SERVING THE QUANTITATIVE FINANCE COMMUNITY

 
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BullBear
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Real US Debt is between $60 and $200 Trillion

October 5th, 2011, 11:29 am

us-government-hiding-true-amount-of-debteconomist-says-real-us-debt-is-200-trilliontrue_national_debt_nowhere_near_143_trillionthe-real-debt-washington-doesn't-want-you-to-know-about Germany is also hiding some trillions...Germany's enormous hidden debt Are haircuts for PIIGS only? When will US and German bondholders take a haircut on their Treasuries?
Last edited by BullBear on October 4th, 2011, 10:00 pm, edited 1 time in total.
 
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chocolatemoney
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Real US Debt is between $60 and $200 Trillion

October 5th, 2011, 1:18 pm

I always thought that Social Security and Medicare obligations are a "liability" rather than "debt"...
 
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BullBear
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Real US Debt is between $60 and $200 Trillion

October 5th, 2011, 3:08 pm

QuoteOriginally posted by: chocolatemoneyI always thought that Social Security and Medicare obligations are a "liability" rather than "debt"...So? Call it what you want but obligations already assumed will have to be paid by taxpayers. If Medicare assets are lower than the real liabilities assumed by the State then it has to be considered as public net debt.
 
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crmorcom
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Real US Debt is between $60 and $200 Trillion

October 5th, 2011, 3:29 pm

QuoteOriginally posted by: BullBearQuoteOriginally posted by: chocolatemoneyI always thought that Social Security and Medicare obligations are a "liability" rather than "debt"...So? Call it what you want but obligations already assumed will have to be paid by taxpayers. If Medicare assets are lower than the real liabilities assumed by the State then it has to be considered as public net debt.Medicare obligations are not "obligations" in the sense that what's normally understood as debt is. Medicare reimbursement rates are changeable; what is reimbursable is changeable, too. Counting the expected PV of Medicare costs as debt would be similar to making a corporation capitalize the expected PV of future production costs on the balance sheet as debt: this would be a curious and rather unconventional thing to do and I don't think it would help analyze the company's financial position.It's different even from corporations having to reserve for retiree medical costs: if the corporation has made unbreakable promises (apart from bankruptcy restructuring), then they have to be capitalized; if not, they don't. If the corporation has made a vague and legally unenforceable indication that it will help with medical costs unless and until it changes its mind, and it reserves the right to charge retirees more to cover costs if it feels like it, then no sane person would count those obligations as "debt", I'm thinking.
 
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Traden4Alpha
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Real US Debt is between $60 and $200 Trillion

October 5th, 2011, 4:00 pm

QuoteOriginally posted by: crmorcomQuoteOriginally posted by: BullBearQuoteOriginally posted by: chocolatemoneyI always thought that Social Security and Medicare obligations are a "liability" rather than "debt"...So? Call it what you want but obligations already assumed will have to be paid by taxpayers. If Medicare assets are lower than the real liabilities assumed by the State then it has to be considered as public net debt.Medicare obligations are not "obligations" in the sense that what's normally understood as debt is. Medicare reimbursement rates are changeable; what is reimbursable is changeable, too. Counting the expected PV of Medicare costs as debt would be similar to making a corporation capitalize the expected PV of future production costs on the balance sheet as debt: this would be a curious and rather unconventional thing to do and I don't think it would help analyze the company's financial position.It's different even from corporations having to reserve for retiree medical costs: if the corporation has made unbreakable promises (apart from bankruptcy restructuring), then they have to be capitalized; if not, they don't. If the corporation has made a vague and legally unenforceable indication that it will help with medical costs unless and until it changes its mind, and it reserves the right to charge retirees more to cover costs if it feels like it, then no sane person would count those obligations as "debt", I'm thinking.Curious logic. Given the high frequency of corporate bankruptcies, the "third-rail" nature of the politics of retiree benefits, and the low level of retirement assets for most Americans, I'd say the U.S. is almost surely obligated to capitalize it's anticipated medicare costs. Moreover, these medicare costs are not like production costs because medicare costs largely go to non-productive (i.e., retired) people. The U.S. government would need admit that it's bankrupt before letting millions of retirees die due to lack of healthcare.I do agree that the accounting for these things is a mess.
 
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crmorcom
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Real US Debt is between $60 and $200 Trillion

October 5th, 2011, 5:05 pm

QuoteCurious logic. Given the high frequency of corporate bankruptcies, the "third-rail" nature of the politics of retiree benefits, and the low level of retirement assets for most Americans, I'd say the U.S. is almost surely obligated to capitalize it's anticipated medicare costs. Moreover, these medicare costs are not like production costs because medicare costs largely go to non-productive (i.e., retired) people. Whether the costs are productive or not is not the point, here. What makes projected expenses "debty" as opposed to "cash-low-y" hinges on a couple of things:1) Are the costs avoidable or changeable? Or are they absolute, contractual, legal, obligations?2) Can revenues be changed in response to changes in the costs as they happen?This is not to say that you shouldn't include projected PL in analyzing how sustainable your business is, but this is entirely distinct from whether you should treat the costs as debt or not. Forecasting when my burn-rate will cause me to become insolvent (or illiquid) is a very useful thing to do, but calling its PV "debt" is not.Suppose I make widgets and my costs exceed my revenues. If I assume I change nothing, my projected losses may make me bankrupt at some time in the future, but the projected loss does not make me bankrupt now, and if I liquidate my business, projected buyers have no current claim on my assets. This is why it makes no sense to treat a forecast loss like debt; Medicare is the same, even if it's politically difficult to cut spending. Even if I'm compelled to keep producing widgets at a loss for eternity (or until Mr Market refuses to fund my balance sheet any more), that loss is still not debt. Not semantically, not contractually, not legally. By the way, the US Post Office is a little like this: Congress won't let it raise prices but forces it to have a universal service guarantee. But the PV of mail delivery is not a debt. It's something which will eventually cause bankruptcy, sure, but it's still not useful to call it debt.QuoteI do agree that the accounting for these things is a mess.You're quite right there 'bro.
 
