[...]
This week, the federal government published two important reports on
long-term budgetary trends. They both show that we are on an
unsustainable path that will almost certainly result in massively
higher taxes. By 2016 we will have to fund Social Security out of
general revenues, as the surplus we now have will be gone. And there
are no trust funds. They are a myth. It as if I wrote myself a check
for $2 trillion and then declared I was worth $2 trillion. The money
is just not there. Social Security makes Bernie Madoff look like a
small-time crook.
And Medicare is in far worse shape. For those with the stomach, you
can read Bruce Bartlett's analysis at
http://www.forbes.com/2009/05/14/tax...-medicare.html.
He estimates that taxes will have to go up by 81% if we are to pay the
obligations as they now stand.
Now that is unsustainable. It won't happen. And as the saying goes, if
something is unsustainable, at some point it will stop. No getting
around it. Long before we get there, change you will not like will be
forced on the US.
The following headline caught my eye: "Obama Says US Long-Term Debt
Load is 'Unsustainable.'" Yet they announced a $1.8 trillion deficit,
which is really going to be at least $2 trillion, and are getting
ready to pass health-care programs that will mean at least a trillion
in deficits for as long as one can project.
How will they pay for it? Even getting rid of the Bush tax cuts will
only produce a few hundred billion a year, which is nowhere near
enough. They project much lower medical costs in the future, because
THEY ASSUME they are going to figure out ways to cut costs and make
medical care more efficient. As if no one has ever tried that. [Indeed
- LOL!]
Yes, there are some savings on the margin; but the only way you really
cut costs is to ration health care [Liberal Fascists will decide who
lives and who dies - HEIL HITLER!], especially health care in the last
year of life, which is about 30% of health-care expenses. That is
going to be very tough in the US. But when faced with a real budget
crisis, the choices are going to be stark. And that crisis is coming
if we do not control spending.
You cannot propose massive increases in spending without either
creating crushing debt that the markets will simply not allow, pushing
interest rates much higher and really slowing growth and hurting the
economy. It is a simple fact that you cannot increase the debt-to-GDP
ratio without limit. [D'oh!]
We found the limit on personal and corporate debt this past year. We
pushed the limits until the system crashed. And now the US government
wants to basically do the same thing. They are planning to see where
the limits on government debt-to-GDP will be. Unless cooler and more
rational heads in the Democratic Party prevail, this is not going to
be pretty. Sometime in the middle of the next decade we will hit the
wall, and it will make the current crisis pale in comparison.
THE ONLY WAY TO SOLVE THE PROBLEM IS TO GROW GDP MORE RAPIDLY THAN
DEBT, and for that to happen you have to have policies which are
shaped for the growth of the economy or massive savings by consumers.
And right now we have neither. Cap and trade is hugely anti-growth. So
are high corporate taxes, and Obama is proposing to effectively raise
corporate taxes by closing loopholes for income earned outside the US.
Much better would be to lower the overall corporate level to a
competitive world rate and then require the offshore income to be
taxed. A lower rate would actually increase tax revenues.
Looming PROTECTIONISM worldwide IS A PROBLEM. (See the article at
http://www.msnbc.msn.com/id/30758018.) Towns in Ontario, Canada with a
population totalling 500,000 have effectively barred US contractors
from doing business with them, in retaliation for job losses stemming
from US protectionism in the stimulus plan. That movement is
spreading. A US steel mill with 600 union jobs will have to close down
because its owners are not US-based, and thus it is not technically a
US supplier. They are losing jobs to US-owned mills -- but those are
US jobs. The insanity goes on and on. As I have written for many
years, the one thing that really gets me worried is protectionism.
That can make this very significant recession into a depression
quicker than you can imagine. Bad ideas have bad consequences.
All in all, we face some very difficult decisions, not just in the US
but all over the developed world. Ironically, the less developed
nations will have fewer problems and on a relative basis will likely
grow much faster than the developed world. But, multi-trillion-dollar
deficits and massive new programs are not the right answer.
[...]
__________________________________________________ ____________________________
John Mauldin, Best-Selling author and recognized financial expert, is
also editor of the free Thoughts From the Frontline that goes to over
1 million readers each week. For more information on John or his FREE
weekly economic letter go to:
http://www.frontlinethoughts.com/learnmore
__________________________________________________ ____________________________
Y'all better start making lots and lots of babies to support your old
age. Or else face the extinction of yourself, your language, culture
and Freedoms, like in Europe, to baby making machines like Islam-0-
Fascists and Mexicans. Soon your children will be facing devastating
wars like humanity has never seen before or complete surrender into
slavery.