Will The Federal Government Face the Same Cash Crisis as California?

A recent letter from State Controller John Chiang stated that lawmakers in California were stunned when they came to find out recently that tax collections were not moving at the same rate as existing budget amounts, which could possibly cause the state to go broke sometime in the near future. Chiang said, “state receipts were $2.6 billion lower than forecast through December 31st, while expenditures were the same amount or higher.” This is pushing many Californians to seek out the best place to buy silver coins, out of fear for their assets.

It brings back memories of the 2009 occurrence when cities in California were confronted with the possibility of bankruptcy due to increasing pension costs that assures retired government employees the most liberal pensions in the nation. Keith Richman a former Republican state assemblyman said, “we have the most extravagant benefits in the nation.” Keith currently runs an advocacy group called the California Foundation for Fiscal Responsibility.

This is different from the 2009 occurrence in that Chiang had to distribute IOU’s to creditors; the manager said that the current scarcity of money can be handled through disbursement delays, in addition to internal and external borrowing. He asked legislators to proceed on that path. Hopefully no unplanned penalties or unexpected eventualities take place that have often times disrupted the positive outcomes in the past.

Several speculate on whether the Federal government is going to face the same destiny in the future. The U.S. federal government has had a difficult time with  “revenues vs. higher spending” equation for several years now. The federal government has never spent as much money on a per-household basis as it is now. Since 1965, expenditures per-household have risen almost 162%, from 11,431 in 1965 to $29,401 in 2010.

In 2009 the U.S. had a deficit of $1.4 trillion and in 2010 $1.3 trillion, this total included GDP (Gross Domestic Product) and was the largest amount the U.S. had seen since 1945 making up 10% and 8.9% of the nations production. In order for the government to finance its deficit bond money must be borrowed and therefore increasing our national debt. This is very similar to when people use credit cards to make purchases for something that they do not have all the finances for.

The U.S. national debt as of Jan 1, 2012 is over $15 trillion. The United States owes more money in debt then the amount of production it had last year.  Our national debt is close to passing the 20% mark of the collective amount of GDP from the whole world.

It is possible that the government will be incapable of funding the “unfunded liabilities” of Social Security, Medicare, Medicare Prescription Drug Program, civil servant pensions, and military at an estimated $114.5 Trillion dollars in the not so distant future. Everyone who lives in the U.S. is going to have to contribute to paying this deficit back; we are “on the hook” and we are in for a bumpy ride.