Let me begin with a provocative question: Is America going broke? It is a question that has been asked many times before. And when an economist asks the question, it creates quite a stir. Back in 2006, Laurence Kotlikoff asked: “Is the United States Bankrupt?”{1} He concluded that countries can go broke and that the United States is going broke due to future obligations to Social Security and Medicare. At the time, his commentary generated lots of discussion and controversy.

Two years later that same economist writing for Forbes magazine asked the question in a slightly different way: “Is the U.S. Going Broke?”{2} He pointed out that the federal government’s takeover of Fannie Mae and Freddie Mac represented a major financial challenge. These two institutions issue about half of the mortgages in America, so that part of the bailout put the government on the hook for $5 trillion (if you consider the corporate debtthat is owed and the mortgage debt that is guaranteed).

But $5 trillion is effectively pocket change when you consider the real liabilities that are facing our government. He estimates that is on the order of $70 trillion. I have seen others estimate our unfunded liabilities at anywhere from $50 trillion to as high as more than $90 trillion. Let’s for the sake of discussion use the $70 trillion figure.

The $70 trillion figure actually represents the fiscal difference between the government’s projected spending obligations and all its projected tax receipts. He notes, “This fiscal gap takes into account Uncle Sam’s need to service official debt-outstanding U.S. government bonds. But it also recognizes all our government’s unofficial debts, including its obligation to the soon-to-be-retired baby boomers to pay their Social Security and Medicare benefits.”{3}

When we are talking about such large dollar amounts, it is hard to put this in perspective. Let’s focus on the challenge that the baby boom generation creates. There are approximately 78 million baby boomers who will be retiring over the next few decades. Each of them can expect to receive approximately $50,000 each year (in today’s dollars) during their retirement. OK, so let’s multiply 78 million by a $50,000 annual payment and you get an annual cost of $4 trillion per year.

Of course, these are just the obligations we know about. There are others potential costs and obligations that aren’t even calculated into the national debt. Housing prices certainly fit into that category. We know some of the obligations that were written into law but cannot predict what might take place in the future. And we don’t know how many banks in the future will fail and what that cost might be to the American taxpayer.

Fannie Mae and Freddie Mac

I would imagine that if you asked most people a year ago what they know about Fannie Mae and Freddie Mac they would probably respond that they know very little about these two corporations. But after congressional debates about various bailouts, most Americans know a lot more about these two institutions.

Fannie Mae is the Federal National Mortgage Association, and Freddie Mac is the Federal Home Loan Mortgage Corporation. They are stockholder-owned corporations and referred to as government sponsored enterprises, known as GSEs. The two of them are considered the largest financial companies in the world with liabilities of approximately $5 trillion.

The bailout of these insitutions has been controversial for a few reasons. First, these two GSEs are private companies which the government wants to help with taxpayer money. Economist John Lott believes “this whole approach is pretty dubious. If you subsidize risk, you get more of it. If you don’t have to bear the cost of the risk, why not shoot for the moon?”

Former House Majority Leader Dick Armey says we are “privatizing gains while socializing losses.” Stockholders of Fannie Mae and Freddie Mac already receive higher interest rates than Treasury securities because of higher risk of repayment. He suggests that the government repay 90 cents on the dollar rather than 100 percent.

In the midst of the debates about bailouts, we learned some vital lessons about the economy. For example, some have talked about the proposal to suspend the accounting rules of the Sarbanes-Oxley Act known as “mark to market.” Trying to understand this proposal forced us to get up-to-speed on economics and accounting.

We also learned that sometimes a regulatory agency may not have done a good job warning us of dangers. The Office of Federal Housing Enterprise Oversight employs 200 people to oversee Fannie Mae and Freddie Mac which are the government-sponsored entitles that own or guarantee nearly half of the nation’s residential mortgages. Just a few months before the collapse of Fannie and Freddie, the OFHEO issued a report that saw clear sailing ahead.

