Why Medicare and Social Security Are Doomed - The $222 TRILLION Dollar Conversation Romney and Obama Should Be Having

We are still in the middle of what I call "silly season" when it comes to politics and elections. Politicians and their respective advocates in the media talk about trivia, inane issues and other silly stuff that really will have no impact on the lives of most Americans as we go forward.

The Washington Post two weeks ago did a 700 word article on the clothes that Paul Ryan wore at some campaign appearances that week and how well those clothes fit him. Joe Biden was put in political "time out" for a few weeks because he continues to have foot in mouth disease. The Obama camp insists that Romney release his tax returns while the President's school records continue to be a secret and the tax returns of most members of Congress are also a mystery.

Trivial matters in a time of dire national issues. Let's do a quick review of the country's economic straits that adults should be talking about vs. the relatively minor issues that our politicians talk about, issues that we have covered extensively in past posts:

• Our national debt is about to hit $16 TRILLION. If spread out equally across all U.S. households, every American household would have to pay about $140,000 each to cover the debt nut. And under Obama, this debt is growing over a TRILLION dollars a year relative to a year's worth of government tax and fee collection.
• Social Security is currently in a negative cash flow situation and will continue in that situation for decades to come as the Baby Boomers retire. A negative cash flow situation means that the Social Security process is now, and will continue, to pay out more in benefits than it collects in tax revenue.
• The Social Security trust fund still does not exist as a source of wealth. It only exists as a cruel accounting hoax, a set of financial IOUs that the Treasury says it owes the Social Security Administration with no tangible assets of wealth to back up those IOUs.
• For the first time in the history of the Social Security program, and going forward, an average American will pay more into the Social Security process than he or she can expect to get back in benefits, making it one of the worst retirement programs imaginable.
• Medicare is quickly eating up more and more of the country's tax wealth and Obama Care will hasten the fiscal collapse of the program since it plans to arbitrarily reduce future Medicare budgets by over $700 billion, without resolving the underlying causes of our high health care costs as a nation.
• According to Forbes magazine, the total wealth of the 400 wealthiest Americans is just over $2 TRILLION, which means that confiscating the TOTAL wealth of the richest Americans will come nowhere close to significantly reducing the ever rising national debt or Social Security and Medicare shortfalls.
• According to the latest available IRS tax summary data, if the government taxed millionaire earners at 100% of their annual adjusted gross income, i.e. confiscating everything they earned, it would not come close to covering one year's worth of Obama's deficit spending budget.
• Of course, you could only do this confiscation once since no one in the country would ever work hard again if they knew the Federal government was going to confiscate everything they earned.

The country is in this dire fiscal situation and the Washington Post is worried about a politician's wardrobe. But we are really not in this dire situation listed above....it is far worst, as described by the latest long range estimates from the Congressional Budget Office (CBO), as analyzed by Boston University Professor Lawrence Kotlikoff. His analysis, summarized in a simple to understand, detailed, and horrifying essay by Gary North, can be read at:

 http://lewrockwell.com/north/north1186.html

The following points from the analysis highlight our dangerous plight:

• Professor Lawrence Kotlikoff of Boston University used data and statistics from the Congressional Budget Office relative to the financials of Social Security, Medicare, and our national debt in his analysis.
• Early this month, Kotlikoff and financial writer Scott Burns published their analysis of the unfunded liabilities of the Federal government.
• According to the figures issued by the Congressional Budget Office and Kotlikoff's analysis, he came to the conclusion that there had been a year over year increase in unfunded Federal liabilities of $11 trillion over the preceding twelve months.
• This is about ten times larger than the "official" Federal deficit in the past year, an official deficit that only measures the short term, annual shortfall of government revenue vs. government spending.
• Kotlikoff estimates the total liability of the Federal government to Americans that is not funded at the present time is now $222 trillion for the next 75 years, the official Medicare timeline for long term planning.
• Again, this is an increase of about $11 trillion in just the past year, according to Kotlikoff's analyses.
• His analysis means that the Federal government would have to set aside $222 trillion today, invest this money in projects that will pay a positive rate of return to cover the financing of this $222 trillion liability debt for the next 75 years.
• Thus, consider this dilemma: the Federal government is currently incurring annual deficits of about $1.2 trillion, it annually spends about $3.7 trillion but it needs to have $222 trillion immediately to invest in private markets to cover Social Security, Medicare, and other government debt.
• The math is not looking good, especially when you throw in the fact that the TOTAL production of wealth every year in the U.S. is only about $15 trillion.
• Consider this other dilemma: our political class was incapable of closing an annual operating deficit of just over a trillion dollars. How in the world can we expect them to close a $222 trillion liability shortfall?
• Another dilemma: If the Federal government actually wanted to set aside $222 trillion today to cover the promises it has made to every American, every American household would have to put up, on average, $1.9 million each. Not going to happen.
• Even if this analysis is off by half, that the unfunded liabilities are only $111 trillion, there is still no way, even with the size of our economy, that this country can fulfill the promises that past politicians have made.

We could go on doing math based on his analysis forever but those scenarios are never going to happen since the Federal government, the dollar, and our democracy will crash long before those liabilities all come due since our economy cannot possibly pay for all entitlement promises the political class has made over the past few decades.

