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World’s Easiest Forecast: Taxes Will Go Up

Unfunded Liabilities

There is an slide show presentation floating around the investment world called USA, Inc., by Mary Meeker (formerly of Morgan Stanley). In it, a fairly frank data-based assessment of the financial condition of the United States is presented, and it isn’t pretty.

Among all of the slides, it shows that we have been living way beyond our means for a few decades and we have dug ourselves a hole that will take a lot of money to fill.

The chart above shows you the current and unfunded liabilities of our government, and you can see that the unfunded liabilities of Social Security, Medicare and Medicaid dwarf everything else by comparison.

If you are not familiar with the term “unfunded liabilities” they are basically promises our government has made to people that it has no known source of revenue with which to fulfill them. In the case of Social Security and Medicare, the government does collect taxes, but those taxes are no where near enough to cover the amount that will need to be paid out based upon the promises that have been made.

At some point, Washington will get serious about this problem and address it – with higher taxes and broken promises – unfortunately, they view it as political suicide to bring up the topic.

Why is this in the investment blog? Because it reinforces the concept that the macro demographic trend in place that makes the emerging markets with positive demographics better places to invest than the developed world will continue for at least the next generation. The amount of taxes that will have to be raised in the US to cover our unfunded liabilities and structural deficit will on average cause our markets to under-perform those of places like South Korea and Singapore for a long time to come.

Click Here to Watch the video on You Tube