Thursday, December 20, 2012

Washington is fiddling while America burns

Clearly, President Obama, Congress and the Senate have been imbibing far too much of the post-election spirit(s) . . . either that, or they've been taking lessons from the late, unlamented Emperor Nero.  They're squabbling and pointing fingers over the 'fiscal cliff', sequestration, taxes, and blame - but not one of them are saying a single word about the true magnitude of the problem, or telling Americans how perilously close we are to economic collapse.

The facts are stark, inescapable, and speak for themselves.  We've looked at them several times before in these pages.  For tonight's discussion, I'll limit myself to just one statement of the problem:  an article that we've referenced before, from Bloomberg last August.

The fiscal gap is the present value difference between projected future spending and revenue. It captures all government liabilities, whether they are official obligations to service Treasury bonds or unofficial commitments, such as paying for food stamps or buying drones.

. . .

The U.S. fiscal gap, calculated (by us) using the Congressional Budget Office’s realistic long-term budget forecast -- the Alternative Fiscal Scenario -- is now $222 trillion. Last year, it was $211 trillion. The $11 trillion difference -- this year’s true federal deficit -- is 10 times larger than the official deficit and roughly as large as the entire stock of official debt in public hands.

. . .

Part of the fiscal gap’s growth reflects changes in policy, such as the Bush and Obama tax cuts, the introduction of Medicare Part D, and the expansion of defense spending. Part reflects “natural” growth of existing programs, including growth in Medicare and Medicaid reimbursement rates. And part reflects the demographic time bomb U.S. politicians are blithely ignoring.

. . .

Closing the gap using taxes requires an immediate and permanent 64 percent increase in all federal taxes. Alternatively, the U.S. needs to cut, immediately and permanently, all federal purchases and transfer payments, including Social Security and Medicare benefits, by 40 percent.

There's more at the link.  Bold print is my emphasis.  The article is essential reading, IMHO.

Raising taxes, about which President Obama goes on and on ad nauseam, won't - can't - solve the problem, Chris Cox and Bill Archer made this clear last month in the Wall Street Journal.

When the accrued expenses of the government's entitlement programs are counted, it becomes clear that to collect enough tax revenue just to avoid going deeper into debt would require over $8 trillion in tax collections annually. That is the total of the average annual accrued liabilities of just the two largest entitlement programs, plus the annual cash deficit.

Nothing like that $8 trillion amount is available for the IRS to target. According to the most recent tax data, all individuals filing tax returns in America and earning more than $66,193 per year have a total adjusted gross income of $5.1 trillion. In 2006, when corporate taxable income peaked before the recession, all corporations in the U.S. had total income for tax purposes of $1.6 trillion. That comes to $6.7 trillion available to tax from these individuals and corporations under existing tax laws.

In short, if the government confiscated the entire adjusted gross income of these American taxpayers, plus all of the corporate taxable income in the year before the recession, it wouldn't be nearly enough to fund the over $8 trillion per year in the growth of U.S. liabilities. Some public officials and pundits claim we can dig our way out through tax increases on upper-income earners, or even all taxpayers. In reality, that would amount to bailing out the Pacific Ocean with a teaspoon. Only by addressing these unsustainable spending commitments can the nation's debt and deficit problems be solved.

Again, more at the link;  and again, bold print is my emphasis.

The real issue - one that few politicians are prepared to tackle head-on for fear of endangering their own re-election - is spending.  As John Stossel points out:

Ludicrous, irresponsible spending is why we're in trouble. As columnist Ron Hart points out, Bill Clinton's balanced budget spent $1.7 trillion. "Adjusted for inflation," he writes, "our federal government would (have) a $200 billion surplus. But instead of increasing government spending in line with normal inflation, under Bush and Obama we are spending $3.8 trillion today. Democrats, who believe we have a 'revenue' problem instead of a 'spending' problem, must also think they have a bartender problem, not a drinking problem."

The media obsess about tax rates, but spending is more important. As Milton Friedman taught us, spending is a far more accurate gauge of the government burden. If government spends a dollar, that dollar is taxed away from someone. If it's borrowed, it's removed from productive use, setting the stage for higher taxes later. If the government prints more dollars to fund spending, our purchasing power falls. Transferring purchasing power from the people to the government via inflation is a form of taxation.

If Republicans and Democrats reach a deal, the tax increases will be real -- but spending "cuts" probably illusions. If they actually happen, they will only be reductions in already planned increases. The Wall Street Journal notes that when the two parties talk about cutting spending by $4 trillion over a decade, "those numbers have no real meaning because they are conjured in the wilderness of mirrors that is the federal budget process. Since 1974, Capitol Hill's 'baseline' has automatically increased spending every year according to Congressional Budget Office projections ... . Tax and spending changes are then measured off that inflated baseline."

Given our growing debt, can't they even slow the growth of government to the rate of inflation? Or inflation plus 1 percent? Or even inflation plus 2 percent? That might balance the budget within a decade.

But the spenders won't even give me that. They want more. Always more.

More at the link.

I think one can probably count on one's fingers and thumbs the politicians in Congress and the Senate who understand the size, scope and scale of the problem, and are willing to take the pruning shears to the national budget to fix it.  Unfortunately, that makes them rather less than 2% of our elected representatives in Washington D.C.  There are too few of them to influence the thundering herd of trough-feeding, pork-addicted, self-interested spendthrifts who run things there.

I can't put it more plainly than this:


It cannot be otherwise any longer.  The debt has grown too large to be paid.  Either we must repudiate the debt, which will destroy the 'full faith and credit' of the United States;  or we must deliberately inflate our currency, so that we pay off these unpayable trillions of 'old-dollar' debt with inflated, almost worthless 'new-dollars'.  This will not technically amount to a default . . . but try telling that to creditors who are paid off with worthless currency!  One or the other, or both, of these solutions is inevitable;  and either or both of them will end up destroying our economy as it presently exists.

We face inevitable collapse.  It may not happen immediately, or even in the short term:  the Fed is creating tens of billions of dollars every month out of thin air, with nothing of any value backing it, in a desperate attempt to postpone the inevitable.  However, mathematics is inexorable, and facts remain facts no matter how often, or how long, one refuses to look at them.  We're going down, folks;  and when we do, the rest of the industrialized world is going down with us.  It's going to take at least a generation, maybe longer, to recover from this crash.

And all because the feckless politicians in Washington (and, to be fair, those in other First World capitals as well) refuse to face facts and do what's necessary.

When it happens, those same politicians will come back to their constituencies and try to explain that it's all someone else's fault, they had nothing to do with it, and voters should re-elect them so that they can fix it.  When they do, I expect the sales of tar, feathers and rails to greatly increase - at least, I hope they will!  (If their constituents are really mad, there's always the next step, which for obvious reasons I'll leave to their and your imagination.)


1 comment:

Stuart Garfath said...

Peter, everything you have said here also applies to Australia.
As of 21 Dec, 2012, the current Federal Labor Government has publicly stated that it will not be able to generate a surplus this end of financial year, exactly what it has also never done in all its time in office, as opposed to the current opposition.
The reason given was "A fall in revenue", the truth, (not given), SPENDING!!!.
Our current Federal Labor Government is EXACTLY like your alcoholic simile, they deny everything is of their making, they deny that they have the bartender/drinking problem, and have had it for seven years, with one more to go, unfortunately.
Make space America, Australia is right behind you in the same boat.