The apparent federal debt, which has been the focus of contentious debates as well as demagoguery, is the amount the federal government owes others from unrestrained, irresponsible government spending … like China, Japan, other foreign countries and even individuals. This is the nearly $15 trillion dollar number bandied about.
It is an incomprehensible number that will be extremely difficult to ultimately pay down completely.
What most Americans are completely unaware of are the unfunded and underfunded liabilities that dwarf this nearly $15 trillion number. This relates to Social Security, Medicare and other entitlements and is estimated to be around $127 trillion which, as noted below, equates to more than 730% of our GDP!
Drowning In Debt
Investor’s Business Daily 04/26/2011
Liabilities: The latest finding that states have underfunded their pension and retiree health plans to the tune of $1.26 trillion is just the leading edge of an overwhelming wave of unfunded government promises.
A new study by the Pew Center on the States finds that the gap between the states' pension and retiree health benefit promises and the money they have to meet them climbed 26% in just one year, hitting $1.26 trillion in fiscal 2009.
Even that alarming figure relies on the states' optimistic assumptions about how much they expect to earn on their investments. Using more realistic assumptions could boost that gap to $2.4 trillion, Pew found.
Bad as it is, this funding gap is a piker compared with the federal government's debt. We're not talking about the $14 trillion in public debt that everyone has been focused on, but the even more massive debt we're piling up in Social Security, Medicare and other entitlements.
According to the Cato Institute's Michael Tanner, we've promised future retirees far more than we can pay at current tax rates. How much more? If these unfunded liabilities were included in our debt figures, it would reach $127 trillion — or more than 730% of gross domestic product. This debt tsunami isn't hitting us by surprise. Indeed, Tanner and others have issued countless warnings that we've been promising future retirees far more than we can deliver, only to be met with indifference or hostility.
At least some state and local governments are starting to take their unfunded liabilities seriously, as we saw in Wisconsin earlier this year, and even now in union strongholds such as Detroit, where the mayor is pushing city employees to pony up more to cover health insurance and pension costs.
At the federal level, it's another story. When President Bush offered up a modest privatization plan to save Social Security for the long haul, he was strung up by Democrats and the media.
Now Rep. Paul Ryan, R-Wis., is stepping up with a proposed fix for Medicare and is getting the same treatment, with Democrats — including President Obama — playing on the public's general lack of understanding of the stakes involved to scare them away from needed reforms.
Like it or not, this entitlement wave is coming, and the only way to avoid catastrophic destruction is to take action now.
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Obama’s policies regarding our economy have been an unmitigated abject failure but you will never read this in the far left “main stream” media. They will make little or no mention of his failed, irrational actions.
Because Obama’s their man!
To them, this is still Bush’s fault as well as of the Republican Party. They will never admit to the fecklessness and ideological rigidity of Obama’s policies and the profound damage that is has and is causing.
Who's Turning U.S. Into The Third World?
Investor’s Business Daily 04/15/2011
Economy: President Obama says Republicans, if they get their way, will turn the U.S. into a "Third World" nation. Has he looked recently at the course he's set us on? As psychologists say, it sounds like projection to us.
One of the cheapest tricks in political rhetoric is to accuse your opponents of doing something bad that you yourself are doing. That's exactly what President Obama did when he charged that GOP efforts to restore fiscal responsibility would turn us into "a nation of potholes, and our airports would be worse than places ... that we used to call the Third World."
Never mind that most of what he's talking about — like "potholes" and airports — have always been local priorities. And Obama is U.S. president, not U.S. mayor.
But what stuck in our craw was that "Third World" crack. Excuse us, isn't that the way we've been heading under Obama? Consider for a moment these trends:
• Real earnings have fallen for five straight months, and are down 1% since the end of last year.
• Consumer price inflation is growing at a 6.1% annual rate over the last three months, while producer prices are rising an even-faster 13%. According to John Williams of the Shadow Government Statistics website, if we measure consumer prices the way we did before 1992, inflation is now running at 10% a year.
