Posted on 03/01/2010 6:39:45 AM PST by shortstop
The other week, while you were watching “American Idol,” Greece went bankrupt.
Not all the way, but pretty close.
And people have been rioting in the streets.
See, the government had been financing things for years on end with debt. The government was taxing and spending, of course, but it was also borrowing. A lot. A staggering amount.
So much that the people who do the lending decided they’d had enough. Which left Greece insolvent. Which brought the economy to collapse.
Which created a crisis for the European Union and for its currency, the Euro.
Which made the world jittery.
Which endangered you.
But Germany and France bailed the Greeks out, so now you don’t have to worry anymore.
Except, of course, for the fact that the United States is in the same position. America is only a half a step behind Greece.
Our politicians are as stupid as theirs, our policies are as unsustainable as theirs, our peril is as great as theirs.
The simple fact is that the American economy can collapse at any moment, because of the suffocating load of federal-government debt. That is not a political opinion, it is not a talking point, it is not the ranting of an alarmist. It is a simple economic truth. We are living beyond our means and money does not grow on trees. The simple truths that govern family budgets apply as well to the affairs of nations.America is bankrupt.
And the only thing that keeps our entire economy from disintegrating is the fact that there are still people and nations who will loan us money. But as they increasingly realize that there is no honest way we can pay them back, their willingness to give us their money will evaporate.
And then we will riot in the streets.
Because our money will become valueless, the government trough will be empty, our jobs and savings will be lost, and we will go hungry.
In the end, nobody is too big to fail.
Not even us. Not even the United States.
And the current policies of the United States government, building on some 70 years of fiscal foolishness, destine the nation for failure.
Let me repeat: We are destined for failure.
It is not a question of if, it is a question of when.
Unless a dramatic and painful sea change is made, our financial doom is certain.
Here’s why.
Our annual budget deficit for the foreseeable future is in excess of a trillion dollars. More than a trillion dollars of new borrowing every year.
On top of the other trillions we’ve already borrowed.
That poses two immediate threats.The first is that our creditors will recognize that we are a bad risk – that we are sub prime. That will hurt our credit rating and, consequently, increase the interest we have to pay.
That’s kind of what happened to the Greeks. It would be devastating to us, as the cost of government – already unsustainable – would jump dramatically.
Which would come out of our hide.
The other threat is that the government will try to cheat its way out of debt. It is called monetizing the debt. The government can simply print more money and make its payments that way.
Doing so, however, would cause inflation. That would be good for the government, as it would be paying debt with devalued dollars. It would be terrible for us, because the true value of our paychecks, investments and savings would plummet.It would force an overlay of poverty upon the nation, devaluing not only possessions but dramatically lowering lifestyles.
We would all be poor.
Our economy would not work.
Our prosperity, our security, our freedom and even our existence would be jeopardized.
It’s not a matter of opinion, it’s a matter of natural law. You can’t spend what you don’t have, and if you try, it’ll come back to bite you.
We’re about to get bitten.And neither we nor our politicians have the stomach for the austerity necessary to avert catastrophe.
On the contrary, our dependent class demands more, our politicians want to spend more, our greed lusts for more. Our culture has become drunken on entitlement and government beneficence.
At first, politicians promised beyond their means because they knew they wouldn’t be around to pay the bill and clean up the mess. Now, it seems, they promise beyond our means because the want to hasten and benefit from the ultimate collapse.
And so they promise more benefits and take over more of the economy, further enmeshing the nation’s wealth in their failed and immoral policies.
That will soon end – either by our wiser choices, or by our nation’s economic collapse.
Welfare and entitlement programs must be gutted or scrapped. All citizens must be brought into the shared burden of income taxation. We must return to the understanding that the only American entitlements are those listed in the Bill of Rights. Politicians must stop bringing home the bacon, and realize that they never should have taken it away from there in the first place.
The government must get its hands and its snout out of the economy.
Or it will kill the economy.
Something which, as the Greeks could tell us, is horrifyingly close to happening.
Taken a good look at what passes for "culture" lately? I have, and it isn't pretty. Our society, as a whole, has become largely morally bankrupt, so financial bankruptcy becomes a more looming reality by the day...
the infowarrior
The combination. Real people owe that total sovereign and personal debt, and they are struggling mightily with their personal one alone.
Worries me too...
The 2009 US Government Financial Statement shows $2.7 trillion in assets, $14.1 trillion in liabilities. If that were a company's financial statement wouldn't they declare bankruptcy? The balance sheet doesn't include the unfunded liabilities of $100 trillion.
No argument there.
I understand what you're saying, though. However, I really think we will go that direction shortly. There will be a major population reduction due to hardship.
I believe we've been cursed with the old Chinese curse--"May you live in interesting times."
“Such things must be experienced to be understood.”
I have such respect for you. I am not young enough to work that way anymore either. I grew up just wealthy enough I didn’t have to do such manual labor when I was young and I am poorer for it. I can’t depend on this generation to work like that either.
