To the extent that a slap in the face is ever something to seek out, the free, 30-minute version of I.O.U.S.A the Movie is a must-see. One excerpt has David Walker, Controller General of the United States, saying our current standard of living is unsustainable. Walker:
We suffer from a fiscal cancer it is growing within us. If we do not treat it it could have catastrophic consequences for our country.”
My review follows the clip.
Our national debt of $8.7T is bad enough but our unfunded promises are at least $53T, a number that’s getting worse by $2T annually.
It’s worth noting that the Founding Father’s took on debt to win independence. Smartly they paid it back. In 1835 there was no federal debt. The Civil War’s expenditures were also largely paid off. In 1913, the national debt was only 7% of GDP vs. today’s 64%. It’s worth noting that the federal income tax passed that year, something that by historical standards should have brought prosperity to the government’s budget.
That didn’t happen. The spending spree of the 1960s led to economic stagnation in the 1970s and the Reagan and Bush 41 administrations sent the national debt up from $900B to $4T.
Bill Clinton and Robert Rubin balance the budget for the first time in a generation, despite what Rubin calls a “natural inertia” toward the expansion of federal programs, “most of which are very useful.”
Clinton concentrated on balancing the budget instead of cutting taxes and he’s famous for having done so. But even Clinton’s so-called surpluses were that in name only. Why? Because Social Security surpluses were spent for other purposes. When baby boomers retire, even this surplus will not exist to meet promises made to them.
The big 3 governmental obligations – Medicare, Medicaid, and Social Security – are going to expand faster than we can increase their funding.
Personal debt problems make the federal budgetary problem worse. In both of the last 2 years we as individuals, like the federal government, spent more than we earned. This last happened in 1932/1933 – not a good time for America. In the 21st century, personal savings are unheard of, having actually gone negative from more than 12% in the 1960s.
Former Fed Chairman Alan Greenspan says, “Without savings there is no future.”
If that’s true America has no future; we’re actually losing money every year.
One cause is our trade deficit. The U.S. has the largest trade imbalance in the world, whereas China has the largest surplus. The Chinese produce, in other words, while we consume. To continue this trend we will have to liquidate our assets. Eventually our trading partners will own large chunks of the U.S., as the Japanese were starting to do in the 1990s before their economy tanked.
Interestingly, the U.S.’s budget deficits used to be owned to Americans. Remember war bonds? But now more than half of our debt is owned by foreigners. As the U.S. demonstrated to England in the 1950s, control over debt can equal control over U.S. actions.
The problem is one of leadership. George Bush 43 started his administration $5.6T in the hole. Now we’re at $8.7T, bringing the Republicans’ post-Carter deficit to a total of $6.2T.
Former U.S. Treasury Secretary Paul O’Neill says he was fired because he didn’t believe in Bush’s economic policies and because he didn’t support the 2003 tax cuts. He says he was told not to worry about deficits. But O’Neill notes that when countries get overextended and can’t service their debt, they are finished.
As bad as our debt problem is, that’s not the worst of America’s financial picture. As unpleasant as it is for social liberals to accept, it’s our future obligations in the form of social insurance entitlements that are a gun to our head.
Our $53T budgetary shortfall breaks down like this:
- $11T – current obligations
- $26T – MediCare A and B
- $8T – MediCare D
- $7T – Social Security
Offsetting dollars? Zero. In fact, taxes would have to be doubled to meet these obligations. The problem is worse by far than even Democrats will admit. Cutting out all earmarks, rolling back the Bush tax cuts, and stopping funding of the Iraq war would solve only 14% of the problem.
Small wonder that the American people want change. Most don’t understand the fundamental problems or their part in creating it, yet they understand at a visceral level that something has been wrong with our leadership.
We now have new leadership that promises to make the changes needed. They’ve been outlined above. Let’s see how Barack Obama does at correctly identifying the problems, articulating them to the American people, and marshalling Congress to address them. It’s a huge challenge for any president, let alone one whose experience is minimal.
At the risk of alienating the non-Christian set, I’d suggest praying for him and his staff. I know I’d appreciate it if I were in his shoes.