Still On The Eve Of Financial Destruction

Although it has been a while since we talked about how dire the nation's financials are, that does not mean we have stepped back from the eve of financial destruction. Consider some statistics from a recent article in Reason magazine by Veronique de Rugy, "Our Unsustainable Debt":

• In 2009, the Federal government spent $3.5 TRILLION on revenue of only $2.1 TRILLION. The resulting deficit of $1.4 TRILLION would require each American household to kick in an additional $12,000 in taxes to cover this shortfall that the Obama administration has incurred. 2010 results are expected to be about the same, another TRILLION plus deficit.
• The $1.4 TRILLION was about 10% of the nation's total GDP, a level that has not been seen since World War II when deficit spending was in high gear to pay for the war effort.
• The Congressional Budget Office (CBO) forecasts that unless changes in spending are made, the country's annual deficits for the next ten years will average about a TRILLION dollars a year. This would require each American household to pay an additional $8,700 a year to cover the annual shortfall.
• The CBO estimates that America's total, cumulative public debt reached $7.5 TRILLION in 2009 which is about 53% of GDP. This high a percentage has not been attained in over 50 years.
• In 2010, this percentage will exceed the 60% threshold, a level that many economists believe puts a country in financial peril.
• Just three years ago, prior to the Obama administration and the bailouts of banks, auto companies, insurance companies and others, the CBO did not expect the percentage to hit 60% until 2023.
• Without changes to Social Security and Medicare, the total cumulative debt will exceed $20 TRILLION by 2020, or 85% of GDP.
• By 2020 the Federal government will spend about $900 billion each year JUST TO PAY INTEREST ON THE DEBT! Given that the Federal government only collected about $2.1 TRILLION in taxes in 2009, $900 billion comes out to a whopping 43% of today's tax collections. This $900 billion in annual interest payments comes out to about $7,800 per family per year.

In another recent article by Rana Foroohar in the May 3, 2010 issue of Newsweek, we learn that:

• Greece's financials have fallen so far that it will require an international bailout in order to keep its government solvent.
• Italy's debt levels are five times as high as Greece's and is also teetering on the brink of insolvency.
• Germany may consider pulling out of the euro zone to protect its own economy and not be sucked under by the weaker euro countries.
• Great Britain has totaled more debt than any other major economy in the past eight years. Both Great Britain and the United States are in danger of losing their AAA credit ratings if their respective financials do not improve according to the article.

Why are all of these numbers important:

1. First of all, if every American household is burdened with paying an additional $7,800 a year to pay the interest on the national debt, that reduces how much they can spend to grow the economy and provide jobs by $7,800 per household. Thus, debt levels this high would severely stunt economic growth.
2. As foreign entities hold more and more of the \Federal government's debt instruments, it gives them more and more leverage and power in international diplomacy, trade, etc. This reduces our freedom and ability to compete and manage world affairs to our advantage.
3. As we eat up more and more of the world's capital, investment in other areas of the world economy would suffer as the resources that may have been used to start a new factory or research new ideas is sucked into paying off national debts.
4. As our debt levels grow exponentially, at some point in time investors will demand higher returns on U.S. Treasury bonds, much like we are seeing with the higher than average rate the Greek government now has to pay to get anyone to buy their government bonds. This, in turn, will accelerate out debt problems as the interest rate we have to pay goes ever higher.
5. Finally, the political class, in their continual quest to not think through a problem or act courageously, may opt to just inflate our way out of debt by introducing high levels of inflation that would allow them to pay off old debt with highly inflated dollars of new debt. However, that would significantly reduce the buying power of all American consumers as their savings would buy less and less than it did yesterday.

The bottom line is that high debt and high deficit spending levels really matter and they really matter now. Unfortunately, the Obama administration and the sitting political class have opted not to do anything and allow a very weak deficit commission come back to them at the end of the year with recommendations. This will allow almost another year of reckless spending to go on and place us deeper in debt. There is no doubt that this was done so that no difficult and unpopular decisions would be made prior to the November Congressional elections. God forbid that a politician take a bold stand and tell the country the truth, do not want to wreck their chances of being re-elected.

If I was running the show, I would take the following steps prior to the end of year commission recommendations:

• Bring home all troops stationed in Iraq as promised by Obama the candidate and reneged on by Obama the President
• Bring home the vast majority of troops from Korea, Japan, Germany and most other foreign deployments. These deployments were from another era, we can no longer afford to garrison the world and it makes no sense any longer to garrison the world. (Step 30 from "Love My Country, Loathe My Government")
• Suspend all military recruiting immediately, bringing home over one hundred thousand U.S. troops from abroad should be enough to fill any needs that recruiting would have filled.
• Freeze all Federal government hiring immediately. Immediately fire all government employees who misuse either their work time, positions and/or government computers by engaging in inappropriate behavior on the job, e.g. the SEC porn scandal.
• Institute legislation that would terminate government pension plans for any employee with less than five years service and any future government employee that is eventually hired. Very few private sector employees now receive a traditional pension, there is no reason that newer Federal government employees should receive one. (Step 9)
• Freeze all government employee raises for an indefinite period. Recent salary surveys have indicated that Federal government workers now make more in salary than 80% of private sector people in comparable jobs, they can stand a little salary freeze relative to the rest of the country.
• Begin legislation to raise the retirement age to 70 over time and restrict those that receive Social Security to only those with total assets less than $3 million. (Step 11 and Step 12)
• Begin a five year program that reduces spending across all Federal bureaucracies by 10% a year, no exceptions, and which starts with a zero based, ground up approach of looking at current expenditures and programs and terminating them that serve the least purpose and consolidating those that are redundant. This includes a total audit of all government budgets under the strictest audit/accounting guidelines possible to find excess and fraudulent use of taxpayer money. (Step 1 and Step 46)
• Start selling off government assets as efficiently as possible whether it is buildings, material, land etc. and direct the proceeds of those sales directly to debt reduction activities.
• As a symbolic gesture, ask Congress to eliminate the Congressional salary for all Congressional members with a net worth over $3 million. It makes no sense for substantial millionaires like John Kerry (rich from marrying into the Heinz fortune) and other politician millionaires to draw a salary when we are sinking in debt.
• Eliminate all Federal earmarks, estimated to current exceed over $20 billion in waste a year.
• Identify and begin eliminating all Federal programs and projects that do not benefit a large number of residents from at least five states. (Step 44)

These are steps that will need to be taken at some time, why not start now and get a head start on the commission? The commission does not have to be the only vehicle for answers to our growing debt. The above steps are simple, easy-to-understand with the least amount of short term harm to the weak economy and those in need in the country. I do not agree with those that think we need more deficit spending to cure the economy. We need to be more efficient with the money we have now, and use it more productively. Adding to the debt with more deficit spending just makes the chances of us, and our children and grandchildren, surviving the debt crisis all that more unlikely.

Unfortunately, simple and easy-to-understand is probably not enough to get the political class to start acting on the crisis. they are more worried about getting reelected than fixing the country. It's called leadership and why would we expect any from those that represent us today? It would be the first time they ever did any courageous.

Our new book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.