We also learned that in trying to do some good, government can do harm. During the 1990s the Treasury Department changed the lending rules for the Community Reinvestment Act. This was an attempt to get middle-income and low-income families into homes. Unfortunately, these families lacked the resources to make their payments. It was only a matter of time before many of those families defaulted on their loans.


Usually when we talk about unfunded liabilities, the conversation usually turns to Social Security. It turns out that the Social Security shortfall is a problem, but it pales in comparison to the shortfall for Medicare.

Medicare is a pay-as-you-go program. Although some members of Congress warned about future problems with the system, most politicians simply ignored the potential for a massive shortfall. Medicare comes in three parts. Medicare Part A covers hospital stays, Medicare B covers doctor visits, and Medicare D was recently added as a drug benefit.

How big is the financial shortfall? Let me quote from a speech given Richard Fisher (President and Chief Executive Officer, Federal Reserve Bank of Dallas). He says:

The infinite-horizon present discounted value of the unfunded liability for Medicare A is $34.4 trillion. The unfunded liability of Medicare B is an additional $34 trillion. The shortfall for Medicare D adds another $17.2 trillion. The total? If you wanted to cover the unfunded liability of all three programs today, you would be stuck with an $85.6 trillion bill. That is more than six times as large as the bill for Social Security. It is more than six times the annual output of the entire U.S. economy.{4}

There are a number of factors that contribute to this enormous problem. First, there are the demographic realities that are also affecting Social Security. From 1946 to 1964 we had a baby boom followed by a baby bust. Never has such a large cohort been dependent on such a small cohort to fund their entitlement programs. Second, there is longevity. People are living longer lives than ever before. Third, the cost of medical treatment and technology is increasing. We have better drugs and more sophisticated machines, but these all cost money. Finally, we have a new entitlement (the prescription drug program) that is an unfunded liability that is one-third greater than all of Social Security.

Richard Fisher says that if you add the unfunded liabilities from Medicare and Social Security, you come up with a figure that is nearly $100 trillion. “Traditional Medicare composes about 69 percent, the new drug benefit roughly 17 percent and Social Security the remaining 14 percent.”{5}

So what does this mean to each of us? We currently have a population over 300 million. If we divide the unfunded liability by the number of people in America, the per-person payment would come to $330,000. Put another way, this would be a bill to a family of four for $1.3 million. That is over 25 times the average household’s income.

Is America going broke? What do you think?

Consumer Debt

We’ve been answering the question, Is America Going Broke? But now I would like to shift the focus and ask a related question. Are Americans going broke? While government debt has been exploding, so has consumer debt.

Let’s look at just a few recent statistics. Nearly half of all American families spend more than they earn each year. Personal bankruptcies are at an all-time high and increasing. It is estimated that consumers owe more than $2 trillion.

It is important to remember that although many Americans are significantly in debt, many others are not. In my earlier article on “Debt and Credit,” I pointed out how some of the statistics about credit card debt are misleading.{6}

The current statistics say that the average U.S. household has more than $9,000 in credit card debt. We also read that the average household also spends more than $1,300 a year in interest payments. While these numbers are true, they are also misleading. The average debt per American household with at least one credit card is $9,000. But nearly one-fourth of Americans don”t even own credit cards.

We should also remember that more than thirty percent of American households pay off their most recent credit cards bills in full. So actually a majority of Americans owe nothing to credit card companies. Of the households that do owe money on credit cards, the median balance was $2,200. Only about 1 in 12 American households owe more than $9,000 on credit cards.

The statistic is true but very misleading. That is also true of many other consumer debt statistics. For example, nearly two-thirds of consumer borrowing involves what is called “non-revolving” debt such as automobile loans. Anyone who has ever taken out a car loan realizes that he or she is borrowing money from the bank for a depreciating asset. But it is an asset that usually has some resale value (unlike a meal or a vacation purchased with a credit card).

But even in this case, the reality is different than perception. Yes, many families have car payments. But many other families do not have a car payment and owe nothing to the bank. So we have to be careful in how we evaluate various statistics about consumer debt.

