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U. S. Budget Death Spiral

November 21, 2009

Please consider this chart of US debt from all sources (government and private) relative to GDP. In other words, this calculation shows debt relative to our ability to pay the debt. In case you cannot read the writing on the graph, what you see is that debt/GDP is higher now than even at the beginning of the Great Depression:

 

Now, consider the US Debt Clock at this website:

http://www.usdebtclock.org/

And ponder the information in this article:

http://www.prudentbear.com/index.php/guestcommentaryview?art_id=10251

The article points out that the current nominal debt of the US Government is $11 trillion ($12 trillion as of November 2009). Divided by our population of 304 million, this works out to $38,000 per person. So a family of 4 is looking at $152,000 as their share of the debt. But that is just today. This is the tip of the iceberg for several reasons:

1.  The U.S.’s unfunded and off-balance sheet contingent liabilities stand at over $100 trillion depending on how you want to calculate them. The so-called unfunded liabilities include Social Security, Medicare, Medicaid, Fannie Mae debt, etc. Remember, Social Security and Medicare are madoff/ponzi schemes. That is, these programs are not funded. They rely on taxing current workers to pay the benefits of the elderly. The system was never designed to handle the now burgeoning retired population; indeed, it cannot handle it.

2.  The 2010 federal budget projections show 40% of the federal government’s expenditures coming from borrowed money! (Does this fry your hair?!) The Obama administration said in mid 2009 that we will add another $9 trillion to the national debt over the next 10 years, bringing the nominal debt to a staggering $20 trillion. But according to www.whitehouse.gov, this figure by late 2009 was already out of date. It is now expected that we will add $12 trillion dollars in 10 years!

3.  But even these projections are themselves the tip of the iceberg. They are based on optimistic assumptions about an economic recovery. A “normal” economic recovery is unlikely (we argue impossible) given that consumer debt verses GDP is at an all time high.

Consumers have no more borrowing power to fuel the economy. We have mortgaged our future. We are up to our eyeballs in debt. What this means is that as consumers inevitably will go through an extended period of paying off debts over the next many years. Symptomatic of the problem is that as of November 2009, 23% of families who have a home mortgage are “underwater” on their mortgage—that is, they owe more on their home than the market value. This is an unprecedented problem for the economy. This situation alone is almost certain to make the economy very sluggish for the foreseeable future.

So the future budget deficits and thus debt projections are very likely understated, and perhaps understated by a large amount. But there is even more room for concern:

4.  The number of people in the United States who are 65 or older is expected to double by 2030, further taxing the welfare ponzi schemes.

5.  The interest on the debt ALONE may soon exceed our per capita income (http://www.scrivener.net/2009/08/six-ways-us-wont-escape-its-national.html).

6.  The nationalized health care proposals—which are likely to pass in some form—are not yet in the above projections. Every state that has tried such schemes (Maine, Massachusetts, Hawaii, Tennessee, and Oregon) has found that the costs are consistently enormously higher than projections. (“If you think health care is expensive now, just wait till it’s free.”) There are numerous articles on the internet that you can find about the disasters that socialized health care has produced in these states. The economics on the administration’s socialized medicine is pretty simple. They want to add 46 million people and add over 40 new government bureaucracies–and are telling us that it will save money. Well, where is this money supposed to come from? The truth is that socialized medicine will force much higher taxes and more debt (not to mention bring worse health care).

Can the USA actually go broke? Well, yes!!

Finally, Americans must consider the root causes for this problem. What is the morality of your economic views? Please consider these questions:

http://www.realclearmarkets.com/articles/2009/08/24/what_is_the_foundation_of_your_economic_beliefs_97371.html

 Other good links:

Scary: http://trueslant.com/nancymiller/2009/09/20/debt-bears-say-grants-optimism-is-bull/ 

How much debt is too much: http://www.forbes.com/2009/09/10/national-debt-default-opinions-columnists-bruce-bartlett.html

Who is more efficient: http://www.gerrycharlottephelps.com/2009/08/fed-govt-wastes-more-money-than-business-charity.html

Crippling: http://online.wsj.com/article/SB10001424052970203585004574393110640864526.html

History: http://www.american.com/archive/2009/september/debt-be-not-proud-the-sorry-tale-of-america2019s-out-of-control-spending

Jobs: http://www.realclearmarkets.com/articles/2009/09/14/saving_one_million_jobs_at_787000_per_job_97404.html

Cost of Cash for Clunkers: http://seekingalpha.com/article/152909-cash-for-clunkers-may-cost-up-to-45-354-per-vehicle and                                          http://blog.lib.umn.edu/levin031/transportationist/2009/09/cash_for_clunkers_cost_exceede.html

20 Questions about ObamaCare: http://www.freerepublic.com/focus/f-news/2350627/posts

Budget problem compared to past cycles: http://www.cnsnews.com/news/article/53246

One plan to solve the problem: http://seekingalpha.com/article/175860-can-the-federal-budget-be-balanced?source=hp_wc

 

One comment

  1. There is a NYT article on the US debt today (see post at http://euandus3.wordpress.com/2009/11/23/12-trillion-in-debt-living-beyond-our-means/). It hasn’t been just after the financial crisis of 2008 that the US Government has had unbalanced annual budgets… And consider consumer “use” of credit cards? Is there something about our society–about ourselves–that we are missing because we are in it? (e.g. a fish doesn’t “see” its water). I don’t think we are digging deep enough.



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