Is the U.S. Insolvent?


The national debt fascinates me because, as an intelligent and educated person, I really have a problem understanding whether or not it is a serious issue. Some people argue that, using certain metrics, we are on par with previous eras. Others argue that we are on the verge of collapse. I don't really know. Despite graduate level economics courses, and lots of reading on the subject, both arguments sound good to me. (That's why I'm always so stunned when politicians, who are extremely busy people, seem to think the answers are so simple). Now a new report has been release that, according to some people, says that the U.S. is insolvent.

The US is insolvent. There is simply no way for our national bills to be paid under current levels of taxation and promised benefits. Our federal deficits alone now total more than 400% of GDP.

That is the conclusion of a recent Treasury/OMB report entitled Financial Report of the United States Government that was quietly slipped out on a Friday (12/15/06), deep in the holiday season, with little fanfare. Sometimes I wonder why the Treasury Department doesn't just pay somebody to come in at 4:30 am Christmas morning to release the report. Additionally, I've yet to read a single account of this report in any of the major news media outlets but that is another matter.

I'm skeptical that the situation is so dire, because it seems to me that the market would have figured out we were on a path to destruction and penalized US investments more severely than they have. But on the flip side, if the US financials represented a publicly traded company, I would probably short the stock. If you have interesting links related to this issue, please leave them in the comments for me.