Is the United States Bankrupt?

This partial-equilibrium analysis
strongly suggests that the U.S. government is,
indeed, bankrupt, insofar as it will be unable to
pay its creditors, who, in this context, are current
and future generations to whom it has explicitly
or implicitly promised future net payments of
various kinds.

Unless the United States moves quickly to fundamentally
change and restrain its fiscal behavior, its bankruptcy
will become a foregone conclusion.

The $65.9 trillion gap is all
the more alarming because its calculation omits
the value of contingent government liabilities
and relies on quite optimistic assumptions about
increases over time in longevity and federal
healthcare expenditures.

young and future generations
will, one way or other, collectively be forced
to pay $65.9 trillion more than they would have
to pay based on current tax and transfer schedules.

CAN IMMIGRATION,
PRODUCTIVITY GROWTH,
OR CAPITAL DEEPENING SAVE
THE DAY?

Were productivity growth a certain cure for the
nations fiscal problems, the cure would already
have occurred.

Many members of the public as well as officials
of the government presume that expanding
immigration can cure what they take to be fundamentally
a demographic problem.

They are wrong on two counts.

First, at heart, ours is not a demographic
problem.

Second, it is mistake to think that immigration
can significantly alleviate the nations fiscal problem.
The reality is that immigrants arent cheap.
They require public goods and services. And they
become eligible for transfer payments. While most
immigrants pay taxes, these taxes barely cover
the extra costs they engender.

trade with China, at least
in the short run, explains much of the relative
decline in the wages of low-skilled workers in the
developed world. Hence, we dont mean to suggest
here that all United States, European Union,
and Japanese workers are being helped by trade
with China, but rather that trade with China is,
on average, raising the wages of developed-world
workers and will continue to do so.

... the answer lies with China.

China is currently saving over a third of its national
income and growing at spectacularly high rates.

China is saving so much that its running a current
account surplus. Not only is China supplying
capital to the rest of the world, its increasingly
doing so via direct investment. For example,
China is investing large sums in Iran, Africa, and
Eastern Europe.

Although China holds close to a half trillion
U.S. dollars in reserves, primarily in U.S. Treasuries,
the United States sent a pretty strong message
in recent months that it doesnt welcome Chinese
direct investment.
It did so when it rejected the
Chinese National Petroleum Corporations bid to
purchase Unocal, a U.S. energy company.

Fear of Chinese investment in the United
States seems terribly misplaced.

China eventually becomes the worlds saver and,
thereby, the developed worlds savior with respect
to its long-run supply of capital and long-run
general equilibrium prospects.