Economic Chaos Ahead

Townhall.com ^ | February 8, 2012 | Walter E Williams

[Kaslin]

Let's think about the kind of mess that we're in. Federal 2010 Medicare and Medicaid expenditures totaled $800 billion. The projected annual growth of both programs is about 7 percent. Social Security expenditures are more than $700 billion a year. According to the 2009 Social Security and Medicare trustees reports, by 2030, 49 percent of federal revenues will go for Social Security and Medicare payments. The unfunded liability of both programs is already $106 trillion.

But not to worry. The Congressional Budget Office estimates that it's possible to sustain today's level of federal spending and even achieve a balanced budget. All that Congress would have to do is raise the lowest income tax bracket of 10 percent to 25 percent and the middle tax bracket of 25 percent to 66 percent and raise the 35 percent tax bracket to 92 percent. That's a static vision that assumes that people will have no response and they'll work just as hard and send more money to Washington. If Congress did legislate such tax increases, it would be the economic equivalent of committing national hara-kiri.

Professor Daniel Klein, editor of Econ Journal Watch, and Professor Tyler Cowen, general director of the Mercatus Center, both based at George Mason University, organized a symposium to promote a better understanding of the U.S. debt crisis. The symposium's title, "U.S. Sovereign Debt Crisis: Tipping-Point Scenarios and Crash Dynamics" (http://econjwatch.org), is a strong hint about the seriousness of our nation's plight.

Professor Cowen introduced the symposium pointing out that in 2011, the major crisis was in the eurozone, where Greece, Italy, Spain, Portugal and Ireland dealt with the risk of default. The survival of the eurozone is now seriously doubted. Cowen added: "When it comes to a sovereign debt crisis, it is no longer possible to say 'it can't happen here.' Right now, we are borrowing about 40 cents of every dollar the federal government spends, and the imbalance has no end in sight."

Jeffrey Rogers Hummel, associate professor of economics at San Jose State University, says that a default on Treasury securities appears inevitable. He says that the short-run consequences for the economy will be painful but that the long-run consequences, both political and economic, could be beneficial. That's because an economic collapse is the only way we will come to our senses. That's a tragic statement about the foresight of the American people.

Participant Garrett Jones, associate professor of economics at George Mason University, is a bit more optimistic, seeing default as being less likely. But he argues that "default is still possible, and the GOP offers a uniquely American path to default: an unwillingness to raise taxes."

Dr. Arnold Kling is a member of the Financial Market Working Group at the Mercatus Center and tells us that the "U.S. government has made a set of promises that it cannot keep." He says that the "promises that are most important to change are Social Security and Medicare."

Joseph J. Minarik is senior vice president and director of research at the Committee for Economic Development. He argues that a "U.S. financial meltdown today is eminently avoidable. The wealthiest nation on earth, despite a painful economic slowdown, maintains the wherewithal to pay its bills. The open question is whether it maintains the will and the wisdom."

Peter J. Wallison holds the Arthur F. Burns chair in financial policy studies at the American Enterprise Institute. He agrees with Kling that "the most likely source of a U.S. sovereign debt crisis ... is a failure of the U.S. political system to address the growth of the major entitlement programs -- Social Security, Medicare and Medicaid."

My translation of the symposium's conclusions is that it is by no means preordained that our nation must suffer the same decline as have other great nations of the past -- England, France, Spain, Portugal and the Ottoman and Roman empires. All evidence suggests that we will suffer a similar decline because, as Professor Cowen says, "the American electorate has dug in against both major tax increases and major spending cuts."

[LibLieSlayer]

I know that many of you think that we can grow our way out of this... cut spending and pay this debt off... but take a little time and work out some math. The only way out is to default and start over... this time permanently on the Gold Standard. We are going to have to do it regardless of what anyone says. When we do it is the question. The sooner we do it... the sooner we return to prosperity. The problem as I see it... there is no political will in either party to do the hard things... to paraphrase Kennedy ... and I am not praising him... just using something that he said was true... we must do this and the other things... not because they are easy... but because it is the only way out of depression.

LLS

[pieceofthepuzzle]

Those levels of cost (Medicare and SS) are just not sustainable. It’s that simple. As a doc I am very, very concerned with what the future of health care will look like without some major changes. Unfortunately, everything the political class has thrown out there is not going to fix the problem. Plus, if every physician in the US worked for free it would not fix the problem or stop the increases in medical costs.

