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Current time:0:00Total duration:10:32

Video transcript

what I want to do in this video is dig a little bit deeper into the deficit and just so that you can get the data yourself they're all available at this at this document which is which is hosted by the Department of Treasury so you know that I'm not making up these numbers but just to review that the deficit is really a measure of how much you are overspending in any given year and so if you look at the deficit and I'm going to focus on 2010 in this video in 2010 the government spent so the spending for the government in 2010 was about three point five to three point six trillion dollars and it brought in in mainly tax revenues but it has a few other sources but mainly tax revenues it brought in about 2.2 trillion dollars so based on this the overspending or the amount of money beyond which the or the amount of spending beyond the revenues or the deficit the deficit in 2010 was 1.3 trillion dollars what I want to be clear on is this is only one way to account for spending versus revenues and this is not the way that most companies would primarily report their own income over the course of the year or their own cost or their own loss over the course of the year most companies would not just have to account for their cash outlays and that's all we're considering in this three point five three point to three point six trillion dollars a traditional company would also have to include any other liabilities or any other obligations they're taking on for example if I hire you and I promise to pay you fifty thousand dollars over the course of the next year and I'm going to pay them to you in cash but I also promise that when you retire I'm going to pay you ten thousand I'm going to give you a ten thousand dollar per year pension and on a traditional income statement I would not just expense the fifty thousand dollars I would I would definitely put that in my expenses and the government would put that in their expenses but I would also have to account for this liability that I'm taking on I would also have to say look in order for me to be able to afford a ten thousand dollar pension at some future date I have to make some estimates about when you would retire and how long you would live and what what interest I could get on money in all of the rest but I would have to say I would have to set aside some amount of money so that in the future I can meet that obligation so maybe I have to set aside two thousand dollars this year and hope it grows properly over over the course of the next 20 30 years until you retire so that I can afford to pay you that much who knows but I would also have to account for it right here that extra liability the government in the calculation of the deficit does not account for that extra liability and it is taking on other liabilities it is making these pension promises to government employees it has obligations to to the veterans and Veterans Affairs and all of that and that is not taken account or that is not accounted for in the deficit it is accounted for in the gross costs and you see here we said when when we look at just the debt the budget we're talking three point five to three point six trillion dollars that's direct cash outlays or mostly direct cash outlays if you include all of this other stuff then it balloons to four point five trillion dollars four point five trillion dollars so in previous video I mentioned that the government right now for every dollar that it's spending it has to borrow 40 cents of that dollar but if you really think about the total obligations that it has and the total obligations being four point five trillion took on view that way it only has about half of that it only has about half of that coming in in revenue so every dollar in revenue the government is taking on an equal amount of obligations that year some of that is going to express itself in terms of increased debt and some of that is just going to show up as increased obligations and you can see both of those things are increasing year after year after year and depending on who you talk to which side of the political spectrum some people will blame it on bush they'll say look at this the you know the spending increased under Obama which someone on the right would say but then someone on the Left would say yes but the spending increase because we have to do all these bailouts the economy went into the started to tank at the you know at the end of 2008 we had to do all of these emergency things as soon as the economy tanks you automatically the deficit position gets worse because you bring in less revenue and you not only do you bring in less revenue because corporate profits are down fewer people are employed people start earning less but you also have higher expenses because all of these automatic obligations kick into effect unemployment benefits of Social Security benefits Medicare benefits those increase deficits naturally get worse but the whole point here is to say regardless of what party you're on things are getting worse and they don't seem to be getting better and generally you'll always see this net operating cost sometimes the net operating costs will look lower than the actual deficit like it did in 2008 and that's because there would be some type of actuarial or accounting re estimate of the future obligations maybe the pension obligations or whatever but in most years we're taking on more obligations than just our cash outlays and that's why you see the operating costs so much higher than just just the the pure deficit right over here and this chart right over here actually goes into what some of those what the difference is the actual difference and you see that it's mainly things like liabilities for veterans compensation military and civilian employee benefits government-sponsored enterprises there's some downward revision of the tarp let me I don't think you can see that so all