Actual US Deficit $8 Trillion, Greater Than $6.6 Trillion After Tax Income


By Charles Biderman
It was an Aha moment for me when I read Chris Cox and Bill Archer’s op-ed in today’s Wall Street Journal. By the way this article is must reading and linked to on our blog site.


The specific Aha was that these two former Clinton Economists had uncovered, buried in the annual Medicare Trustees Report, that the growth in today’s dollars of future Medicare and Social Security obligations is a whopping $7 trillion annually. What that means is if the US were a public company it would have to report a loss of $7 trillion this year, and that would boost the current budget deficit to $8 trillion. What is more incredible is that total after tax income for all Americans is $6.6 trillion, less than what the government is spending in the real world!


This is crazy!


In on a January 25 video, I estimated $50 trillion as the present value of total federal government entitlements. I was wrong. Cox and Archer report the current liability of the federal government is an incredible $87 trillion for Social Security, Medicare and federal employees’ future benefits. That is a third bigger than the entire $63 trillion net worth of the entire US. We owe more than we have and we spend and promise to spend way more than we make.


The US is at a fiscal cliff where everyone expects a deal that will include a small amount of future entitlement cuts in exchange for a few hundred billion of higher taxes. This is a colossal joke. Our government is promising more in future entitlements than total income. And this administration says entitlement cuts are off the table. After all Paul Krugman tells them that deficits do not matter.


Let us go back to the public company analogy. Enron, Worldcom Bernie Madoff as well as other frauds hid the truth from the world. When the truth came out the bad guys went to jail. Well what is the difference between that kind of fraud and specific US government officials deciding that we do not need to know that we are committing $7 trillion this year as the present value of future entitlements. Why shouldn’t some government official go to jail for hiding this info?


Am I overreacting? Maybe. But I really do think it is criminal to hide the truth about something this important, particularly when the truth reveals that we are in essence already broke. And instead of talking about higher taxes, the conversation should be about how best to restructure the de facto already bankrupt US.


For at least 10 years now I have been asking why is the US government ignoring real time data and instead using estimates based upon historic data updated by surveys as the basis for key economic reports from the BLS and BEA, for instance, that are closely watched by the markets.


Now I think I know why. The US government is in the mushroom growing business. Keep us citizens in the dark as much as possible and throw bull shit all over us.


I have a very simple solution. If I were in charge, I would extract from withheld income and employment tax payments current real time income. In addition I would also report the number of people working, in which sectors and in what zip codes. Then I would aggregate all spending info from Master Card, Visa etc. and then update in real time the US income and balance sheet, as well as future liabilities.


It is interesting. The government requires full disclosure by public companies. But why shouldn’t government accounting be held to the same standards? I think it should be a criminal offense, if it already isn’t, for government officials to hide key data.



5 Responses to Actual US Deficit $8 Trillion, Greater Than $6.6 Trillion After Tax Income

  1. Alan on November 28, 2012 at 1:12 pm

    Is a Citizen’s arrest on every elected official in Washington possible.

    They would be all in one place on Inauguration Day.

  2. Chuck Szkalak on November 28, 2012 at 6:15 pm

    Mr. B:

    Thank you again for telling it how it is!

    Washington politicians need a reminder that the Pharaoh, Hosni Mubarak, the absolute ruler of Egypt is on life-support, in JAIL. Such an event was unthinkable for 30 years before 2011. Here is hoping that something similar may overtake our US political elites, who are equally corrupt.

  3. Bob Franklin on November 29, 2012 at 1:08 pm

    Is Mr. B still long term bullish after this ?

  4. Ed_B on November 29, 2012 at 5:50 pm

    Krugman continues to publish and broadcast fantasy economics rather than real economics. Unfortunately, the USSR has already proved that deficits DO matter, that government fiat cannot change valid economic law, that attempting to do so will result in a spectacular economic collapse, and that sustainability IS a HUGE issue for those of us who live and believe in the real world.

    Not only is the US government spending more money than we have, they are spending more than the assets we have, and therefore more than we will ever have. If one were to design a system to destroy the US economy, one would have a very hard time improving upon the current one now being orchestrated by Bernanke and Geithner. It is difficult to believe that their many wrong turns have occurred via accident or incompetence, although both are likely contributing factors.

    I agree completely that the US is already bankrupt and that bankruptcy is not coming, it’s here! The entire situation can be boiled down to a few very basic truths. No individual can live a happy and successful life by creating massive amounts of credit card debt that is unlikely to ever be repaid. This can’t actually happen to individuals because at some point the credit card companies WILL stop offering to extend any more credit to what is clearly a deadbeat borrower. Not so with government, however, whose line of credit is massive and that continues to be extended. While this can go for quite a long time, it cannot go forever. Sooner or later, credit ratings agencies will reduce the US credit worthiness number and interest rates will rise to slow the borrowing and spending spree. Although it takes longer for this to occur to a government, that it WILL occur sooner or later is not in doubt.

    As to government “honesty” in reporting various economic numbers… what honesty? These guys are clearly cooking the books to create an impression that both they and their policies are much better than they actually are. While this can be a useful political fantasy, it is WAY outside the realm of what most of us know as reality. Does anyone seriously believe that unemployment is actually around 8%? No, it is closer to double that figure but the truth is hidden to avoid panic and lost elections. Does anyone seriously believe that inflation is only 2.5%? No, again, not really. All of us who shop for groceries, fill our gas tanks, buy tuition, health care, and a thousand other items are well aware of the fact that inflation is actually closer to 10% than to 2.5%. Using the “rule of 72″, we can infer from this that at 10% real inflation, our savings and our buying power is being cut in half every 7.2 years. It is not difficult to see what this does to our savings and our retirement plan money, yet we continue to elect and then re-elect the same boneheads who brought us this financial disaster.

    They say that a people tends to get the government that they deserve and after witnessing the 2012 elections, I am forced to agree with that. My only question is how long will it be before the US economy and the dollar collapse completely? Got gold or silver? At least they cannot be printed to extinction as has the Zimbabwe dollar and as the US dollar is now in the process of doing.

  5. David henderson on November 29, 2012 at 6:21 pm

    SS and medicare are promised benefits, not legal debts to be paid.

    Someday, the crowd in Washington will have to renege on their promises.

    This Great Renege will send shockwaves through the electorate.

    It wont be pretty.

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Charles BidermanCharles Biderman is the Chairman of TrimTabs Investment Research and Portfolio Manager of the TrimTabs Float Shrink ETF (TTFS)

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