An Economic Wake-Up Call to a Deaf Congress (Video)

March 20, 2015 by SchiffGold 0 0

Laurence Kotlikoff, Professor of Economics at Boston University, appeared before Congress last month and called them out on phony accounting. He told Greg Hunter of USAWatchdog that despite his best attempts, he could not make senators see how the fiscal situation of the country is not as rosy as official numbers would have us believe. In his interview with Hunter, Kotlikoff talked a lot about social security, but he ultimately underscores what Peter Schiff has been saying for a long time: another financial collapse is coming.

Some of Kotlikoff’s key points include:

The current deficit is actually $5 trillion, not the $500 million Congress claims.

The entire government is in terrible fiscal shape, with a true debt load of over $200 trillion.

The US is risking the same path as Argentina with its out-of-control money creation, which dropped it from the 5th largest GDP in the world to the status of a developing country.

Real wages and the savings rate are extremely low. In the 1950s, Americans saved about 15% of their income, compared to just 4% today.

Long-term Treasury bonds are extremely risky, because the Federal Reserve won’t be able to keep interest rates suppressed forever. Eventually, true inflation will ruin banks that relied too heavily on bonds.

Highlights from the interview:

“Almost all the liabilities are being kept off the books by bogus accounting. The government does not include your social security benefit commitments that it’s made to you as a commitment as a liability, it doesn’t include Medicare that it has to pay to you as a liability. It doesn’t include any of the taxes that you’ll pay in the future as an asset… If you take all the expenditures that the federal government is expected to make as projected by the Congressional Budget Office… compare that with all the taxes that are expected to come in — the difference is 210 trillion dollars. That’s the fiscal gap. That’s our true debt. Now the official debt is only 13 trillion, so the government has left off the books almost all of the problem. I was trying to explain this to the senators… The entire government enterprise, federal government, is in worse fiscal shape than social security is, but they’re both in terrible shape…

“When are people going to wake up to the terrible hole that we’re in? I don’t know… Obviously they [Wall Street] aren’t incorporating all the money printing that’s going to be required to help pay for this problem that has already occurred. There’s been a lot of money creation since 2007, it’s huge, a fantastically huge amount. They don’t seem to be worried right now…

“This is the kind of policy [money printing] that Argentina was running for the last century. Gradually they drove the economy from a developed status — it was the fifth highest per capita GDP country in the world — to where it is today, which is a developing country again. So it went from a developing country to a developed country back to a developing country, based not on its resources, which are fantastic, or the quality of the people, or its ingenuity, or brainpower, whatever. It’s all based on bad government policy… Nobody’s really looking at what all this means for our kids. It will collapse, it’s just a matter of when. I can’t say, but all I can say is that it’s going to be too late…

“We’re seeing the signs of this in the economy, but we’re not picking it up that quickly. The macro economy is not doing all that well. Real wages are not that higher compared to where they were in 1965. For the typical worker, they’re not that higher than they were if you look at the take-home pay. If you look at the national saving rate, it’s 4 percent versus the 15 percent in the 1950’s. That’s because we’ve been engaged in a consumption spree…

“These are the kinds of signs that economists look at for an economy that’s in trouble. We’ve been going downhill for decades…

“These are the two major problems for the banking system: what we need to do is get rid of the leverage and get rid of the opacity. Have full disclosure about the nature of the investments of our financial institutions…. we don’t need to have a financial system that at any point in time could go broke again or could go down. You could have runs. The runs were precipitated by the fact that nobody knew what Bear Stearns had in assets. Nobody knew what Lehman Brothers had in assets… We need to have disclosure as to what these middlemen are holding so that we don’t have runs because people all of a sudden get a little bit of information…

“I’m saying that you’ve got a system that’s built to fail. It’s so fragile because all it takes is enough people getting scared that there will be a bank run, that’s all it takes to make a bank run happen… You could have inflation take off, you could have interest rates go up, you could have banks fail, and that would lead to runs on other banks.”

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