of a sudden you realize that the tarp is going to cost us more in the future than you thought it was going to be even though you don't spend that 86 billion this year you realize that you have an 86 billion higher obligation and so if you add all of these or you say I guess you subtract all of these from the budget deficit then you're going to get the net operating cost and that might you might already find that depressing but the point of this video is actually that's that's just the beginning because if you look at where we're going the trajectory it gets even more depressing because not only do we have this huge budget deficit or these you know this this huge operating cost these this this is this law so I guess you could say on an annual basis but it's going to get worse and it's going to get worse not just from the overspending not just from the overspending on the government programs and defense and all of that but because our debt is increasing so much that the interest the amount we spent on interest is only going to increase and that just makes matters worse the more you spend on interest the larger your deficits the larger deficits the more you have to borrow the more you have to spend on interest and this is a long timeline right here goes out to 2080 but it's pretty clear that's something something is going to give so as a percentage of GDP the the government the size of the government has historically been around this you know depending on different periods in history but in the recent past it's been in the 20% range but if you just let things go the way they're going to go and a lot of these are kind of mandatory spending things we've already gated ourselves tour where we think we've obligated ourselves to it looks like the size of the government's really just going to take over the economy it's going to grow over the next 20 30 years to 30% 35% 40% of the entire economy now if that by itself is not scary or depressing enough for you then we just have to look at this chart right over here and we've already gone over some of this chart this is the gross cost this is the total amount we're spending outlays cash outlays and other obligations we're taking on and accounting for it in some way in the present and then you have the taxes you're bringing in and you see this is your net operating cost that we calculated already and then it shows your assets the assets of the government mainly buildings and land and things like that the government has a lot of nice land and buildings and then you also see and property plant and equipment and all that aircraft carriers whatever whatever you want to throw into the mix right over here but then you see the debt and we there's been a lot of talk of the debt but you might be saying wait even in 2010 didn't you know right now as we hit the debt ceiling we have like fourteen point three trillion but didn't we have like 13 points something trillion in debt in 2010 why does this only say 9 trillion that's because we had another four trillion in debt that is not held by the public this is just debt held by the public we have and that public includes things like foreign governments but there's another four trillion that is held by the government itself so that is not accounted for and that four trillion is mainly excess funds from the Social Security trust that are all invested in Treasuries but the government in the end of the day is responsible for the Social Security trust and so it is not accounted for right over here so you have nine trillion there you have another six trillion that is seldom talked about which is benefits for federal employees and veterans that that's right over here so huge obligation so a total of 16 trillion in liabilities now if that by itself doesn't scare you enough or doesn't depress you enough we just have to go down a few lines on this statement and you'll see something that does and this right here is the expected or the present value of the of the obligations for Social Insurance and the way they talk about Social Security social insurance it's both Social Security and things like Medicare so these obvious these things that we've promised we would pay to people in the future at least that we've told people that we will pay them in the future and the present value and the easiest way to think about present value and I've done videos that go into a little bit more depth on that is how much money given some assumptions if you assume that if I put money aside and that money grows at some rate how much money would I have to put aside in order to fund those obligations and this value is over the next 75 years and I want to make it clean my co seventy-five years that's of course it's going to be a huge number but remember we're assuming that we can we can grow money we're assuming that obligations that are 75 years from now that if I have to pay someone $10 75 years from now I don't have to put $10 aside I might only have to put 50 cents or $1 aside and assume that that 50 Center dollar will grow by some percentage so that by the time 75 years go by I actually have that $10 so this isn't the this this is actually a discounted value this is assuming that the money you that you could set aside today that the obligation today that it would grow to actually fulfill the actual amount that you have to pay and this should scare you these are huge numbers this close group are what they call the current participants and we could read the footnotes includes current participants receiving and/or our eligible receive benefits for the Social Security and Medicare programs ages 15 and over at the start of the 75 year projection period so that's 43 trillion then open group they have current and future participants this is slightly lower because it's including people who are going to be paying into the program and not necessarily taking out of the program but it's still a huge huge liability it's twice as big as the official liabilities that the government takes on