With the election coming up I wanted to put forth a theory of what is going to happen after the election results are and and totaled. It is my humble opinion, an opinion based on facts and trends, that it really doesn't matter who wins the election.
I say that because I do not believe that the issues everyone is talking about, abortion rights, gun rights, foreign affairs, economic policy, etc. are really incidental issues vs. the only issue that matters and the it is the only issue no one is worried about in the political class, be they Republican or Democrat. And that issue is a simple four letter word: debt.
The political class has rung up so much debt at every level of government in this country that it is a balloon that is going to pop, and pop pretty soon. And when it does pop, the other issues above are all going to fade away as the entire financial and economic structure in this country goes into a very dark space. And it is a dark space that will affect every American. Let me explain, with both existing debt numbers and then with the trends that are already in palace for going to this dark space.
Let's start with the national debt:
The Federal government national debt level is just over $27 TRILLION, $27,000,000,000,000, growing every second of every day.
I could be wrong but I do not believe that the $3 TRILLION that the Federal government spent in the first pandemic economic stimulus program is baked into the $27 TRILLION number.
A second pandemic economic stimulus looks like it will come in at about $2 TRILLION, plus or minus a few hundred billion or so.
So the running rate national debt and the economic stimulus spending will very shortly bring that national debt level to about $32,000,000,000,000.
Let’s stop here and do a couple of calculations.
There are about 129 million households in the country so if every household was asked to equally pay off the national debt it would mean every household, rich or poor, would have to write a check for just under a quarter million dollars which is obviously not possible.
The total wealth of the vast majority of American households is not a quarter million dollars so they are not writing a check for that amount.
But what about taxing the rich to pay off the debt as many liberal would propose?
Not possible: consider that the richest person in the country is Amazon founder Jeff Bezos with about $175 billion of net worth.
Let’s get crazy and assume that we would not tax him more but just take his ENTIRE wealth, liquidate it, and put the cash we got to paying off the $32 TRILLION.
If we did that, taking everything he owned, we would pay off a measly .5% of the $32 TRILLION, not 5%, .5%.
If you took the entire wealth of the 400 wealthiest Americans, somehow sold it off and used the proceeds to pay off the national debt you would end up paying off 10% of the national debt, leaving 90% still to be paid.
But these are silly hypothetical examples, you are not going to confiscate everything that these people own, which means even raising tax rates on these folks will pay off only a tiny fraction of the national debt.
But the problem is much worse than this since according to the Congressional Budget Office, the Federal government is going to have about $82 TRILLION in unfunded liabilities in the next 30 years or so, i.e. the Federal government has promised Americans about $82 TRILLION more in benefits than it will have in the Treasury under current financial policies.
So that $32 TRILLION has to be added to the $82 TRILLION in unfunded liabilities of the Federal government bringing the Federal debt balloon to about $114,000,000,000,000.
Oh, and by the way, a few years ago the American Legislative Exchange Council estimated that state governments had, at that time, about $6 TRILLION in unfunded liabilities.
But that was a couple of years ago and before the states had to increase spending to combat the covid crisis.
So let’s assume that the Federal government’s national debt and unfunded future liabilities along with the state governments’ unfunded liabilities is currently about $125,000,000,000,000, a nice round number.
If every American household was asked to pay off that debt load, every household would have to write a check for about $970,000 just under a million dollars per household.
Repeating the above scenario, confiscating all of Jeff Bezos wealth to pay off part of the $125 TRILLION would end up paying off .14% of the debt, not 14%, not 1.4%, .14%.
Confiscating the wealth of the richest 400 Americans would pay off only 2.6%.
In other words, taxing the rich will NOT get us close to paying off the massive debt hole that the American political class has dug for us.
What happens next - city level:
At some point, the debt load will start to crush the ability of politicians and government to pay for it.
In fact, that process has already started, there are some “canaries in the coal mines” that are already choking for air at the local and state government levels.
At the local level, watch for Chicago or New York City to soon unseat the city of Detroit from being the largest American city to declare bankruptcy.
The Chicago mayor, Lori Lightfoot, has presided over a city that is now the murder captial of the country, has city bond ratings that are just the teeniest step away form being considered junk bonds, has large budget deficits and unfunded liabilities and recently had to plead with businesses not to leave the city, businesses that feared not only for their businesses but for the safety of their employees’ lives.
Residents and businesses leaving the city, reducing the tax base, the inability to get good interest rates on municipal bonds and rampant crime, Chicago is ripe for going bankrupt very, very shortly.
The situation is not much better in New York City, where some of the same issues, rising crime rates, the exiting of businesses from the city and a mayor who is clueless will give Chicago a strong race to the bankruptcy courts.
