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Obama inherited a fiscal disaster. Now what?

Without swift action, gargantuan debts could soon destroy Uncle Sam's credit rating.

By Jim Cooper / February 18, 2009


Few Americans have any idea how bad the financial problems are that President Obama inherited from the Bush administration. Never mind the housing bubble, the bank meltdown, or the bailout scandals – I am talking about the failure of federal government to honestly account either for its own actions or for America's most important programs: Medicare, Social Security, and Medicaid.

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George W. Bush took office after three years of budget surpluses under President Bill Clinton. Eight years later, Obama walked into the Oval Office to find – gift-wrapped with a bow, as he recently joked – almost $11 trillion in Treasury debt, and deficits of more than $1 trillion a year for the foreseeable future. That's a $30,000 burden on every man, woman, and child in America, on top of the taxes they are already paying. Under better management, that number could have been zero.

If this weren't bad enough, President Bush's financial legacy is marred by other fundamental problems. Bush's team borrowed more than $1 trillion from the Social Security "trust fund" and seemed to spend it on everything except Social Security. Like Blanche DuBois in Tennessee Williams's "Streetcar Named Desire," Social Security now depends on the kindness of strangers – namely, future taxpayers and foreign lenders.

Worse, the Bush administration refused to tell the public about the extraordinary underfunding or overpromising of our major entitlement programs. According to an audited Treasury report, Medicare is $34 trillion in the hole and Social Security is another $13 trillion. We don't even know how to measure Medicaid's problems, but some estimates put the shortfall around $30 trillion. To put this in perspective, the entire fiscal gap for America is at least four times as great as our total annual gross domestic product.

The US Treasury's Financial Report of the US Government is the key document for understanding these problems because it is the only place where Uncle Sam uses real accounting and audited numbers, just as every major company, charity, or state or local government is required to do by law. It is released every Dec. 15, and is available on the Treasury website. Until now, you have probably never heard of the Financial Report.

To its credit, the Obama White House has added a link to the Financial Report on its website, a step the Bush administration never took. The report will tell you that the per capita share of America's total obligations, including entitlements, is more than $184,000 each. The typical American family's share is roughly half a million dollars.