Unfunded Promises

The comments below are an edited and abridged synopsis of an article by  John Mauldin

In describing the global debt train wreck, Mauldin thinks that many of us define debt too narrowly.

Unfunded Promises | BullionBuzzA debt occurs when you receive something now in exchange for a promise to give something back later. It doesn’t have to be cash. If you borrow your neighbor’s lawn mower and promise to return it next Tuesday, that’s a kind of debt. You receive something and agree to repayment terms—in this case, your promise to return it on time and in working order.

Debt can be less specific, too, and the other party may never demand payment…but they might. And if you haven’t prepared for that possibility, you may be in the same kind of trouble the US government will face in a few years.

Uncle Sam has made too many promises to too many people, with little regard for its future ability to fulfill them. These are debts. Worse, some of them are additional debt on top of the obligations already on the national balance sheet.

Even worse, entire generations have planned their retirement lives around the government fulfilling those promises. If those promises aren’t met, their lifestyles will become a potential train wreck.

Mauldin discusses: assumptions everywhere; negative cash flow; the continuing threats; and entitlements (the Venus flytrap).

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