Standard and Poor Going Negative on U.S. Debt

Online, May 20, 2011 (Newswire.com) - Dennis Tubbergen is a financial advisor, advisor to financial advisors, author and radio talk show host. Tubbergen frequently strives to inform his clients and readers of current financial events by posting on his online blog and writing his financial newsletter, Moving Markets™. In his blog posted April 27, 2011, Tubbergen takes on the subject of Standard and Poor going negative on the United States' debt.

"Last week, Standard and Poor announced that the ratings firm was issuing a negative rating on the AAA credit rating of the United States," explains Tubbergen. "The agency stated this in comments published on Bloomberg.com on April 19, 2011."

In the article, officials from S&P are quoted as saying, "We believe there is a material risk that U.S. policy makers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013."

"I have just one question," notes Tubbergen. "What took them so long?"

"I recently finished writing a book on the topic of the world economy and how you may be affected titled Economic Consequence: Can You Survive, Even Prosper from the Results of 100 Years of Bad Money Decisions?" states Tubbergen. "In the book, I outline where the United States is as far as public debt is concerned."

The following is a brief excerpt from Tubbergen's book.

Let's start with the official level of federal debt. As of April 2011, the total official federal debt is $14.23 trillion. This debt level is growing rapidly. The federal deficit was recently estimated to expand to $1.65 trillion for the current fiscal year and expand the national debt to $15.5 trillion by September 30, the end of the fiscal year.

Breaking that down to what you owe is a scary exercise. Taking the current federal debt level of $14.23 trillion and dividing that by the number of folks in the United States (approximately 310,000,000) that's a debt of about $46,000 for every man, woman and child in the country. But, that calculation doesn't take into account the fact that many citizens don't pay taxes.

Some studies and surveys show that there are fewer tax returns filed each year with any tax owed by the taxpayer and that the total number of tax returns filed with any tax liability whatsoever is about 90 million. Taking the total federal debt and dividing it by the number of individual tax returns filed where taxes are actually being paid brings the total debt per tax return to $158,000. If you file a federal tax return and pay federal income taxes, that's your share of the U.S. debt. And, there is really no good news on the horizon fiscally speaking - deficit spending is projected to continue for as far as the eye can see. Your share of this bill will only get larger.

And, that doesn't count the unfunded liabilities of Medicare and Social Security.

Social Security's own actuaries have calculated that in order to pay all the Social Security benefits promised a trust fund of $17.5 trillion be needed. Many Americans are under the mistaken impression that there's a large Social Security trust fund from which future benefits will be paid.

On paper, that's true. On the federal balance sheet there is an entry labeled "Social Security Trust Fund; it's given a value of about $2.4 trillion. By law, 100% of these assets in the trust fund are invested in U.S. Government Securities; in other words, U.S. debt.

What does that mean exactly?

Over the years, some politicians have raided the proverbial cookie jar. Rather than managing the Social Security Trust Fund responsibly, the politicians looted the fund and spent the money earmarked for future benefits on general budget items. The depleted funds were replaced with what are essentially IOUs - more government securities.

Take this test. Pull out a piece of paper right now and on it write these words:

"I owe myself $100,000."

Did your net worth just increase by $100,000?

According to the way that some do math in Washington that's exactly what just happened. When it comes to managing the Social Security Trust Fund and reporting the fund's value, Washington is cooking the books.

Let's stop for a moment and see where we are. The official national debt is about $14.23 trillion and the amount of money required to shore up Social Security to perpetuity is $17.5 trillion for a total of $31.73 trillion. If you file a federal tax return and pay taxes, your share of this debt problem is now about $353,000 or almost triple the value of the median price of a home in the Midwest.

But we're still not finished with unfunded liabilities.

As large as the Social Security underfunding problem is, it's dwarfed by the Medicare unfunded liabilities predicament. Dallas Federal Reserve Bank President Richard Fisher recently stated that in order to cover the unfunded Medicare liabilities, the nation would be stuck with an $85.6 trillion dollar bill.

Sitting down?

Add the unfunded Medicare liabilities to the national debt and the unfunded Social Security liabilities and you have a total debt of $117.33 trillion. If you're among the 90,000,000 who file a tax return and pay taxes, your share of this mess is about $1.3 million.

Can you write a check for your share?

"Give this set of facts, I believe it's only a matter of time before the AAA rating becomes a fond memory," warns Tubbergen. "When that occurs, investors will demand higher interest rates or the Federal Reserve will have to continue printing money."

According to Tubbergen, neither option is good.

"If you haven't already done so, you may want to consider examining your personal financial situation in light of these circumstances," concludes Tubbergen.

Dennis Tubbergen has been in the financial industry for over 25 years and has his corporate offices in the USA Wealth Management Building in downtown Grand Rapids, Michigan. Tubbergen is CEO of USA Wealth Management, LLC and has an online blog that can be viewed at www.dennistubbergen.com. His weekly talk show The Everything Financial Radio Show is simulcast on two Michigan metro stations and also airs to over 600,000 financial advisors, with recent podcasts available at www.everythingfinancialradio.com.

The opinions expressed herein are those of the writer and not necessarily those of USA Wealth Management, LLC. This update may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Therefore, no forecast should be construed as a guarantee. Prior to making any investment decision, individuals should consult a professional to determine the risks, costs, benefits and fees associated with a particular investment. Information obtained from third party resources is believed to be reliable but the accuracy cannot be guaranteed.