I wrote it. You read it and comment, please.
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The downfall of the United States federal government. Bankruptcy and the coming illegitimacy of the U.S. fiat dollar.
The United States federal government is headed for fiscal disaster. No political movement exists today that strives to change this course of action. Discussions by both sides of the duopoly that is Democratic/Republican politics focus on slowing the rate of growth of government, not actual cuts to what is the largest government in the history of the world. Each side of the duopoly uses the other as a bogeyman to further its own self interests and the interests of the funders of the party. Keynesian economics are the underlying justifications the politicians use for such fiscal shenanigans. The Federal Reserve, the debt buyer of last resort, has been the key to enabling such unprecedented spending since its creation in 1913. All of these factors combine to create a system of ever depreciating currency, boom/bust financial bubbles, and the destruction of savings and wealth in our country today.
Democrats and Republicans are both part of the deficit problem. Each party continues to fund to the maximum their own constituencies self interests at the expense of fiscal responsibility. It is political theatre of the first order, telling people what they want to hear rather than what they need to hear. This "kick the can" mentality is motivated in large part by office holders avoiding unpopular political positions in order to increase their own electability. Each party, when it has power, has a proven track record of funding further largess through the public treasury in order to "buy" votes and elections. All of this in order to maintain or increase their hold on power. This type of behavior benefits the politician in the short term but has horrendous and destructive consequences for the fiscal stability of the nation in the long term. When the time comes that the piper must be paid the government loses all legitimacy and collapses unless one of three options is pursued.
Deficits can only be met in one of three ways, taxes, cuts in the budget, or increasing the money supply and paying off debt with the newly created funds. Negatives for each of these options include: Tax increases are a) politically unpopular, b)hinder economic growth by removing capital from the private sector, further increasing the power of the federal government to the detriment of liberty. Budget cuts a) eliminate benefits for whichever special interest group was receiving them, b) politically unpopular with the beneficiaries whose benefits were cut. Inflation, the hidden tax, a) impairs those on fixed budgets from meeting expenses, b) depletes the value of savings and, hence, the motivation to save, c) destroys the currency being inflated to the point of illegitimacy and destruction of its value.
Current and projected deficits as per the president's budget. The following is as presented on Page 203 of the President's budget, under the item "Debt Outstanding, End of Year"
Year - DEBT
2010 - $13.529 Trillion
2011 - $15.476 Trillion
2012 - $16.654 Trillion
2013 - $17.750 Trillion
2014 - $18.761 Trillion
2015 - $19.776 Trillion
2016 - $20.825 Trillion
2017 - $21.867 Trillion
2018 - $22.924 Trillion
2019 - $24.023 Trillion
2020 - $25.165 Trillion
2021 - $26.366 Trillion
No viable solutions to this conundrum are being offered by either parties leadership. Each party offers only window dressing type of solutions which make for good soundbites and political one-upsmanship but do nothing to address the issues of deficit spending on Social Security, Medicaid/Medicare and Defense spending. The unfunded liabilities in Medicaid/Medicare are the elephant in the room. Strictly speaking the U.S. government's debt is roughly 14 trillion dollars. Although the liabilities of Social Security and Medicaid/Medicare do not involve the full faith and credit of the United States government, these programs that Americans have been taught to rely upon are inadequately funded to meet future obligations. The amount of shortfall to fund these entitlement programs is roughly $111 trillion. That figure exceeds the total net worth or the U.S. economy.
The deficit as projected for fiscal year 2011 is $1.5 trillion. "No big problem!" Congress seems to say. "Nothing that a $38 billion spending cut cannot solve." The Obama administration's 2012 budget would save $1.1 trillion over the next 10 years by cutting programs to rein in a deficit that may reach a record $1.5 trillion this year, White House Budget Director Jacob Lew said. "We have to start living within our means," Lew said on CNN's "State of the Union" program. "The notion that we can do this painlessly – it's not possible to do it painlessly. We're going to make tough choices."
The plan he is offering is running headlines based on a 10-year savings plan. This is done deliberately to misdirect the public, on the assumption that they will not read the whole article or think through the numbers. The problem however is as follows; A President serves for only eight years. He has no authority to achieve such savings. A $1.1 trillion savings over 10 years is $110 billion a year. The deficit is $1.5 trillion this year alone. The White House calls this a hard choice. I call it kicking the can.
Some of the "savings" would then be spent on increases in education, research, development and technology to compete against global rivals. The claim is this will create jobs and reduce the unemployment rate, currently at over 9%. This is newspeak, just as described by George Orwell in his novel, 1984. Some examples of newspeak: "Love is hate." "Peace is war." "Saving is spending."
Federal spending as a percentage of gross domestic product has run roughly 18% since the creation of the Federal Reserve. During times of war it has gotten, briefly, near highs of 22%. With the bailouts and continued spending since 2008 federal spending is now running about 25% of GDP. David Stockman, Ronald Reagan's budget director, noted last summer what has been happening over the past two years: nominal GDP has been rising at $4billion per month, while federal debt has been increasing at $100 billion per month. This means the federal government has borrowed $25 for every dollar the GDP has increased. This is unsustainable, no matter what tax rates are set at. The problem of trying to address budget issues with tax increases are as follows. Wealth will flee the country to regions of the world where less taxes need to be paid, underground economies and the barter system will grow in order to avoid taxes and taxes on corporations will, in the end, always be passed on to the consumer in the resultant higher prices the corporations charge for their goods and services. Economically this country cannot afford an even greater exodus of wealth, jobs and companies overseas to save on taxes that would otherwise be paid if the business was conducted here. The Congressional Budget Office calculated that for the government to balance its budget while continuing on the same trajectory of expenditures, marginal income tax rates would need to skyrocket. The lowest marginal rate would rise from 10 to 26 percent. The 25% rate would have to rise to 66% and the top rate would go from 35% to 92%.
The largess of unfunded entitlements combined with the most expensive military in the world and all of its attendant wars are rapidly bankrupting our government. Much like the Soviet empire the fiscally crumbling nature of our federal government is the largest threat to our security as a nation today. It is as it has always been, a government that runs a fiat currency ends up inflating it until both the currency and the government become worthless.
There will be a crisis when the budgets cannot be financed at anything under 20% per annum except by mass inflation by the Federal Reserve.
Prepare for the crisis. It's coming.
