Death by deficit by Tony Blankley

Today’s article of the day comes from the Washington Times:

The ancient Latin historian Livy famously described the terminal plight of the late Roman Republic. “Nec vitia nostra nec remedia pati possumus” (“We can bear neither our shortcomings nor the remedies for them”).

As I reread this phrase in Christian Meier’s biography of Julius Caesar this weekend, I couldn’t help thinking of America’s current fiscal profligacy – which has been growing for years at an ever-accelerating rate.

Of course, since last fall’s financial/economic crisis, the rate of profligacy has become supercharged. Like the Roman Republic’s lament, we think we can’t survive without deficit spending – but soon we won’t be able to survive with the deficit spending, either.

In 2012, federal debt will be higher than $15 trillion. Annual interest probably will be between $1 trillion and $1.7 trillion – depending on whether long bonds remain at about 3.5 percent or go to recent historic rates (6 percent to 7 percent). Deficits will average about $1 trillion a year: $22 trillion by 2019. Yearly interest payments then will be more than $2 trillion. That’s the good news.

That assumes the world continues to buy our Treasury notes at plausible rates. We had a slight foretaste of the future last week when 10-year U.S. Treasury bond yields shot up 60 basis points on soft demand and a Standard & Poor’s warning of a possible ratings downgrade of British bonds. The bond market may well rebel ultimately against our government’s excessive borrowing and spending (insufficiently supported by adequate national economic strength).

The “good news” of only $22 trillion in debt supported by purchasable bonds also assumes that our economy recovers this year and we then have continued steady economic growth. Of course, the more the government borrows, the less will be available for the private sector (the part of the economy that produces things). And the less available borrowing there is for investment and consumption in the economy, the slower the economy will grow – if it grows at all.

The not-so-good news on top of this astounding and growing indebtedness is that we will have to borrow even vastly more than the current budgets propose. Starting in 2017 (just eight years from now) the Medicare trust fund will be depleted. We will begin to experience a Medicare revenue shortfall that ultimately will total $35 trillion to $40 trillion over those next 60 years. Social Security’s depletion begins 20 years later and will have a shortfall of a little less than $10 trillion over the same period.

Oh, and the current budget projects that defense spending will decrease as a percentage of the federal budget. While the overall budget is slated to grow 75 percent over the next decade, defense is to grow just 17 percent. Only imminent and eternal peace would permit such low defense expenditures. The administration’s health plans also will add a currently unfunded $1.5 trillion per decade.

Not only does continued, increased government borrowing ever more sap our economy, but as the baby boomers retire, we will move from what recently were four workers to each retiree to two workers for each retiree. That means a weaker economy with fewer workers and more retirees will not produce enough to support all of government’s costs – even with massive and persistent tax increases.

And if, as seems possible, sometime in the next decade the world resists lending our government enough money (because our economy will be too small to produce enough to pay the ever-growing interest on the debt) – we finally will be forced to make choices of what to buy and what to forgo. Maybe only subsidized pain pills rather than medical treatment for old people? Just 50 percent Social Security payments? Default on federal debt payments? Or what the Chinese are already worried about – monetizing the debt leading to hyperinflation?

But the Roman Republic’s experience hints at an even more profound danger. The political tasks flowing from the growing demands of the republic’s empire were of a magnitude and type that could not be managed by its form of government. However, the Roman Republic was prepared neither to give up its growing empire nor to modify its government to deal with such challenges.

Similarly for the United States today, we are not prepared to forgo what all this soon-to-be unavailable deficit spending can buy us (health care, bank bailouts, defense spending, food stamps, etc.). Nor can our governments (and the publics who elect them) stop the spending.

Eventually for the Romans a contradiction arose between concern for the tasks that needed to be performed and concern for their form of government. The contradiction was resolved and the problems solved at the price of their republic: Came Gaius Julius Caesar.

Surely (presumably?) for the next decade, the United States will bungle onward with both our form of government and our deficit spending. But sometime soon after 2017, when Medicare’s trust fund begins its depletion (or earlier if the world stops buying our bonds) the shocking reality of being forced to do without borrowing will shape – and probably misshape – both our way of life and our form of governance.

Tony Blankley is the author of “American Grit: What It Will Take to Survive and Win in the 21st Century” and executive vice president for global affairs of the Edelman public relations firm in Washington.

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Published in: on June 3, 2009 at 6:04 pm  Leave a Comment  
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We Can’t Afford a ‘Public’ Health Plan by Lawrence Kudlow

Today’s article of the day is from RealClearPolitics:

Does anybody really believe that adding 50 million people to the public health-care rolls will not cost the government more money? About $1.5 trillion to $2 trillion more? At least. So let’s be serious when evaluating President Obama’s goal of universal health care, and the idea that it’s a cost-cutter. Can’t happen. Won’t happen. Costs are going to explode. Think of it: Can anyone name a federal program that ever cut costs for anything? Let’s not forget that the existing Medicare system is roughly $80 trillion in the hole. And does anybody believe Obama’s new “public” health-insurance plan isn’t really a bridge to single-payer government-run health care?