The bottom line, however, is that government, families, and individuals are spending more than they have. Government is going broke. Families and individuals are going broke. We need to apply biblical principles to the subject of debt.

Biblical Perspective

Proverbs 22:7 says, “The rich rule over the poor, and the borrower is a servant to the lender.” When you borrow money and put yourself in debt, you put yourself in a situation where the lender has significant influence over the debtor. This is true whether the debtor is an individual or an entire nation.

Many of the Proverbs also warn about the potential danger of debt (Proverbs 1:13-15; 17:18; 22:26-27; 27:13). While this does not mean that we can never be in debt, it does warn us about its dangers. It is never wise to go into debt, and many are now wondering if America and individual Americans are going broke.

Romans 13:8 says, “Owe nothing to anyone.” This passage seems to indicate that we should quickly pay off our debts. That would imply that Christians have a duty to pay their taxes and pay off their debts.

But what should we do if government continues to get further and further in debt? I believe that we should hold government officials responsible since it appears that they do not have any real desire to pay off its debt. Psalm 37:21 says, “The wicked borrows and does not pay back.” We should repay our debts as individuals, and government should pay its debts as well.

In the Old Testament, debt was often connected to slavery. Isn’t it interesting that both debts and slavery were cancelled in the year of Jubilee? It is also worth noting that sometimes people even put themselves in slavery because of debt (Deuteronomy 15:2, 12).

Since we live in the New Testament age, we do not have a year of Jubilee, but we need to hold government and ourselves accountable for debt. If we see a problem, we should address it immediately. Proverbs 22:3 says, “The prudent sees the evil and hides himself, but the naïve go on, and are punished for it.” It is time for prudent people to take an honest appraisal of our financial circumstances.

When government is in debt this much, it really has only three options. It can raise taxes. It can borrow the money. Or it can print the money. While it is likely that government will raise taxes in the future, there does seem to be an upper limit (at least politically) to raising taxes. Borrowing is an option, but it is also unlikely that the U.S. government can borrow too much more from investors and other countries. That would suggest that the Federal Reserve will print more money, and so our money will be worth less.

In this article we have given you an honest appraisal of where we are as a country. The responsibility is now in our hands to hold government accountable and to take the necessary steps in our own financial circumstances.


1. Laurence Kotlikoff, “Is the United States Bankrupt?” Federal Reserve Bank of St. Louis Review, July/August 2006, 88(4), pp. 235-49,

2. Laurence Kotlikoff, “Is the U.S. Going Broke?” Forbes, September 29, 2008,

3. Ibid.

4. Richard W. Fisher, “Storms on the Horizon,” remarks before the Commonwealth Club of California (San Francisco, CA, May 28, 2008),

5. Ibid.

6. Kerby Anderson, “Debt and Credit,” an article on Debt and Credit.

© 2008 Probe Ministries

Kerby Anderson is president of Probe Ministries International. He holds masters degrees from Yale University (science) and from Georgetown University (government). He is the author of several books, including Christian Ethics in Plain Language, Genetic Engineering, Origin Science, Signs of Warning, Signs of Hope and Making the Most of Your Money in Tough Times. His new series with Harvest House Publishers includes: A Biblical Point of View on Islam, A Biblical Point of View on Homosexuality, A Biblical Point of View on Intelligent Design and A Biblical Point of View on Spiritual Warfare. He is the host of "Point of View" (USA Radio Network) heard on 360 radio outlets nationwide as well as on the Internet ( and shortwave. He is also a regular guest on "Prime Time America" (Moody Broadcasting Network) and "Fire Away" (American Family Radio). He produces a daily syndicated radio commentary and writes editorials that have appeared in papers such as the Dallas Morning News, the Miami Herald, the San Jose Mercury, and the Houston Post.


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Probe Ministries is a non-profit ministry whose mission is to assist the church in renewing the minds of believers with a Christian worldview and to equip the church to engage the world for Christ. Probe fulfills this mission through our Mind Games conferences for youth and adults, our 3-minute daily radio program, and our extensive Web site at

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