Financial System Will Collapse Just a Matter of When-Laurence Kotlikoff

by Greg Hunter, USA Watchdog Renowned economist Laurence Kotlikoff recently testified at the U.S. Senate about the runaway U.S. budget. How bad is it? Kotlikoff says, “I told them the real (2014) deficit was $5 trillion, not the $500 billion or $300 billion or whatever it was announced to be this year. Almost all the liabilities of the government are being kept off the books by bogus accounting. . . . The government is 58% underfinanced . . . . Social Security is 33% underfinanced . . . . So, the entire government enterprise is in worse fiscal shape than Social Security is, but they are both in terrible shape.” So, how much is America on the hook for in the future? Kotlikoff contends, “If you take all the expenditures that the government is expected to make, as projected by the Congressional Budget Office (CBO), all the spending on defense, repairing the roads, paying for the Supreme Court Justices’ salaries, Social Security, Medicare, Medicaid, welfare, everything and take all those expenditures into the future . . . and compare that to all the taxes that are projected to come in, and the difference is $210 trillion. That’s the fiscal gap. That’s our true debt.” Professor Kotlikoff goes on to say, “It will collapse. It is just a matter of when. I can’t say when, but all I can say it’s going to be too late. . . . We are seeing signs of this in the economy, but we are not picking it up that clearly. The macro economy is not doing all that well.” Kotlikoff goes on to say, “I think our financial system is really built to fail because it combines two things which really haven’t been addressed. . . . It combines leverage, borrowing by the financial middlemen and then investing in things that they don’t tell you they are investing in. So, there is opacity and leverage. These are the two major problems for the banking system. What we need to do is get rid of the leverage and get rid of the opacity. We need full disclosure of the investments of our financial institutions.” Where can you get a safe investment? Kotlikoff says forget U.S. Treasury bonds. “I think they are one of the riskiest securities in the world because interest rates are likely to go up. I think the Fed is going to have to keep printing money because Congress isn’t paying our bills, and that’s going to lead to inflation eventually. So, I think long term Treasuries are extremely risky, and they can drop 5%, 10% or 20% overnight. That could put my bank that was viewed as perfectly safe today out of business. So we could have inflation take off and interest rates go up. We could have banks fail, and that could lead to runs on other banks. That’s the scenario,” says Professor Kotlikoff. Continue Reading>>>

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