• The U.S. has added $6 trillion to its debt under Obama, a sure sign of being on the road to Third World status. Three years ago, the U.S. had $7.9 trillion in debt. Today, we have $14 trillion. Bankrupt, hyperinflated Zimbabwe couldn't do any better.
• The U.S. dollar has fallen so much and foreign nations have so little confidence in our ability to run our fiscal affairs that the "BRIC" nations — the mostly fast-growing former Third World nations of Brazil, Russia, India and China — are talking about replacing the U.S. dollar in foreign trade with the Chinese yuan.
• Just 45.4% of Americans had jobs last year, the lowest since 1983, according to census data crunched by USA Today. Among men, just 66.8% had work last year, the lowest ever.
• Obama touts the "recovery" that supposedly began in June of 2009, but a look at the data show that last year's real private sector GDP was in fact still down 1.1% from its peak in 2007 — so all of the "expansion" has been in government, not the private sector.
• While we're at it, under Obama, spending has risen farther and faster than under any president in history. At current rates, government at all levels will take up more than half of all economic activity by 2050.
Can't happen here, you say? In 1920, Argentina was one of the five richest countries on Earth. Then it followed policies similar to Obama's — kowtowing to unions, government control of industry, price controls. It crashed, burned and never really recovered.
We're headed down that road. Today, government spending is at a record 25% of GDP, while government regulation costs the U.S. economy $1.7 trillion a year.
As Vice President Biden might say, "That's real Third World, man."
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Given the intransigence and ideological rigidity of the Democrats, Republicans may be forced to decide between the two calamitous scenarios as regards the US debt. The first would be to give in to the Democrats who oppose even the most minimal spending reduction, raise the debt ceiling and allow the debt to continue to skyrocket to the point of insolvency.
The second option would be to shut down the government until appropriate and effective spending reductions are agreed upon and can be instituted. Any such agreement may take quite a while to reach and, of course, would result in the U.S. defaulting on its obligations which will have quite severe consequences.
Though the Democrats will be the offending and irresponsible party in either of these financial meltdown scenarios, the Republicans will be blamed instead by the news media.
Government: US Default Could Be Doomsday Option For Economy
Scott Baker April 23, 2011
WASHINGTON (AP) — The United States has never defaulted on its debt and Democrats and Republicans say they don’t want it to happen now. But with partisan acrimony running at fever pitch, and Democrats and Republicans so far apart on how to tame the deficit, the unthinkable is suddenly being pondered.
The government now borrows about 42 cents of every dollar it spends. Imagine that one day soon, the borrowing slams up against the current debt limit ceiling of $14.3 trillion and Congress fails to raise it. The damage would ripple across the entire economy, eventually affecting nearly every American, and rocking global markets in the process.
A default would come if the government actually failed to fulfill a financial obligation, including repaying a loan or interest on that loan. The government borrows mostly by selling bonds to individuals and governments, with a promise to pay back the amount of the bond in a certain time period and agreeing to pay regular interest on that bond in the meantime.
Among the first directly affected would likely be money-market funds holding government securities, banks that buy bonds directly from the Federal Reserve and resell them to consumers, including pension and mutual funds; and the foreign investor community, which holds nearly half of all Treasury securities.
If the U.S. starts missing interest or principal payments, borrowers would demand higher and higher rates on new bonds, as they did with Greece, Portugal and other heavily indebted nations. Who wants to keep loaning money to a deadbeat nation that can’t pay its bills?
At some point, the government would have to slash spending in other areas to make room for any further sales of Treasury bills and bonds. That could squeeze payments to federal contractors, and eventually even affect Social Security and other government benefit payments, as well as federal workers’ paychecks.
A default would likely trigger another financial panic like the one in 2008 and plunge an economy still reeling from high joblessness and a battered housing market back into recession. Federal Reserve Chairman Ben Bernanke calls failure to raise the debt limit “a recovery-ending event.” U.S. stock markets would likely tank — devastating roughly half of U.S. households that own stocks, either individually or through 401(k) type retirement programs.
