Sunday, August 29, 2010

The Great Reckoning

We are very, very deep in debt, yet the most modest proposals of spending cuts or social security reform sends Democrats into hysterics and very few Republicans recognize the need for to increase taxes. I predict that neither party will take serious measures and sooner or later we will face a great reckoning, a severe correction brought on by unsustainable economic and social structures. The size and scope of government with sharply contract and the many individuals, groups and industries that have become utterly dependent on the grandiosity of the state will be forced to dramatically change their behavior. Without heavy state subsidies, social pathologies like single motherhood will become a luxury that few will be able to afford. The sharp contraction of the welfare state will limit opportunities of extreme individuality and force individuals to turn to family, community and (gasp) churches. This great reckoning will even be felt in the philosophical realm, progressive positions that treat economics as arbitrary, wealth as a given, individuals as victims of, rather than creators of their social and economic realities will be increasingly untenable. And faced with growing scarcity, intellectual and cultural relativism will become luxuries few can afford. Stay tuned; exciting times lay ahead.

July 31, 2010

What Can't the U.S. Afford?

By Jack Curtis

Most know that the country is broke, paying its bills with borrowed or magic money under an overhang of debt nobody's talking about repaying. The politicians who lead the country while repeating that this is somebody else's fault keep spending without mentioning what will have to be given up for a balanced budget. In fact, Congressional Democrats have so far refused to even provide a budget for this cycle, likely a response to the coming November elections. But 2010's plan is known and it's reasonable to expect 2011 to be similar.

Spending was budgeted to exceed income for a deficit of $1.17 trillion; reality now is $1.47 trillion per the Office of Management and Budget. That's what must stop to balance the budget. Here's the budgeted 2010 spending with percentages, in billions:

Social Security, Medicare & Medicaid $1,447.7B 40.76%
Health, Veterans, Housing, Education, Community Svc. $226.5B 6.38%
Defense $663.7B 18.69%
Interest on National Debt $164.0B 4.62%
Transportation, Energy, Environment $109.3B 3.08%
State Department, Foreign Aid etc. $51.7B 1.46%
Homeland Security, Justice $66.6B 1.88%
Agriculture, Commerce, Labor $53.1B 1.49%
Corps of Engineers, Nat'l Infrastructure Bank, NASA $28.8B 0.81%
Science, Small Business $7.7B 0.22%
Interior, GSA, Disaster Costs $23.6B 0.66%
Treasury $13.3B 0.37%
Other Programs required by law $571.0B 16.08%
Other Discretionary $124.8B 3.51%
TOTAL SPENDING $3,551.9B 100%

The $1.47 trillion cutback needed to balance the budget is about 41 percent of the total; neither party's politicians want to talk details about cutting that much from federal programs that directly affect so many voters, especially approaching an election. But unless taxpayers are willing to pay a great deal more to government, the cutting must be accomplished before too much longer; a country can't overspend its income indefinitely just as individuals can't. In billions for easier comparison to the table, the needed spending reduction is: $1,470.0B.

Together, Social Security, Medicare, Medicaid and Defense (Iraq, Afghanistan etc.) are almost 60% of the spending; everything else is insignificant by comparison. The 16% other category covers many smaller programs that shouldn't be considered as a lump.

The politicians of both parties have created the problem by promising more than the economy can provide as older users of promised benefits increase and new young, well-educated, employed workers to pay for the benefits decrease. The problem is complicated by the declining family earnings brought on by globalization (another government product) and by Democratic policies that add costly services like ObamaCare, raise living costs like green energy programs or increase existing benefits like endless (until after elections, anyway) unemployment insurance extensions.

The unmentionable (by either party) truth is, federal spending has to be cut by 41% to balance the budget and that ignores the equally needed cuts at state and local levels for similar reasons. Consider for a moment the effect on a family of four with a $150,000 mortgage, $9,000 credit card balances and typical car payments if their combined wages of $80,000 were suddenly permanently reduced to $47,200. Government, unlike the family, can't receive absolution and a new start from a bankruptcy court.

Combined federal, state and local government debt (owed by taxpayers) is nearly $150,000 per taxpayer and rising. To pay that off over 30 years at 5% would require payments of about $805 per month per taxpayer. For a two taxpayer family, it's $1,610. That 41% spending reduction doesn't provide for debt repayment so spending will have to shrink further. Then, there's the fact that both Social Security and Medicare taxes are no longer sufficient to support the costs of the programs. That isn't provided for either. The real spending cut needed to balance the budget is considerably more than 41%. That's what the politicians are looking at and refusing to face because after all, it's their programs and promises that have produced the situation, something they cannot admit.

The U.S. probably can't afford nearly half of what it's buying with borrowed and magic money; the income to pay for it isn't there. When the flow of fools' gold stops, the people directly and indirectly tied to that flow of fiat and borrowed money will be unemployed and those who depend on their spending will, too. That is a lot of unemployment to add; there will be no money for unemployment benefits on that scale. A balanced budget will not fund military superpower, let alone foreign wars and it will not fund retirement and medical care on the current scale, forget the additions from ObamaCare.

Great Britain has replaced its Labour Party with its Conservatives; they are shutting off spending and cutting back, the opposite of the U.S. Democrats. The Brits are decentralizing their struggling National Health Service while the U.S. adds ObamaCare.

The Democrats have run out of other peoples' money to fund their promises; the Republicans have run out of money to support superpowerism. When they admit that, much of their campaign funding will dry up along with the believability of their promises. So they will not admit it, just as they don't admit that unemployment is about 21% rather than the jiggered numbers they publish (See:

Every level of government is raising taxes, sucking more money from the only productive parts of the economy. The impact of the increases has yet to be felt; it will be severe. And the Democrats' leaders want much more of that, though some of their following is losing enthusiasm. What the Republicans want remains unsaid; something that, if one thinks about it, is scary. Their leadership and the Tea Parties have not accommodated but neither appears readier than Democrats to recognize the reality of a nearly 50% percent spending cut. No more do most citizens, but from the 2010 budget model, that's the price of living within the country's means. It's what the U.S. can afford. Continuing to ignore reality is what the U.S. can't afford.

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