[TheWriterTX]

That is correct. We cannot grow our way out. We have already reached the economic tipping point, where our Debt to GDP ratio is so high, any further increases in debt cause a corresponding contraction in the private sector.

They don't want to admit what a lot of folks are now starting to realize: unmanaged collapse is coming unless we drastically reduce the level of debt and public spending. Their choice, raising taxes, sucks even more money out of an anemic economy.

Let's bleed the patient to feed the leeches. Dumb move.

[wastoute]

A while back some FReeper posted an article about how the gold standard really wasn’t better than the fiat currency we have now. In fact the reason we have fiat currency was chicanery with the gold standard. Unfortunately, the real problem is as Shakespeare wrote ong ago, “not with our stars but ourselves”.

Samuel told the people they shouldn’t have a king but instead of the hard thing (telling Samuel that his sons were corrupt judges and doing something about it) they asked for a king. Same problem, same mistake. I am with Beck on this one. Jesus is and has always been the only answer. How we love one another is how we are known. Good or ill.

Of course He pointed out that we would need a “sword and a purse” in Luke 22. I have a feeling there is gonna be some serious zombie killing and that may have some impact on “how we are known” but I find nothing in His word that requires me to be a helpless victim.

[Aevery_Freeman]

I was a gold bug. I still have a goodly stash of gold and silver just in case - it keeps better than food. But I also have a stash of wine for the same reason, to retain wealth.

Another FReeper turned me on to this documentary and it was a revelation.

What is important is the quantity of money and the abolition of the Fed. Please watch all two hours, it's not cheesy or maniacal. It is the system proposed by Thomas Jefferson, Benjamin Franklin and Thomas Edison.

The Secret of Oz

[rarestia]

"the American electorate has dug in against both major tax increases and major spending cuts."

The Liberal morons of the American electorate have dug in against cuts. I, for one, am all for them! Cut them down to the nubby, bloodied, nerve-frayed, marrow-oozing bone! And for the love of God, reform our tax code. Flat tax, fair tax, whatever... just ensure that every citizen of this country is paying a share of the tax burden.

[vanilla swirl]

Ferlater

[scooby321]

But but but but that doesn’t that doesn’t fit the MSM the economy is back.

[PGalt]

$top $pending

DEFUND socialist collectives, foreign and domestic.

DISMANTLE UNaccountable bureaucracies, czars, NGOs, agencies, social-engineering programs operating under the auspices of “government”.

DEPOPULATE socialists (and totalitarian wannabees with their mandates) from the body politic.

(excerpts...CAPS mine)

How to Identify Legal Plunder

But how is this legal plunder to be identified? Quite simply. See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime.

Then abolish this law without delay, for it is not only an evil itself, but also it is a fertile source for further evils because it invites reprisals. IF SUCH A LAW — WHICH MAY BE AN ISOLATED CASE — IS NOT ABOLISHED IMMEDIATELY, IT WILL SPREAD, MULTIPLY, AND DEVELOP INTO A SYSTEM.

The person who profits from this law will complain bitterly, defending his acquired rights. He will claim that the state is obligated to protect and encourage his particular industry; that this procedure enriches the state because the protected industry is thus able to spend more and to pay higher wages to the poor workingmen.

Do not listen to this sophistry by vested interests. The acceptance of these arguments will build legal plunder into a whole system. IN FACT, THIS HAS ALREADY OCCURRED. THE PRESENT-DAY DELUSION IS AN ATTEMPT TO ENRICH EVERYONE AT THE EXPENSE OF EVERYONE ELSE; to make plunder universal under the pretense of organizing it.

Legal Plunder Has Many Names

Now, legal plunder can be committed in an infinite number of ways. Thus we have an infinite number of plans for organizing it: tariffs, protection, benefits, subsidies, encouragements, progressive taxation, public schools, guaranteed jobs, guaranteed profits, minimum wages, a right to relief, a right to the tools of labor, free credit, and so on, and so on. All these plans as a whole — with their common aim of legal plunder — constitute socialism.

Now, since under this definition socialism is a body of doctrine, what attack can be made against it other than a war of doctrine? If you find this socialistic doctrine to be false, absurd, and evil, then refute it. And the more false, the more absurd, and the more evil it is, the easier it will be to refute. Above all, if you wish to be strong, begin by rooting out every particle of socialism that may have crept into your legislation. This will be no light task.

