The unfunded liabilities run up by the U.S. government are estimated at anywhere from $100 trillion to over $200 trillion. While the estimates vary quite a bit, does it really matter? Nobody can even conceive of what it means to owe $100 trillion. In other words, it will be impossible for the government to keep its promises.
The biggest piece of the unfunded liabilities is Medicare. Then comes Social Security. There is also Medicaid and government worker pensions. These are the big ones. For now, I will just focus on Medicare and Social Security.
These unfunded liabilities keep growing every year. There is no way that the government can keep these promises over the next 75 years, let alone the next 20 years. There will be some kind of a default. Many libertarians assume that the default will come in the form of inflation. But that will not take care of the bulk of the problem.
If there is high inflation, then Social Security is supposed to be adjusted for a cost-of-living increase. It will not solve the Social Security problem, unless the government stops giving a COLA or redefines it. If that happens, then seniors will get checks that buy less and less.
It is even worse for Medicare. If there is high inflation, then medical costs will just continue to skyrocket. This will make it even harder for the government to keep its promises.
The easiest form of default will be to increase the retirement age substantially. If Congress raises the age to 75 overnight, then that will wipe out tens of trillions of unfunded liabilities immediately. Of course, Congress won't do this. It will take smaller steps in defaulting on its promises. It will only do them when it is necessary.
I have always found it ironic that older people probably made up the smallest voting group (by age) for Ron Paul. Most of Paul's support came from younger people. It is ironic because Ron Paul is probably the only person who could have somewhat "saved" Medicare and Social Security, at least from a major default.
Ron Paul had a plan to cut one trillion dollars from the budget in the first year and to balance the budget by his third year (as president). He was the only major candidate to offer any significant cuts. He would have cut military spending significantly by ending the wars overseas. He called for the elimination of several departments. If Paul had become president and used the bully pulpit to get Congress to go along, there would have actually been a slight chance that Congress might not have to declare a major default on Medicare and Social Security.
Instead, we will get Obama or Romney, neither of which will cut federal spending. Even if they froze spending over the next 4 years, the federal debt would still continue to grow by massive amounts.
The so-called entitlement spending, the military spending, and the interest on the debt are greater than the total tax collections. In other words, you could eliminate everything from the federal government except for those few things and the budget would still not be balanced. And Romney doesn't want to cut anything at all from the military. And we know Obama won't cut anything unless the situation is dire.
In conclusion, there will be some kind of a default in regards to Medicare and Social Security. The main avenue of default will be through raising the age to collect. If you are in your 40's or 50's right now, don't plan to retire in your 60's, unless you have done a really good job of saving for yourself. If Ron Paul had received the Republican nomination, there might be some hope right now of making good on at least some of these promises. But it isn't going to happen with the continuation of big spenders in office. Welcome to Greece soon.