Consider some other factors that will contribute to our doom and gloom scenario:

- According to an article in the May 25, 2012 issue of The Week magazine, even with Obama Care in effect, a married couple on average can expect to pay $240,000 in their retirement years to pay for Medicare premiums, co-pays, deductibles and other health care expenses. This is a 4% increase over the previous year. Thus, it will be difficult to ask American households to cough up $1.9 million each to cover the $222 TRILLION in unfunded liabilities if they have to put up almost a quarter million dollars for their own health care.

- Still do not believe we are in the midst of gloom and doom regarding Social Security? Consider an article in the June 4, 2012 issue of Business Week, "A Massive Program On The Verge Of Collapse." Social Security also has a disability program in addition to its retirement fund. According to the article, the Social Security disability fund will go cash flow negative by 2016, at which time taxes collected will only cover about 79% of the need.

The article clearly points out that both major political parties have done nothing to much acknowledge the problem never mind resolving the issue. The article also points out that the government is so dysfunctional that it has been unable to clear a backlog of over 1 million potential fraud cases.

- A Moneynews article from August 16, 2012 reported on the most recent Treasury Department analysis which showed the following profile of our debt relative to international entities:

• The amount of national debt owned by foreign entities was just over $5 TRILLION, about a 66% increase in just three years.
• The Chinese now hold $1.1643 trillion in U.S. government debt, which is down from $1.3149 trillion in just the past year.
• The Japanese ownership of our national debt is $1.1193 trillion.

While these two countries currently hold a lot of our debt, we probably cannot rely on them to continue financing our insane deficit spending. First, China has reduced its holdings more than 11% in just twelve months. Second, both of these countries have rapidly aging populations and will have massive spending needs of their own to handle their domestic increases in the cost of supporting their elderly populations. Thus, they are unlikely to be a source of funding for the $222 trillion needed to fund our liabilities.

So, American households will have their own expenses to cover and cannot be relied on to raise $222 trillion of wealth. Our two biggest foreign bankrollers, China and Japan, will likely turn inward to service their aging populations and not continue funding our spending addiction. Our own wealthy cannot come close to funding these unfunded liabilities even if the Federal government confiscated all of their wealth and all of their earnings.

Our political class and media worry about ill fitting clothes, personal college records, personal income tax returns, and other extremely trivial issues. Real leaders would step forward and level with the America people: "The U.S. Federal government has made promises to you that are impossible to meet. Thus, as a nation, these are the steps that need to be taken, the sacrifices that need to be made to guarantee that those most in need of help get what we can afford to give them while the rest of America will have to do with less."

What are the odds that anyone in the current political class has the courage to stand up and make that statement and back it up with a cogent, fair, logical, and financially sound plan to get us through this dilemma? In my view, the odds of that not happening might actually exceed the size of the national debt these same people have created. Despicable from a leadership perspective.

But there might be a way to get through the gloom and doom. We would recommend starting with four steps from "Love My Country, Loathe My Government:"

1. Step 10 would reduce the Social Security tax rate but uncap the maximum amount taxed and apply the tax to all forms of income in order to make the application of the tax fairer across all income levels.
2. Step 11 would raise the retirement age to 70, with a hardship exception, to delay payments to Americans who can afford to wait a little while for their Social Security payments.
3. Step 12 would block all Americans from receiving a Social Security check if their net worth, not income, exceeded $3 million. People like Trump, Gates, Buffet, etc. can afford to live comfortably without a Social Security check, enabling the system to better serve the truly needy.
4. Step 1 would reduce government spending 10% a year for five straight years to finally get us to a balanced budget. You cannot start paying down your debt until you get to a balanced budget. We have discussed many, many ways and analyses that have already been put forth to accomplish this relatively easy task, assuming some courage on behalf of our politicians.

Other necessary steps would include the following:

• Implement the National Bounty System as outlined in the following post:
• http://loathemygovernment.blogspot.com/2012/05/national-bounty-system-fixing.html, finally start tracking down and prosecuting the criminal elements that defraud Social Security, Medicare, and Medicaid of over  $200 billion every year. 
• Repeal Obama Care and start over, putting forth a rational, cost efficient plan that actually looks at the true root causes of our ever escalating health care costs rather than just creating another massive, expensive, and ineffective  government bureaucracy like Obama Care.
• Find a way to overhaul Medicare that reduces costs and puts the health care decisions of individuals back into their own hands rather than the hands of unelected bureaucrats. A good starting point for an adult discussion would be with Paul Ryan's plan to overhaul Medicare.

If we do not have the needed adult discussion, we will continue to live with the gloom and doom disaster of Social Security and Medicare collapsing followed by our currency cratering and then the end of our democracy.

Oh, yes, there is another way to avoid the gloom and doom. Do not get old and do not get sick. Have a nice day!

Please visit our Presidential website, "The United States Of Purple," at:

http://www.unitedstatesofpurple.com/

The United States of Purple is a new grass roots approach to filling the office of President of The United States by focusing on the restoration of freedom in the United States, focusing on problem solving skills and results vs. personal political enrichment, and imposing term limits on all future Federal politicians. No more red states, no more blue states, just one United States Of America under the banner of Purple.

Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at http://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.

Please visit the following sites for freedom:

http://www.cato.org/
http://www.robertringer.com/
http://realpolichick.blogspot.com/
http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment/