Tuesday, March 27, 2012

Time to Take a Stand

The numbers are so large when it comes to the federal budget deficit it is hard for them to seem real.

In the 2011 fiscal year, the federal budget deficit was $1.3 trillion.  That is 1,300 billion dollars!

There are about 117 million households in the United States.  An average of $31,000 was spent for every household in America by the federal government in 2011. The tax burden is about $20,000 per household on average.  That means that over $11,000 of federal debt was taken on in 2011 for every household in America.

If this was a family with $100,000 of income, they spent $155,000 and put $55,000 on their credit card. They would be carrying total debt of $660,000 on their $100,000 of annual income.

Where does the $31,000 in spending go ? About $10,000 goes to Social Security and Medicare.  Paying for welfare, disability income, food stamps, unemployment benefits and federal retirements costs over $5,000 per household.  Defense is $6,000 and Medicaid and other health services are around $3,000. Federal support for education is about $1,000 and interest on the federal debt is $2,000.  These categories total $27,000.  Everything else (government operations, national parks, post office, criminal justice, veteran's benefits) is a mere $4,000.

Mark Steyn writing for the National Review adds additional perspective.

  • The federal deficit in 2011 was approximately equal to the entire economy of Russia, Canada or India.  Simply stated, to merely finance our debt we would need to take almost the entire economic output of these countries just to pay for our deficit spending.   (Estimated GDP in 2011-Canada ($1.574 trillion), India (($1.538 trillion), Russia, ($1.465 trillion).
  • Congressman Paul Ryan and the Republican Budget Plan has been consistently castigated by the Democrats and President Obama for its supposed austerity.   However, the alleged enemy of seniors, widows and orphans does not propose to balance the budget until 2040- a mere 27 years from now!
  • The news lately has been focused on the debt problems of Greece.  Our national debt as a percent of GDP is still a little short of the numbers in Athens.  However, when Morgan Stanley added in the state and municipal debts and public pension obligations of both countries in 2009, Greece was at 312% of GDP and the United States was at 358%.  These numbers do not include the unfunded liabilities of Social Security and Medicare.
Steyn posits on where and how does it all end?
“We are headed for the most predictable economic crisis in history,” says Paul Ryan. And he’s right. But precisely because it’s so predictable the political class has already discounted it. Which is why a plan for pie now and spinach later, maybe even two decades later, is the only real menu on the table. There’s a famous exchange in Hemingway’s The Sun Also Rises. Someone asks Mike Campbell, “How did you go bankrupt?” “Two ways,” he replies. “Gradually, then suddenly.” We’ve been going through the gradual phase so long, we’re kinda used to it. But it’s coming to an end, and what happens next will be the second way: sudden, and very bad.
By the way, that decline in the U.S./Australian exchange isn’t the only one ($1.00 now buys only .95). Ten years ago the U.S. dollar was worth 1.6 Canadian; now it’s at par. A decade ago, the dollar was worth over ten Swedish Kroner, now 6.7; 1.8 Singapore dollars, now 1.2. I get asked with distressing frequency by Americans where I would recommend fleeing to. The reality is, given the dollar’s decline over the last decade, that most Americans can no longer afford to flee to any place worth fleeing to. What’s left is the non-flee option: taking a stand here, stopping the spendaholism, closing federal agencies, privatizing departments, block-granting to the states — not in 2040, but now. “Suddenly” is about to show up.
Another reality is that I have found no one that can answer this simple question.  And I talk to a lot of very well-informed people.

"How much would we have to constrain or reduce spending per year over the next 10 years from what we are spending today in order to balance the federal budget by 2022? 

The answer is that we do not have to reduce it at all.  This is a shock to everyone I speak to. All they hear in the media are about cuts, cuts, cuts.  However, if you read BeeLine you know the answer is that we can actually balance the budget in ten years if we increase spending by no more than 2.2% annually between now and 2022.  We do not have to cut anything compared to what we are spending on federal programs today as you and I would define that term.  This assumes no tax increases and continuation of current tax law. See the 2.2.22 Budget Plan. 

Would it be easy to do?  By no means.  Social Security and Medicare are projected to increase by well more than 2.2% per year with Baby Boomers entering retirement.  Interest needs to be paid on the federal debt and that bill will get larger every year.  However, the alternative will be sudden and very bad as Steyn points out.

It should be sobering to everyone when Steyn (a Canadian citizen who lives in the U.S.) states that due to the dollar's decline "that most Americans can no longer flee to any place worth fleeing to".  I agree with Steyn that it is time to take a stand.

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