Will the Federal Government Be the Next Detroit?

Albert Duce

Will the Federal Government Be the Next Detroit?

How broken promises are bringing down the U.S.

While economists were shocked to see Detroit file for bankruptcy, many are now scared that it has set off a chain reaction throughout the nation. At $18 billion, and probably more, Detroit is the largest municipal bankruptcy case in the history of America. While it was not the first city in the U.S. to file for bankruptcy, it is by far the largest. And chances are it won’t be the last.

The financial issue currently plaguing the nation is unfunded liabilities such as pension commitments. This was at the heart of why Detroit filed for bankruptcy. According to Kevin Orr, Detroit’s emergency manager, the city was about $3.5 billion short of what it needed to pay its current and future retirees.

From sea to shining sea, governments at the local, state and federal level are failing to come up with the money promised to their employees at retirement. In Los Angeles, total unfunded liabilities could equal as much as $30 billion. On the other side of the nation, New York City Mayor Michael Bloomberg warned on Tuesday that New York City could travel the same path as Detroit if the next mayor doesn’t work to curtail rising pension costs.

By not properly saving or budgeting for these liabilities, major cities across the U.S. are now facing a host of consequences. One of the more immediate consequences is a downgrade of their credit rating. On July 17, Moody’s Investors Service dropped Chicago’s rating three levels. That brought the city’s credit rating to the lowest it’s been in 26 years and only four steps above “junk.” A downgrade to a city’s credit rating means that it is a bigger investment risk, so less people are likely to lend it money. It also makes it more expensive for the city to borrow money.

This problem extends all the way up to the federal level. But in the Federal Reserve’s case, it isn’t a shortfall of just $18 billion like Detroit faces. A new study done by University of California-San Diego economics professor James Hamilton found that the United States has over $70 trillion worth of unfunded liabilities. This includes pension commitments as well as obligations toward Medicare and Social Security. But even that astronomically huge number may be optimistic. Laurence Kotlikoff, an economics professor at Boston University, estimates that America’s unfunded liabilities could be as high as $211 trillion.

The problem with calculating unfunded liabilities is that they are based on estimates such as stock and bond market returns, life expectancy and health-care cost inflation, hence the huge differences in estimations. Therefore it is always difficult to get an accurate figure for America’s unfunded liabilities. But as Hamilton wrote in his study, “[O]ne thing seems undeniable—they are huge.”

Regardless of what the exact number is, the federal government has nowhere near the money it needs to pay up—the government is already nearly $16.7 trillion in debt. As more and more baby boomers begin to collect their benefits, the federal government will be forced to either print off more money or go deeper into debt to cover the promises it made. “We’ve got 78 million baby boomers who are poised to collect, in about 15 to 20 years, about $40,000 per person. Multiply 78 million by $40,000—you’re talking about more than $3 trillion a year just to give to a portion of the population,” Kotlikoff says. “That’s an enormous bill that’s overhanging our heads, and Congress isn’t focused on it.”

No matter how you look at it, America is broke—it just hasn’t admitted it yet. And when it can no longer pay its bills, the country will be plunged into economic and social collapse. That is what your Bible prophesies will happen. Things will get so bad that people will “cast their silver in the streets, and their gold shall be removed: their silver and their gold shall not be able to deliver” (Ezekiel 7:19).

God prophesies that dangerous times are ahead. But there is good news as well. It all leads to the Second Coming of Jesus Christ to this Earth. Finally mankind will be taught the laws that lead to financial success so that no one need file for bankruptcy ever again. To learn about the most important law of financial success, read The Financial Law You Can’t Afford to Ignore.