That’s in addition to the things we normally think of, i. e., the $17 trillion national debt or future liabilities for entitlement programs such as Social Security.
Our leaders, sworn to protect and defend us, have created a financial ‘black hole’ we cannot possibly climb out of. They have doomed us to the slavery of debt!
Washington policymakers have spent a lot of time lately trying to figure out how to handle banks so critical to the U.S. economy they’re “too big to fail.”
Yet they’ve ignored the biggest financial institution of all: the U.S. government.
If counted as such, the U.S. government would dwarf every other bank on the planet. Its present-day obligations total more than $18 trillion, according to Deborah Lucas, an economist who worked recently at the Congressional Budget Office and is now a professor at MIT’s Sloan School of Management. Her tally includes federally backed deposit insurance, mortgage, pension and student-loan guarantees, and hundreds of other government credit programs. It does not, however, include the $17 trillion national debt or future liabilities for entitlement programs such as Social Security.
As a financial institution, the government is a weird hybrid of bank and insurance company that’s roughly seven times larger than Bank of America (BAC) or J.P. Morgan Chase (JPM), and nearly 20 times larger than Goldman Sachs (GS). Yet virtually none of the Dodd-Frank reforms or other new rules meant to rein in risk-taking on Wall Street apply to the government.
“We have a system in which we believe credit markets are extremely important,” Lucas says. “The government is a large fraction of total market activity. The question is, why don’t we hold the government to the same standards as private financial institutions?”
Washington has long lent money and guaranteed private loans to homebuyers, students, small businesses, farmers and many others. But Uncle Sam’s importance as a financial center has mushroomed since the recession that began in the 2007 and the financial crisis that followed in 2008.
With private money that used to back about half the mortgage market in a state of hibernation, the federal government now guarantees more than 90% of new mortgages through agencies such as Fannie Mae (FNMA) and Freddie Mac (FMCC).
Washington also raised the limit on deposit insurance from $100,000 per account to $250,000 in 2008, raising the amount of depositor money it guarantees from $4.3 trillion before the recession to $7.4 trillion at the end of 2012. Fees on banks are supposed to cover losses, but if those fall short, taxpayers would be on the hook.
One of the biggest issues government watchdogs are worried about is the skyrocketing amount of student debt, which grew from about $350 billion in 2004 to nearly $1 trillion in 2012. With the government backing more than 90 percent of that debt, a troubling rise in defaults could end up causing a significant loss for taxpayers.