JP Morgan, a financial giant, now has more employees working in Texas than NYC, a situation that was once unthinkable.
Moving companies in NYC have been complaining for months that they cannot serve the demand for residents wanting to move out of the city.
As people leave New York and Chicago, the tax base shrinks, which likely means either cuts in city government services and cuts to retired city employees’ benefits and/or raising of taxes to serve the budget and debt needs of the city government, actions which will cause more people to leave and the financial death spiral is in full swing.
What happen next - state level
The same problems happening in Chicago and New York City have already started at the state level, especially in Illinois, California, New York and New Jersey.
All four of these states have huge budget shortfalls short term and even larger, unfunded liabilities debt long term.
These states have led the country in the number of people leaving those states vs. those moving to those states so that their tax base has been shrinking as residents and businesses move which required them to raise tax rates which caused more residents and businesses to leave which shrunk the tax base, and their death spiral has started.
In a recent United Van Lines study, Illinois, New York and New Jersey were the three states that had the worst ratios of United Van Lines moving people into those states divided by the number of people United Van Lines is moving out of those states.
For example, for every move into New Jersey, United Van Lines registered two moves out of New Jersey, not a good trend for the tax base.
In California, famous podcaster, Joe Rogan, moved his operation out of Los Angeles to Texas and immediately saved himself about $130 million in California state income taxes and he likely will not be the last millionaire to do the same, further reducing California’s tax base.
At least the New York governor, Andrew Cuomo, is starting to see the trends, having recently begged rich New Yorkers to return to the state (and bring their taxable assets with them) promising these ex-New Yorkers that he would have them over for a barbecue and drinks.
He also showed that he has no clue how to handle the New York debt balloon, publicly lamenting that he needs the Federal government, and taxpayers across the country, to bailout his budget hole.
As the tax base shrinks, the state budget deficits grow, and the unfunded liabilities get larger and larger, residents left behind in those states will see a huge reduction in government services (e.g. police force, firefighters, teachers, road crews, etc.), retired state workers will see their pensions and medical benefits slashed, and the political class probably continue to raise taxes.
Thus we have at least six coal mines where the canaries are dying a slow but steady financial death spiral: Chicago, New York City, Illinois, New York, New Jersey and California:
But what's next for the Federal Government:
The same early warning signals we see above will soon start to appear at the Federal government level.
The Medicare Part A trust fund will run out of money in about five years.
The Social Security trust fund will run out of money in about ten years with both of these programs already theoretically bankrupt in that they pay out far more than they take in in taxes.
But won’t the Washington politicians pass laws to make sure that these programs stay solvent?
But to do that they will have to raise taxes to pay for these programs, incurring more debt.
At some point, there is too much debt to be serviced by selling more debt which means that services will be cut, benefits will be cut, and other Federal government programs will get cut.
In an effort to save all of these programs, Washington will likely raise taxes, much like the local and state governments discussed above are doing, but raising and raising taxes will sap economic growth which will result in lower tax revenues despite higher tax rates.
At that point, as a past gasp, the Federal Reserve may be pressured to step in and start printing money as the debt balloon gets larger and larger, leading to hyperinflation and before you know it, we are Venezuela, a once rich prosperous country whose politicians drove it into bankruptcy and dictatorship.
Lower pension and Social Security payments, more expensive and lower quality Medicare programs, fewer and worse government services, and hyperinflation which eventually crushes not only the economy but our democracy. It happened in Weimar German and it happened Venezuela.
You see, there are only three ways to get rid of government debt: raise taxes, fund more debt, or print money. (I left off the obvious other way which is to strategically and smartly reduce government spending over time but Americans politicians have been shown incapable of doing that.)
And at some point you cannot raise taxes fast enough without snuffing out economic growth and activity which actually reduces your tax stream. At some point you cannot issue more debt because on one believes you have the ability to repay that debt, as the Chicago coal mine canary has learned, once you are almost junk rated bond wise, forget about borrowing more.
So if you are worried about anything but the government debt level in this country, relax. All of that is not going to matter in a short couple of years as the debt balloon pops and the chaos that we see already starting around the country envelopes the whole country: higher and higher taxes, lower pension payouts, lower Social Security Payouts, lower Medicare care, fewer and worse government services and eventually hyperinflation. Have a great day!
PS. It is my prediction that Chicago will beat New York City to bankruptcy court and that Illinois will be the first state to go bankrupt. Any other views?
Please visit the following sites for freedom:
http://www.reason.com
http://www.cato.org
http://www.bankruptingamerica.org
http://www.conventionofstates.com
http://www.youtube.com/watch?v=08j0sYUOb5w
No comments:
Post a Comment