Saturday, 05 March 2016 00:00

United Debt of America: Unfunded Liabilities At $41 Trillion

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The US federal debt has already swelled to $18 trillion and I recently discussed CBO estimates for the next decade that projects $10 trillion in deficits over the next 10 years. CBO estimates also project $1 trillion in Treasury debt servicing by 2025.

If all this was not enough, the financial report of the United States government for 2015 shows that the present value of unfunded liabilities (future revenue less future expenditure) amounts to $41.5 trillion. These unfunded liabilities are due in the next 75 years, but I emphasize that I am considering the present value of these liabilities.

Even $30 trillion debt by 2026 and $1 trillion in debt servicing seems like a big burden and the unfunded liabilities add to the inescapable debt trap. The chart below shows the present value of unfunded liabilities during the period 2011-2015.

Present Value of Unfunded Liabilities United States

Even during this period (2011-15), the PV of unfunded liabilities has increased by $7.7 trillion. Considering $18 trillion in federal debt, $41 trillion in unfunded liabilities and $18 trillion GDP, US debt to GDP comes to 328% of GDP.

Of course, these liabilities are due over long-term, but my emphasis is on the trend and its implication. The following are the investment implications –

First, From a currency perspective, the dollar will remain weak against hard assets like gold in the next decade and further. The inescapable debt trap is positive for gold, which can potentially witness another decade of bull-market.

Second, US Treasuries will be good for trading from time to time. However, long-term investment in Treasuries is suicidal.

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