“The Law” Frederic Bastiat 1801-1850

[sickoflibs]

RE :”Let's think about the kind of mess that we're in. Federal 2010 Medicare and Medicaid expenditures totaled $800 billion. The projected annual growth of both programs is about 7 percent. Social Security expenditures are more than $700 billion a year. According to the 2009 Social Security and Medicare trustees reports, by 2030, 49 percent of federal revenues will go for Social Security and Medicare payments. The unfunded liability of both programs is already $106 trillion.
But not to worry. The Congressional Budget Office estimates that it's possible to sustain today's level of federal spending and even achieve a balanced budget. All that Congress would have to do is raise the lowest income tax bracket of 10 percent to 25 percent and the middle tax bracket of 25 percent to 66 percent and raise the 35 percent tax bracket to 92 percent. That's a static vision that assumes that people will have no response and they'll work just as hard and send more money to Washington. If Congress did legislate such tax increases, it would be the economic equivalent of committing national hara-kiri.”

Raising taxes to keep retiree senior benefits ar current levels might work, as long as all of those taxes raised are on the retirees themselves and-force them to go back to work to continue to pay entitlement taxes.

He forgets the $2T SS trust fund piggy bank saved by our trustworthy representatives all these years. Honest Tim Geitner is watching that to make sure it's safe as Democrats assure us it is.

[bert]

Growth is but one prong of a multi pronged solution

It can be argued that the decline in the value of the US$ correlates directly with the price of gold. A projection of the Kittco 10 year chart gives a pretty good picture of the future declining value of the US$. It can be argued that we are presently on a gold standard imposed by the markets.

In a recent e letter John Maudlin advised that Europe is already on the gold standard with the €uro being the proxy for gold.

The other prong to tie it together is inflation. Inflation of the prices of stuff including gold and oil, inflated valuation added to actual growth, all compounded, will be the only solution All that is presently under way.

[ClearCase_guy]

I favor default. Heck, I favor a Jubilee. I think the world’s entire economic model is completely tainted. I would not burn it all down overnight, but I think we need to cancel the debts and start over on firmer ground.

[LibLieSlayer]

The article was wrong... the gold standard prevents printing up money or creating cyber cash and monetizing our debt... and that is why the deficit is skyrocketing... they spend money as fast as they create it... and every dollar created lessens the value of a dollar in circulation.

LLS

[rbg81]

That’s because an economic collapse is the only way we will come to our senses.

---

That’s essentially the “Atlas Shrugged” scenario. Unfortunately, that seems more and more likely. Our political system seems incapable of electing “leaders” who have the will to solve this problem. In large part, this is the fault of the American people. Whenever a politician shows some spine and takes the first tentative steps, they get crucified in the polls. The American people say they want deficit reduction, but they oppose the specifics. Not all of the American people think like this (not FReepers), but sadly a majority do.

A combination of prosperity and technology has eroded our common sense. This is gradually leading us to a hard fall. And it will take a hard fall to restore it.

[Smokin' Joe]

Actually, the way out is to stuff the Federal genie back in its Constitutional bottle, which would eliminate a huge number of programs and Departments.

Not gonna happen.

People don't want to be free. They don't want to grow up, be responsible for their lot in life, and act like adults.

We have a neotenic population,and that will be our demise.

[LibLieSlayer]

Thanks for the link... I will check back on thread when I get to work... still a practicing Capitalist... until they put me out of business... and they are doing that in spades.

LLS

[MrB]

When the cardhouse collapses, they’re gonna be “free” whether they want to be or not.

When I bring up the idea of an inevitable economic collapse with my libinlaws, the curious response I get is “well, we’ll all be in the same boat”...

I fail to gain any solace in such a situation...
I’m not even sure why they respond that way, unless it is that they are so into the “collective” that they can’t think any other way.

[NELSON111]

You are correct sir. That is why I chuckle at times when Freepers wonder what the GOP is doing.

You see...these guys in DC..both the dims and the GOP...AREN'T stupid (OK...some are...). They may be crazy...they may be self-serving hypocrites and liars...but they are NOT stupid. To do what they CONTINUE to do (And this means the GOP) is idiocy...and they are NOT idiots.

They understand that they only way out of this mess IS to crash the system.

Now the PROBLEM is what are they going to REBUILD from the ashes? Therein lies the rub. I know the dims are trying to deliberatly crash the system as to bring about a socialist state. I have yet to figure out the GOP agenda. I'm afraid many of them are on the same team.

[MrB]

I’m thinking I’m going to stop using the language of commies to describe the free market system.

“Capitalist” is an epithet in their vernacular, and was a word invented by Marxists.