That is a question I have asked myself for a long time. While it is hard to get a clear picture of the U.S. government’s financial position (i.e. it’s balance sheet), you can make a bunch of assessments simply by looking at its operating statements over the past 100 years.
One thing has become obvious, our political class continues to spend and make promises to pay benefits to citizens far beyond its ability to generate income to pay for them. While the majority of the promises are “off balance sheet,” they do represent future commitments that will require the government to pay money to its citizens or the citizens will have to do without a promised benefit.
Add to this the fact that government operations continue to run at a deficit, and you have what I believe is a looming default. I’m not sure when, or where, but this cannot be sustained into perpetuity. So, the U.S. government is left paying off and providing returns to existing investors with new investors’ money. Don’t people go to jail for that? Isn’t that called a ponzi scheme? Oh wait, that’s only if you’re in the private sector.
Once again, the credit rating agencies are late to the dance. They continue supporting their puppet masters by saying the U.S. must raise its debt ceiling to maintain its credit rating. While not raising the debt ceiling might cause a default earlier than if we had raised the debt ceiling, the legal authority to float more debt does not mean our credit is AAA. As a matter of fact, the fact that we can’t pay our bills as they are coming due without additional financing proves we’re technically insolvent.
While Bernie Madoff is characterized as a villain, he is no different than the politicians and bureaucrats over the last 100 years who promised benefits without a clear means to pay for them and without truly reflecting the cost of providing these benefits over the life time of the beneficiaries. Just as wrong were the inflated assumptions used in the models demonstrating the worth of the spending and programs.
In the private sector, these are considered crimes and you go to jail for them. In the public sector, you’re paid a nice income and benefits for life.
One thing is for sure, you don’t need to be a Harvard MBA to figure out something is wrong. You also don’t need a degree to figure out the U.S. government is not AAA rated. The rating agencies will get there one day, but, as was the case with Enron and others, it will be too late.