Cause for Alarm

The Keynesian Kool-Aid drinkers keep insisting that big deficits and rapidly growing piles of public debt don't really matter as long as there is "slack" in the economy. But they live in a fantasy world where ill-conceived policies are not subject to vetting by market and other forces. As the Greeks (among others) are now discovering (to their chagrin), spendthrift nations eventually pay a price for their fiscal irresponsibility. That is also the point being made in the following Reuters report, "US Needs Plan to Tame Debt Soon, Experts Say":

The U.S. government must craft a plan next year to get its ballooning debt under control or face possible panic in financial markets, a bipartisan panel of budget experts said in a report on Monday.

Though the government should hold off on immediate tax hikes and spending cuts to avoid harming the fragile economic recovery, it will need to make such painful changes by 2012 in order to keep debt at a manageable 60 percent of GDP by 2018, according to the Peterson-Pew Commission on Budget Reform.

Without action, investors could lose confidence in the United States, driving down the dollar and forcing up interest rates, said the former lawmakers and budget officials who crafted the report. That could cause a sharp decrease in the country's standard of living.

"We will be less free if we don't tackle this," said Jim Nussle, a Republican member of the commission who earlier served as a White House budget director and chairman of the budget committee in the U.S. House of Representatives.

The 34-member commission published its report as Congress was poised to raise the debt limit from its current $12.1 trillion level to allow the government to continue operating.

The national debt has more than doubled since 2001, thanks to the worst recession since the 1930s, several rounds of tax cuts and wars in Iraq and Afghanistan.

A looming wave of retirements over the coming decade is expected to make the situation worse.

The national debt [which excludes "non-marketable" debt issued to federal entities such as the Social Security Trust Fund] currently accounts for 53 percent of GDP, up from 41 percent a year ago. That's likely to rise to 85 percent of GDP by 2018 and 200 percent of GDP by 2038 unless dramatic changes are made, the commission said.

The commission did not issue specific prescriptions but said tax increases and spending cuts would probably be needed.

It said Congress and the Obama administration should set specific targets each year, with automatic spending reductions and tax increases kicking in if they are not reached.

The Democratic-controlled Congress is unlikely to fix the problem on its own given the highly partisan atmosphere, commission members said.

"You've got to have a few Republican votes, and there have been none. And there has been no possible way in the current political system yet to find that sensible center," said former Democratic Representative Charlie Stenholm.

The commission backed the creation of an outside commission, similar to one used to close miliary bases, to create the necessary political cover.

Such a proposal is included in a crush of year-end legislation that could clear Congress this week but it is opposed by many key Democrats.

The United States must act to ensure that it does not join Dubai, Greece, and other countries that risk losing the confidence of investors, the commission said.

"It's imperative that we take action before the financial markets force us to," said Douglas Holtz-Eakin, a former Congressional Budget Office director who advised Republican John McCain's presidential campaign last year.

To be sure, short-term, crisis-related spending has played a key role in widening the hole in our nation's finances, but it is not the only factor. Even before the current disaster struck, the long-term fiscal position of the U.S. was being undermined by reckless imperialism and the rapidly growing cost of entitlements. As an example of the latter, I cite the following chart, which illustrates the fact that net outlays for Medicare and Social Security now equal nearly eight percent of gross domestic product, a record high.

Furthermore, current spending on those two programs doesn't even take acount of their overall long term costs. As detailed by the Peter G. Peterson Foundation in its "Citizen's Guide 2009," the present value of promised Social Security and Medicare payments not covered by taxes and other contributions is $42.9 trillion -- or three times the size of our economy.

Worse still, even those estimates may be shy of the mark because Americans will apparently be living longer than previously thought. In "Rising Longevity: Can We Afford It?" Capital Gains and Games highlights the summary to an article in the latest issue of the Milbank Quarterly, "Aging in America in the Twenty-first Century: Demographic Forecasts from the MacArthur Foundation Research Network on an Aging Society," which explores the degree to which current assumptions and forecasts may be understating the size of those obligations (assuming, of course, that benefits remain as they are):

Context: The aging of the baby boom generation, the extension of life, and progressive increases in disability-free life expectancy have generated a dramatic demographic transition in the United States. Official government forecasts may, however, have inadvertently underestimated life expectancy, which would have major policy implications, since small differences in forecasts of life expectancy produce very large differences in the number of people surviving to an older age. This article presents a new set of population and life expectancy forecasts for the United States, focusing on transitions that will take place by midcentury.

Methods: Forecasts were made with a cohort-components methodology, based on the premise that the risk of death will be influenced in the coming decades by accelerated advances in biomedical technology that either delay the onset and age progression of major fatal diseases or that slow the aging process itself.