And does anyone think this plan won’t produce a government gatekeeper that will allocate health services and control prices and therefore crowd-out the private-insurance doctor-hospital system? Federal boards are going to decide what’s good for you and me. And what’s not good for you and me. These boards will drive a wedge between doctors and patients. The president, in his New York Times Magazine interview with David Leonhardt, said his elderly mother should not (in theory) have had a hip-replacement operation. Yes, Obama would have fought for that operation for his mother’s sake. But a federal board of so-called experts would have told the rest of us, “No way.” And then there’s the charade of all those private health providers visiting the White House and promising $2 trillion in savings. Utter nonsense. And even if you put aside the demerits of a government-run health system, Obama’s health-care “funding” plans are completely falling apart.

Not only will Obama’s health program cost at least twice as much as his $650 billion estimate, but his original plan to fund the program by auctioning off carbon-emissions warrants (through the misbegotten cap-and-trade system) has fallen through. In an attempt to buy off hundreds of energy, industrial and other companies, the White House is now going to give away those carbon-cap-emissions trading warrants. So all those revenues are out the window. Fictitious. Anyway, the cap-and-tax system won’t pass Congress. The science is wrong. The economics are root-canal austerity — Malthusian limits to growth. And there are too many oil and coal senators who will vote against it.

All of this is why the national-health-care debate is so outrageous. At some point we have to get serious about solving Medicare by limiting middle-class benefits and funding the program properly. There is no other way out. We can grow our way out of the Social Security deficit if we pursue pro-growth policies that maintain low tax and inflation rates. Prospects for that don’t look any too good right now, though it could be done. But government health care is nothing but a massive, unfunded, middle-class entitlement problem. (The poor are already in Medicaid.) Sen. Max Baucus, D-Mont., proposes to solve health care by limiting employer tax breaks. He’s on to something, but he’s only got half the story. (more…)

Published in: on May 14, 2009 at 6:53 pm  Leave a Comment  
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What we need is a government recession!

Often times when our economy goes into a recession, the media and policymakers get obsessed with spending. Here is their argument: spending causes more money to flow into businesses, which flows into employees, and employees are consumers. All along the way the money multiplies. We seem to discourage savings. Many Conservatives and others come to me and they say their reason for not supporting the government fiscal “stimulus” is because most people will save the money anyways.

What is wrong with saving? If we save our money most of the times that means we put it in the bank. The bank then takes that money and loans it out to a business owner. That business owner may then hire someone new, thus doing the same thing as consumer spending, except without the massive amounts of debt. During a recession savings increase and spending decreases and many people see this as a bad thing, but at the same time they complain about the debt each person has. This simply does not make sense.

What we truly need is a government recession! One where the government saves more and spends less. This way they too can also not run up large amounts of debt. If the government slows spending, that means they require less taxes. If they take less in taxes, then more people will have more of their own money to spend. This is not even mentioning the loss due to the collection and transfer itself.

Debt is nothing but a future tax. Since the future taxpayers cannot vote, we have decided that they are now the target for us to spread the cost to. You think we have a bad recession, wait until you see the one years from now when our children and their children have very high percentage income tax.

The government is acting like a bad teenager who cannot control his money. He goes up spends it on things he shouldn’t and charges up credit cards like there is no tomorrow. What America needs to do is to take that money away from little Barry and show him how the money should be spent (because after all it is YOUR money).  We call that the Free Market!

Reversing America’s Culture of Debt By Ken Blackwell

Today’s article of the day come from RealClearPolitics:

America was built on individual opportunity. This is the core of the economic conservative agenda. The family unit is the core building block of American society. This is the heart of the social conservative agenda.

There is a key overlap here that many conservatives–and even their leaders–overlook. Living within your means and managing your finances to avoid long-term debt is part of building strong families, providing for your children and teaching them to provide for themselves. I recently attended a lecture given by Charles Murray at the Annual Meeting of the American Enterprise Institute (AEI), in which he said that the only four human institutions characterized by deep personal satisfaction are family, community, vocation and faith. Mr. Murray argues that the goal of social policy is to ensure that these institutions are robust and vital.

Many people have heard of Adam Smith’s most famous book, The Wealth of Nations, which helped lay the foundation for free market systems and classical economics. Fewer people have heard of another of Adam Smith’s books, The Theory of Moral Sentiments. He argues that humans possess a moral sense that causes us to approve certain actions while condemning others. The grandfather of modern economics believed that a sense of morality was necessary for a society to flourish. Both economic and social conservatives need to grasp the common ground here. Strong families are essential to strong economies, and financial management is a key family value. Recently, America has been moving from a culture of ownership to a culture of debt. (more…)

The devalued Prime Minister of a devalued Government

This Video of the Day is from Daniel Hanna MEP:

~PCCapitalist

Baby Pay

Published in: on October 18, 2008 at 11:14 am  Leave a Comment  
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