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BullBear
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Real US Debt is between $60 and $200 Trillion

October 5th, 2011, 5:36 pm

QuoteOriginally posted by: crmorcomQuoteYou're completely wrong. By your logic an Insurance firm would have no liabilities/debt and would only have assets and 100% equity.
 
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crmorcom
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Real US Debt is between $60 and $200 Trillion

October 5th, 2011, 5:42 pm

Insurance companies would still have liabilities for their claims by my argument, if that's what you mean: they have no further control over the claims; they are determined by chance; and they can raise no further premiums to pay for them. I'm certainly not claiming that something shouldn't be capitalized just because it's uncertain.
 
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Traden4Alpha
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Real US Debt is between $60 and $200 Trillion

October 5th, 2011, 6:51 pm

Excellent points, crmorcom. I certainly agree that the obligations of sovereigns look quantitatively different from the obligations of corporate entities, but it's an interesting mixed bag of differences. On the one hand, governments can more readily and unilaterally rewrite their "contracts" with the citizenry than can a company unilaterally rewrite it's contracts to customers, suppliers, retirees, etc. Governments enjoy fewer legal constraints than do companies because governments write, execute, and adjudicate the laws. On the other hand, governments, especially democracies, do face the pressures from voters that create some constraints that companies don't face. Can politicians in the Western democracies cut retiree benefits and win re-election? What would companies look like if every customer could directly vote among competing candidates for CEO and the board?Moreover, it would seem that governments can raise revenues with less adverse impacts than can companies. The switching costs for a company's customers are generally less than the switching costs for a country's citizens. Companies have more need to be cost competitive than do countries. On the other hand, the rich have the lowest switching costs and most Western governments seem to be increasing their reliance on the wealthy for tax revenues.There's a third criterion distinguishing "debty" vs. "cash-flow-y" financial phenomena: how does the creditor (i.e, the citizen) account for the future cashflow/obligation? To the extent that creditors tally the obligation as a real or virtual asset (i.e., behave as if the asset exists), then the thing is more like a debt. Here, too, the evidence seems to be mixed. Polls show that some expect to depend on government benefits whilst many others expect diminished retirement benefits. Similarly, the savings behaviours of U.S. citizens suggest that most will be relying on government benefits for their retirement. And if enough citizens (or their close family members) depend on government benefits, then how will they vote?But rather than get bogged down in the semantics of government obligations as formal debts, other liabilities, or mere cashflow phenomena, I think what we really want to understand is the economic futures of the US and EU. To the extent that voters demand that politicians make unsustainable promises (however we label those promises for accounting purposes), then the economies of the US et al are in for a very rough future. And if a government "defaults" on its promises to provide retiree benefits, then I suspect a increasing number of retirees will go bankrupt (which is exactly what happens to creditors during a debt default). In these various regards, government programs have some very debt-like features even if they do not meet the GAAP definition of debt.
Last edited by Traden4Alpha on October 4th, 2011, 10:00 pm, edited 1 time in total.
 
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crmorcom
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Real US Debt is between $60 and $200 Trillion

October 5th, 2011, 8:14 pm

QuoteBut rather than get bogged down in the semantics of government obligations as formal debts, other liabilities, or mere cashflow phenomena, I think what we really want to understand is the economic futures of the US and EUI completely agree that this should be the real question. In this thread, though, I was replying to quite specific claims about debt. The semantics do matter a lot for political reasons, though we both agree that they should not in an economic sense.
 
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Traden4Alpha
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Real US Debt is between $60 and $200 Trillion

October 5th, 2011, 8:51 pm

QuoteOriginally posted by: crmorcomQuoteBut rather than get bogged down in the semantics of government obligations as formal debts, other liabilities, or mere cashflow phenomena, I think what we really want to understand is the economic futures of the US and EUI completely agree that this should be the real question. In this thread, though, I was replying to quite specific claims about debt. The semantics do matter a lot for political reasons, though we both agree that they should not in an economic sense.Yes, semantics matter and therein lies the deeper problem. We have too many politicians and finmins worrying about semantics and too few worrying about economics.P.S. I liked this foray into the semantics of debt because it provided a deeper appreciation of the gradations of accounting concepts and how something can be debt-like or not. One of the core purposes of accounting is to help managers, lenders, investors, and regulators determine if an entity is a viable "going concern" or not. A better understanding of avoidable and unavoidable future cash outflows (whatever we call them) helps with that assessment.
Last edited by Traden4Alpha on October 4th, 2011, 10:00 pm, edited 1 time in total.
 
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list
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Real US Debt is between $60 and $200 Trillion

October 6th, 2011, 10:46 am

 
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farmer
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Real US Debt is between $60 and $200 Trillion

October 11th, 2011, 12:37 pm

QuoteOriginally posted by: Traden4Alphathese medicare costs are not like production costs because medicare costs largely go to non-productive (i.e., retired) people.Politicians are in the business of manufacturing votes, not bread.
 
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exCBOE
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Real US Debt is between $60 and $200 Trillion

October 25th, 2011, 10:59 pm

Would anyone care to venture an opinion of the future value of the assets of the US? It's called a balance sheet.
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