Tuesday, June 07, 2011

Unfunded Mandates Or How a Government Can Legally Lie to You

This is along the lines of the Comprehensive Annual Financial Reports that institutions dupe you with regularly -
The federal government's financial condition deteriorated rapidly last year, far beyond the $1.5 trillion in new debt taken on to finance the budget deficit, a USA TODAY analysis shows.

The government added $5.3 trillion in new financial obligations in 2010, largely for retirement programs such as Medicare and Social Security. That brings to a record $61.6 trillion the total of financial promises not paid for.
The Real Effect
Ok, let's examine this for a moment. Total US debt (excluding unfunded liabilities) is at about $15 trillion dollars. Let us assume for a moment that this is the equivalent of Joe Citizen taking out a $250,000 mortgage on a new house. True, he has a budget and that includes paying for that mortgage, groceries and other things. But Joe is 60 and in five years, he retires and his health care is going up drastically.

Unfortunately his wife Jane, has NO IDEA that Joe has not included health care in their budget. When confronted about it, Joe waxes and wanes about Jane's $20 a week trip to the store and fiscal responsibility. In short, he consoles Jane that everything is in fact alright. However, he repeatedly neglects to mention the little matter of over $1 million dollars in projected health care costs.

This assures Joe several things -
  1. Joe will not be strung up by Jane until the bills hit. Which, by then he reckons he should be making double his current salary in a Depression.
  2. Jane will continue to support Joe as being a "good steward" of their collective resources.
  3. That in 2016, Joe better have a plane ticket to Bermuda, without Jane. 
This is similar to the situation we find ourselves today, if our government continues to lie, they will attempt to blame the subsequent default not on themselves, but on our supposed mismanagement. Of course the fix will be to continue the spending and drain whatever capital that we have left.

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