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Effects of the Recent Economic Recession and Stabilization Efforts on the Federal Government’s Financial Condition

sustainability of the Medicare program and to illustrate the uncertainties in the Statement of Social Insurance projections. The present value of future estimated expenditures in excess of future estimated revenue for Medicare, included in the illustrative alternative projection, exceeds the $22.8 trillion estimate in the 2010 Statement of Social Insurance by $12.4 trillion.

The recent economic recession and the federal government’s actions to stabilize financial markets and promote economic recovery continued to significantly affect the federal government’s financial condition.

In December 2007, the United States entered what has turned out to be its deepest recession since the end of World War II. Gross domestic product (GDP) fell 4.1 percent from the beginning of the recession through the second quarter of 2009, which marked the recession’s end. Since the end of the recession, GDP has grown slowly and unemployment remains at a high level.

As of September 30, 2010, the federal government’s actions to stabilize the financial markets and to promote economic recovery resulted in assets of over $400 billion, which is net of about $75 billion in valuation losses. In addition, the federal government reported incurring significant liabilities and related net cost resulting from these actions. Although the federal government has received positive returns from investments in certain large financial institutions, it continues to report significant costs overall related to these actions. Because the valuation of the related assets and liabilities is based on assumptions and estimates that are inherently subject to substantial uncertainty arising from the uniqueness of certain transactions and the likelihood of future changes in general economic, regulatory, and market conditions, actual results may be materially different from the reported amounts.

Actions taken to stabilize financial markets—including aid to the automotive industry—increased borrowing and added to federal debt held by the public. The revenue decreases and spending increases enacted in the American Recovery and Reinvestment Act of 2009 also added to borrowing and federal debt held by the public. Federal debt held by the public increased from 40 percent of GDP as of September 30, 2008, to 62

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