Is the U.S. bankrupt?

In a study published earlier this month, economist Lawrence Kotlikoff pointed out that the U.S. is responsible for $80 trillion in future entitlement promises -- a figure about six times larger than the U.S. economy. To make good on those promises, future workers would have to pay tax rates ranging from 55% to 80% of their incomes!

The same week that Kotlikoff's study ran in the Federal Reserve Bank of St. Louis bulletin, the comptroller general of the U.S. said, "Current fiscal policy is not sustainable, and hard choices must be made ... we're mortgaging the future of our children and grandchildren and creating a shameful legacy."

Finally, some knowledgeable and authoritative people are starting to bring this national crisis to the attention of the public.

Fiscal Wake-Up Tour

The comptroller general, David Walker, is on a national "Fiscal Responsibility Wake-Up Tour" -- a nonpartisan effort to educate the public to the crisis that looms, not only in the next few years, but as baby boomers retire.

Walker, who is in the midst of a 15-year term, is being supported by both political liberals and conservatives in his efforts to shine a light on the budget problems that are approaching. Here are some of the facts that he pointed out in a presentation last week:

  • About 60% of our federal spending is now mandatory, primarily because of Medicare and Social Security obligations and interest on the national debt.
  • While the 2005 budget deficit was widely reported at $318 billion, if it is calculated on an operating basis like one that most companies use, the year's deficit was easily double that amount.
  • We finance our deficits by borrowing -- and 50% of our public debt is currently owned by foreigners.
  • Interest on the national debt is expected to be about $200 billion this year -- around the same amount that we spend on Medicare.
  • We currently have a $46 trillion liability for Medicare and Social Security obligations -- and the new drug bill will easily add another $8 trillion in promises.
  • Over the next 25 years, Medicare spending will grow at nearly five times the rate of GDP growth.
  • Every newborn arrives with an immediate debt of $156,000 -- which constitutes fiscal child abuse.

Walker's presentation is on the

General Accountability Office's Web site. You should see the data for yourself because a picture is worth a thousand bullet points.

These are "MEGO" numbers -- My Eyes Glaze Over. And that's why our huge and growing financial disaster doesn't stand much chance of gaining attention, especially in a world dominated by reality television shows and news headlines about perverts. When more people take the time to vote for dancing partners or dubious singing talent than vote for the president or their own congressional representatives, then we have only ourselves to blame.

Or we could say that we are setting ourselves up for the blame that our children will heap on us for being the first generation to leave this country worse off than we found it.

Walker says time is working against us, so we have to act now. Because we're in a period of economic growth with relatively low interest rates, it's the perfect time to get our financial house in order. (That's the same advice I've been giving to consumers!)

The real problem is the exponential increase of the deficit 20 years down the line, when boomer retirees will be dependent on promised payments from government. This will implode the system.

Spending Solutions

Tough choices must be made, according to Walker.

Among his first targets is the out-of-control growth in health care spending. He calls on the country to debate the issue of what type of "basic and essential health care" the government should provide citizens vs. what people should pay for themselves.

He challenges Congress to assert greater control over the budgetary process, and urges the authorization of a line-item "rescission" that would allow the president to cut individual items from the budget. A 50% vote of Congress would be required to restore any cuts, leading to more transparency in spending. Overall, he says, the challenge is to re-engineer and transform our government into a 21st-century operation.

If we don't immediately start dealing with our financial problems, says the comptroller, we risk the fate of the Roman empire, once the most powerful on the face of the globe. Perhaps someone should have shouted out that the emperor wasn't wearing any clothes! And that's The Savage Truth.

Terry Savage is an expert on personal finance and also appears as a commentator on national television on issues related to investing and the financial markets. Savage's personal finance column in the Chicago Sun-Times is nationally syndicated, and she released her fourth book,

The Savage Number: How Much Money Do You Need?

in June 2005. Savage was the first woman trader on the Chicago Board Options Exchange and is a registered investment adviser for stocks and futures. A Phi Beta Kappa graduate of the University of Michigan, Savage currently serves as a director of the Chicago Mercantile Exchange Corp. She also has served on the boards of McDonald's and Pennzoil.