January 07, 2004
IMF projects potential $47 trillion US shortfall.
A new IMF study, reported in the NY Times, suggests that
US deficits threaten the stability of the entire world economy. It's a story that's getting told more and more, especially as the deficits get worse and worse, but for the IMF to state it so bluntly is especially worrisome. And rather surprising given the influence Americans have in the organization. They also project a potential shortfall of a whopping $47 trillion over the next few decades.
With its rising budget deficit and ballooning trade imbalance, the United States is running up a foreign debt of such record-breaking proportions that it threatens the financial stability of the global economy, according to a report made public today bythe International Monetary Fund.
In nearly 60 pages of carefully worded analysis, the report sounded a loud alarm about the shaky fiscal foundation of the United States, questioning the wisdom of the Bush administration's tax cuts and warning that large budget deficits posed "significant risks" not just for the United States but for the rest of the world.
The report warned that the net financial obligations of the United States to the rest of the world could equal 40 percent of its total economy within a few years — "an unprecedented level of external debt for a large industrial country" that it said could play havoc with the value of the dollar and international exchange rates.
But even this is not enough to get the attention of Bush and company. Somehow I don't think that they're the ones that are going to lack food and health care.
Administration officials have made it clear they are not worried about the the United States' burgeoning external debt or the declining value of the dollar, which has lost nearly one-fifth of its value against the euro in 18 months and which hit new lows earlier this week.
Though the International Monetary Fund has repeatedly criticized the United States on its budget and trade deficits in the last few years, this report was unusually lengthy and pointed.
Fund officials said the new report reflected the views of the authors and not the institution as a whole, whose largest shareholder is in fact the United States. But fund officials also seemed intent on getting American attention.
"It's encouraging that these are issues at play in the presidential campaign now under way," said Charles Collins, deputy director of the I.M.F.'s Western Hemisphere Department and a principle author of the report. "We're trying to contribute to persuading public opinion that this is an important issue that has to be dealt with."
Especially note this statement about the size of the projected shortfalls. $47
trillion. (Yes, that's trillion, not billion.) Wow. And five times the entire American GDP. That's an almost inconceivable amount of money.
Fund officials warned that the long-term fiscal outlook was far grimmer, predicting that underfinancing of Social Security and Medicare would lead to shortages as high as $47 trillion over the next several decades, or nearly 500 percent of the current gross domestic product in the coming decades.
As someone who is 51, I have to assume at this point that all of the money I've deposited in Social Security is pretty much gone, or devalued to the point of irrelevance, and that I'm going to have to do some awfully fancy financial finagling in the next decade if I want to avoid ending up on the streets in my old age. Damn, damn, damn. Oh well, it's only money. It's only life. It's only ... catastrophic.
But from now on it's cash only, and I think it might be wise to avoid American banks as well. For the first time I see the possibility of large numbers of American banks going under, or at least having their funds confiscated by the government one way or another. The devaluing of the dollar to finance the deficit is actually a variation on that. I know that there's FDIC (Federal Deposit Insurance), which is supposed to back the banks in the event of a collapse, but that's only on paper, and that isn't any good if there isn't any actual cash to cough up.