Findings: Results indicate that the current forecasts of the U.S. Social Security Administration and U.S. Census Bureau may underestimate the rise in life expectancy at birth for men and women combined, by 2050, from 3.1 to 7.9 years.

Conclusions: The cumulative outlays for Medicare and Social Security could be higher by $3.2 to $8.3 trillion relative to current government forecasts. This article discusses the implications of these results regarding the benefits and costs of an aging society and the prospect that health disparities could attenuate some of these changes.

Comments

[Rocky]

The Germans wouldn't make the tough economic decisions they needed to in the early 1920's. They ended up with a collapsed currency, a failed republic, concentration camps, war and a holocaust. Those who don't learn from history are condemned to repeat it.

[Paul Majchrowicz]

Lies, Lies and more LIES. Transfer payments such as Social Security and Medicare have NO (ZERO) effect on the national debt. However, an increase in transfer payments could expand the economy by shifting money from people with a low marginal propensity to consume (i.e. Peter G Peterson and friends) to people with a high marginal propensity to consume (i.e. working class/taxpaying class/grunts to die in illegal wars class). The ENTIRE PROBLEM is military spending which has a negative growth multiplier effect by removing resources from the economy [resources, not money, but things like man hours worked, steel, concrete, semiconductors, etc.] that could otherwise be used to build productive industries that employ people at good wages that would expand the economy and pay down the debt. Live bankers and dead soldiers pay no taxes.

Put simply: war is a wealth transfer activity that shifts wealth from the working class to the rentier class (people who live off of investments). Transfer payments are a wealth transfer activity that should shift wealth from the rich to the poor but in practice is actually a tax on the working class to self-fund their retirement and medical care. Peterson's agenda is simply to loot Social Security and Medicare to further impoverish the working class.

The proper way to reign in the national debt is to end the wars (just leave) and cut the Pentagon's budget, the CIA's budget, the NSA's budget, etc. and release these resources to be used for productive purposes.

[Wil Martindale]

There is no doubt that debt is out of control, but the Peterson-Pew commission's recommendations come from the austerity playbook of global Fascism. The only way to beat the global debt peddlers is to refuse to play by their "rules".

The solution is pure and simple. Drop the globalist, monetarist, fascist, neo-colonial system of monetized derivative swindles, and return to the Constitutionally mandated credit system which has saved America no less than 4 times in its history, every time the Imperial elites have tried to drown us in debt.

Go to letthemfail.us and click TAKE ACTION to see what is beng proposed in Florida, and in other States. Our Governors may be the last hope to restore economic sovereignty among the United States.

[roger]

Every gun that is made, every warship launched, every rocket fired, signifies in the final sense a theft from those who hunger and are not fed, those who are cold and are not clothed.
(Dwight D. Eisenhower.)
Since the beginning of world war 2 .this country has always been involved in a war. Care to figure out the ZILLIONS that went down the drain?

[roger]

The Germans wouldn't make the tough economic decisions they needed to in the early 1920's. This is a very short sided view.
The collapsed of the German economy was the result of extremely harsh conditions
imposed by the treaty of Versailles, which also by the way was very unfair to China. History is writing by the victors, and never ever is factual

[matt]

Paul are you serious? You would open this country up to be sacked like ROME. China does not have entitlements SS, Medicare, Medicaid, pensions, etc remember that. Wait till the baby boomers retire in the next 10 years then we will see the real debt and this is while Washington spends like drunken sailors.

[joe johnson]

Why are people that have been paying into social security for decades(forcibly),made to feel like welfare cases for getting the money back in SS benefits. I've been paying in for 4 decades without having ever gotten one unemployment check, yet for some reason I'm supposed to feel like a parasite for receiving the benefits from money stolen from me in the first place.They take whatever they need from the national treasury to bail out bank fraud and then focus the attention on SS as an unfunded liability. If it's unfunded than what the fck have they been doing with the funds they took from me. Fck them and their attempts to stigmatize receiving social security benefits just because a corrupt government has bastardized the program and misused the funds.

[joe johnson]

ROGER-

If you feel China's on the right track without social programs, why not hop the next freighter and join them. Believe me, you and your kind will not be missed.

[Rocky]

Roger: Read "The Rise and Fall of the Third Reich" by William Shirer, especially page 62.
Joe Johnson: Don't feel guilty about claiming your Social Security benefits, especially if you have been paying into the system for 40 years. Your contributions were not stolen by the government but they WERE spent on various government programs such as the war in Viet Nam, the war in Iraq, aid to Egypt and Israel, public housing projects, NASA etc. You may not like how the money was spent, but that is how our system works. If you think you have been screwed, think about the young college graduates who can't find jobs, can't afford to repay their student loans, can't afford medical insurance and can't even afford to visit the dentist. As a nation, we are rotting from within. Imperial overreach will eventually destroy the republic.