I fear we will return to pre-1900 but the problem is nobody knows how to survive that way anymore so in reality it will be more like the dark ages.
You don't go broke with interest expense under 3% of income, especially with an income that rises 6-7% a year on average. The average American homeowner spends 16% of income on debt service, and the average renter (counting rent) 25%. And they aren't broke either, with a $54 trillion net worth overall.
It might make some sense to worry about debt service costs if long term interest rates were 8-9% - meaning, 2-3 times current levels and above the rate of growth of the overall economy. But in the nature of things, that could not and would not be sustained.
The immediate cause of the current high deficits is the recession, and not debt service costs. Federal receipts of all forms fell from a peak annual rate of $2.683 trillion in the 4th quarter of 2007, to $2.188 trillion in the 3rd quarter of 2009, the last for which full figures are available. That is a $500 billion drop in revenue, or an 18.5% "tax cut". At the same time, transfer receipts to households (government benefits paid to them, including state and local) have increased by $400 billion, from $1.772 trillion to $2.175 trillion, all at annual rates.
A $500 billion tax cut and a $400 billion increase in handouts blew the original deficit hole. Unnecessary additional "stimulus" spending, plus some one-off TARP stuff that is accounted for as a current item rather than a capital item, account for the remainder. The unnecessary stimulus stuff should certainly be stopped and the TARP expense allowed to reverse as loans are paid back and the like. But the idea that it is the cost of servicing the debt - interest - that is causing our fiscal stress, is completely wrong.
The change in interest expense since the late 90s is less than $50 billion a year. The change in tax income just since 2007 is 10 times as large. The change in transfer payment spending is also 10 times as large, and together they are 20 times as large.
In short, its the economy, stupid...
The Federal government has an income stream of over $2 trillion a year from all taxes.
On average, this income rises by 6% or 7% per year. It fluctuates violently - up to 20% in a few years - when the economy goes into recession and in booms - but around that trend growth rate.
Guess how much you can safely borrow against a $2 to 2.5 trillion income, when you pay 3% average interest rates? Investment grade in the corporate world means covering debt service 3 times. Top rating happens if you can cover it 4 times, using average incomes over 3 years. Answer, about $21 trillion. The US is 2.5 times lower than a highest grade corporate bond level of protection.
As for the "unfunded liabilities", those don't include the income stream from payroll taxes, either, and are again one entry accounting. Guess what the discounted present value of $2-2.5 trillion per year growing 6-7% a year is, discounted at 3%?
Infinity. Twice.
The people are borrowing their government's credit rating, not paying a fifth of their normal taxes, and instead getting whopping huge new handouts to maintain their income (overall, not down at all since 2007) despite 10% of them not working. They also just stiffed their bankers for $2-3 trillion in bad debt that said banks wrote off and the deadbeats walked away with.
Never have such collosal whining ingrates bitten so hard on the hand that is feeding them.
Don't get me wrong, this doesn't mean I am in favor of things like extending unemployment benefits to 3 years, or foreclosure mortoriums, or criminalizing lending, or bailouts for unions. And surely the taxpayers not taking anything and paying such of the freight as is actually being paid, are getting shafted by all of the above.
But spare me the whining snot nose brat crap about how hard it is all over. I gave at the office, forty times over.
My message to the American people is: Stop whining, get off your collective backside, pull your pants up, turn your hat around, and get a fricking job!
At most the income rise should track to inflation plus population growth. Anything higher is feeding an unsustainable bubble. If the adjusted government growth rate is 2% per year and if total taxes are 35% of income now, taxes will grow to 100% of income in 54 years. There is increasing worker productivity (really automation) which should boost employee pay, but shouldn't there also be increasing productivity in the government sector so that government needs to spend less every year to deliver the same level of services? American government is growing at an unsustainable rate and when that bubble bursts it won't be pretty.
Inflation is a mere change in prices, it runs 3% a year or so. More like 4% from WW II to the early 80s, more like 2% from the late 80s to now, but around that much.
Population growth is 1% a year pretty much forever.
The economy grows more than both combined. It is called, say it with me now, real economic growth. It is caused by, all together higher productivity. Meaning, each hour worked produces a greater real value of goods and services than in the past, because people are working smarter, using better tools, using vastly more complicated and powerful capital equipment, etc.
Total taxes at all levels of government are 25.6% of GDP, not 35%. In 1980, total taxes at all levels of government came to 28.9% of GDP. Government's share of GDP is not higher now than then. But real GDP is way higher - 5 times higher in nominal terms, and 2 times higher adjusted for changes in prices. Population is 35% higher. Income per person in real terms is 46% higher.
The total taxes on my personal GDP are much higher than that. I must be doing something very wrong. Anyway, I appreciate your take and bits of education.
“only the good die young”.
Soros is an avil horrid little international pimp...expect him to last a while doing his evil deeds.
It’s up to the sheep to wake up.
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