Unfunded Liabilities

Over TCS, John Tamny exmaines the US government's scary "unfunded liabilites" - that is Social Security, Medicare, etc. entitlement spending -the number is pretty scary, $53 trillion. However, he sounds a lot like Steve over at the Skeptical Optimist. they both think as long as the economy continues to grow substantially, we'll probably be OK.

"If markets felt the U.S. were truly "bankrupt," and incapable of meeting its debt requirements, yields, particularly on the long end of the Treasury curve, would be very high as a reflection of uncertainty over our future ability to pay back what we owe. And 30-year U.S. Treasury bonds are a particularly good market measure of our debt-paying capacity considering how many Americans are expected to retire within that timeframe. Presently, the yield on 30-year Treasuries is 4.75 percent, a number lower than the short-term rate set by the Fed, along with U.S. Treasury yields on the shorter end of the yield curve. That the yield is so low suggests great confidence on the part of markets that debt fears are overdone."

He also points out that the US Treasury rate was 15.2% in 1982, which IS truly a frightening number, but one we managed to live through thanks to Reagan and his Fed chief Paul Volcker wringing inflation out of the US economy and growing the economy through tax cuts. In effect, tha market indicators today are telling us that the US economy's ability to create and generate wealth and economic growth are likely to do so to the extent that these government budget issues are quite probably going to be dealt with with some degree of success in the future. So we've got that going for us, at least.