Eventually, the cost of most credit would rise — from business and consumer loans to home mortgages, auto financing and credit cards.
Continued stalemate could also further depress the value of the dollar and challenge the greenback‘s status as the world’s prime “reserve currency.”
China and other countries that now hold about 50 percent of all U.S. Treasury securities could start dumping them, further pushing up interest rates and swelling the national debt. It would be a vicious cycle of higher and higher interest rates and more and more debt.
The U.S. has long been the global standard for financial stability and creditworthiness, with Treasury securities seen as a fail-safe investment. But after the near-shutdown of the U.S. government and a new credit-rating report this week questioning the country’s fiscal health, Treasury bills and bonds are losing luster.
If there is a debt limit deadlock, the government by this summer could find itself legally unable to borrow more money to pay its bills, beginning with interest on its debt and gradually extending to day-to-day federal operations. At some point, the government would have to decide which bills to pay and which to put aside.
The debt ceiling will be hit on or around May 16, the Treasury Department says. Unlike the threatened government shutdown, the impact would start slowly, but then build mightily until the damage would be so dire that few political leaders or economists even want to contemplate it. The day of reckoning could likely be delayed at least until early July with creative bookkeeping.
When the House first rejected the Bush administration’s $600-billion bank bailout in September 2008, the Dow Jones industrials went into a dizzying 778-point tailspin. A whiff of a possible similar stock market collapse came on Monday with a sharp selloff on Wall Street when the Standard & Poors lowered its outlook on U.S. debt to “negative” from “stable,” possibly a first step toward a possible downgrade of America’s coveted AAA credit rating.
“We haven’t downgraded it. We just said, if nothing happens, we may have to,” said S&P chief economist David Wyss. He said a government default remains uncharted territory, “which is one reason why it’s not a good idea to hit the debt ceiling.”
“There’s reason to worry,” said Wyss. “But my best guess is that we sort of muddle through this. Cuts will be made, they’ll be too little too late, but at least they will be enough to maintain a triple-A rating.”
“It’s another game of chicken. And this time there are Mack trucks going at each other, not bumper cars. This is a biggie,” said American University political scientist James Thurber. But he predicted that, as in the past, “there will be an accommodation. They will avoid a crash.”
Investment bank J.P. Morgan Chase recently concluded that any delay in making an interest or principal payments by the Treasury “even for a very short period of time” would have large “long-term adverse consequences for Treasury finances and the U.S. economy.” The analysis is being circulated on Capitol Hill by supporters of raising the debt limit.
“If anyone wants to push that button, which I think would be catastrophic and unpredictable, I think they’re crazy,” JP Morgan CEO Jaime Dimon said recently of those seeking to block raising the debt limit.
House Speaker John Boehner and most other GOP leaders agree on the need to raise the debt limit — and don’t want to be held responsible for a new financial meltdown. Still, they want Obama to make more concessions on spending cuts than he has done thus far. That isn’t sitting well with liberal Democrats, who think Obama has already given too much ground.
One reason the two parties can’t find common ground: they can‘t even agree on what’s causing high deficits. Democrats mostly blame it on policies of George W. Bush: two wars, tax cuts that continue to benefit the wealthy and an expensive prescription drug program. Republicans see government spending as the culprit, particularly on Obama’s watch.
In fact, the main reason is the deep recession, which slashed tax revenues and led to hundreds of billions of dollars in recession-fighting spending by both Bush and Obama. The debt was $9 trillion in late 2007 before the start of the Great Recession, and it’s just a sliver under the $14.3 trillion limit today.
Even though GOP leaders say they want to avoid more economic chaos, there is a large crop of tea-party aligned Republicans threatening to refuse to raise the cap under almost any circumstance. Polls suggest a large percentage of Americans oppose raising the debt limit.
The debt limit has been raised ten times over the past decade. Obama voted against Bush’s debt-limit increase in 2006 as a senator, accusing Bush of “a leadership failure.“ Obama recently apologized for ”making what is a political vote as opposed to doing what was important for the country.”
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