The debt storm threatens America’s future
Someone hands you a photo of a horrific car crash, broken glass everywhere, steel frames in twisted little balls. The person then tells you this is your car several years down the road and your entire family was in it. Studying the picture more intently, you realize it is your car right down to the bumper stickers and the license plate.
Think of the scenario above as an analogy on where our federal government is heading. We have some very clear images showing what the future holds for us just a handful of years down the road.
Our economic growth over the last decade was more sluggish than in any other since World War II. The tax cuts of the last 30 years without significant cuts in spending, the two current wars, our current devastating recession, the financially debilitating stimulus programs and the looming explosion of retiring baby boomers are producing huge deficits.
Many of the older baby boomers left the workforce early due to the recession. The early retirements coupled with reduced tax revenues tilted Social Security so that the system is paying out more than it is taking in, arriving earlier than the year 2015 projection.
Social Security is fine for the next four to five years, but with the arrival of the obvious tipping-point of perpetually less revenue than benefits, the crisis will fall in the lap of a Congress that seems to care little about preventing disaster.
Social Security is restricted by law from paying out more than its balance in any given year. This year, the system will more than cover the difference from interest earned on revenue placed in Treasury securities.
Upon having control of the both the White House and Congress, neither political party has had the guts to forsake the special interests and do the right thing.
Wall Street’s get rich quick scheme through “bubbles and crashes,” resulting in jilted taxpayers and investors, has the population searching for the proper balance between the market and the government. Read the special report on Lehman Brothers (http://documents.nytimes.com/lehman-brothers-repo-105-valukas-report?ref...) and your anger about the thievery and lack of enforcement will rise dramatically.
President Obama’s fiscal 2011 budget will spawn nearly $10 trillion in cumulative budget deficits over the next 10 years, and he could really care less. The Democratic strategy appears to be throwing huge amounts of federal tax dollars at every issue, pleasing the liberal base and worrying about the consequences later.
The outcome (and this is not the worst-case scenario) of this budgetary free-for-all could raise the federal debt to 90 percent of the nation’s economic output (gross domestic product) by 2020, according to the Congressional Budget Office (CBO).
The trillion dollar healthcare plan calls for steep tax increases on the higher income families and higher premiums and taxing the expensive “Cadillac” insurance plans later on. Does anyone really believe the Democrats are going to increase taxes on insurance plans for their union base? Does anyone really believe Congress will not tinker with the system to win points from special interest groups?
When President George W. Bush left office, the federal public debt was $6.3 trillion ($56,000 per household}. Under President Obama, thus far, the deficit totals $8.2 trillion ($72,000 per household). According the CBO’s estimates, our federal deficit will reach $20.3 trillion (more than $170,000 per household) in 2020.
Beyond 10 years, the country’s lookout is devastating if we fail to act. According to economists Kenneth S. Rogoff of Harvard and Carmen M. Reinhart of the University of Maryland, countries with debt-to-GDP ratios “above 90 percent, median growth rates fall by 1 percent, and average growth falls considerably more.”
Thank goodness, the Communist Chinese government is going to keep lending us money, or will they? There has been a drop-off in investor demand for U.S. Treasury notes. If the Federal Reserve begins to make the note more attractive by raising rates, increasing the government’s borrowing costs, the delicate housing market could fall further.
The vice governor of the People’s Bank of China, Zhu Min, gave the European Union countries a tongue-lashing in Hong Kong over Europe’s inability to get their act together in the financial crisis.
We had better wake up to the fact that the world has changed since the global financial crisis. While our Democrats and Republicans have squandered away one opportunity after another to make our country financially whole, unfocused and self-serving, the Chinese have racked up an unprecedented $2.4 trillion in reserves. China now plays a key role in all global financial matters.
Much to their credit, when China has a problem, they take care of it. Who would have thought a decade ago that a country with a centrally-planned economy and per-capita gross domestic product of around $6,000 would be pushing the Western powerhouses around like toy cars on the kitchen floor?
What happens when the attention on the European Union’s inability to pay their debt turns toward the U.S.? Increasingly, we are no longer looked upon as the ultimate safe haven for the world’s capital. When faced with a problem, our government does not take care of it. Instead, they cave in to special interests that reap short-term gains from our pain.
Unless we make some significant changes well before 2020, the dramatic increase in our federal debt, the disintegration of Social Security and our continued reckless spending will shatter the future of our children and grandchildren.
This is not fear-mongering. The data is readily available and we all know Congress has a significant history of failing to step up to the task.
Take a good look at that photograph.
[Steve Brown is the former mayor of Peachtree City. He can be reached at email@example.com.]