are not made.

    At that point, of course, 100% of all taxes will have to be used to service the debt and none left over for anything else.

      1. It doesn’t. Especially given that Congress has returned to spending as usual and revoked most of sequestration.

        We can expect a year of giveaway spending in an election year.

  2. I just saw this and read the article at Monty’s place. So here’s the 200 trillion dollar question…when does the SHTF? Will we live to see it?

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