We need only consider two items:
1) Tax payers will be paying around $600 billion in interest on the national debt by 2012, and that amount will overtake the annual Defense Dept. budget some time between then and 2020. This is money which is not only not economically productive, but which acts as a drag on our economy. It does enrich those who hold those bonds, though. Whether we fight wars on terror or wars on poverty, the same people benefit by lending us that money. Our loss is their gain, and thus represents a de facto transfer of power as well. Who those people are is irrelevant, but some are certainly the Chinese and the Saudis.
2) We have some $200 trillion in unfunded Social Security liabilities, and will within the next twenty years or so owe an amount every year equal to our Gross Domestic Product in Social Security, Medicare and Medicaid benefits. Self evidently, this means that the status quo cannot be maintained through increased taxation, since we cannot take the entire economic output of the nation to fund entitlements. Further, to the extent we try to do so, we obviously shrink that output.
This confuses some people, so I will make this simple. Social Security is and always has been an intergenerational wealth transfer program. The first Social Security recipient–Ida May Fuller–paid in $24.75, and received $22,888.92 in benefits. It’s not a program which takes from the rich and gives to the poor–although that element is there in part as well. It is a program in which the grandchildren pay for their grandparents benefits. If the number of grandchildren are equal to the number of grandparents, the math can work. Demographically, though, there were a LOT of babies born after WW2–the Baby Boomers–and that number dropped off subsequently, such that if what we would have paid was $1, now we have to pay $1.50.
To this must be added the frequent increases in benefits, so called “cost of living” increases. Prior to the Boomers hitting, these could more or less be managed by increasing the payroll taxes. Social Security only went into net negative cash flow this year. But every increase in benefits has meant an increase in the relative burden on those paying it, since those putting in to it could not have paid that money.
To be clear, in theory–which is to say according to the deceptive arguments used to convince a skeptical Congress–Social Security was just Uncle Sam making sure you provided for your own retirement. The funds would go to a special place, and nobody would touch them. Yet, the program takes some 62,000 people to administer, and they have to be paid. How are they paid? Payroll taxes. If you ponder this for a moment, you realize that if they did nothing but take your cash and pile it up, you would still lose, since they would have to deduct their overhead. Not only can you not earn interest, but you LOSE in the bargain, necessarily and unavoidably, and to this must be added the loss of the value of money as a result of inflation.
How is this fact masked? Unfunded cost of living increases, which is to say increasing the tax burden on each succeeding generation.
Broken down, here is the situation, then. We can project with a reasonably high degree of accuracy how much money will be taken in in payroll taxes in, say, 2025, and how many people will be receiving benefits, and how much those benefits will cost. We are, today, taking in less than we pay out. This amount will steadily increase, year after year. The deficit will be $50 billion, then $100, then $500 , then a trillion, then 2 trillion, and max out at about $4 trillion annually. We will pay out $4 trillion more than we take in, for a number of years. Then that amount will slowly decrease, as the Boomers pass on, and we will again reach a balance of payments some time 20-30-40 (the exact number doesn’t matter) years from now.
It does not take a great deal of intelligence to realize this situation, particularly added to our budget deficit and following debt and interest payments from all other causes (Obamacare, wars, pet projects, etc), will result in our destruction as a nation. The American Experiment will have failed, due to fiscal profligacy and profound, stupefying irresponsibility.
In my own view, it is much too late to simply cut the budget or raise taxes. We owe $13 trillion already, and that amount is increasing quickly. History is rich with nations inflating their way out of debt, but relatively poor with examples of nations paying off bills like this honestly. They normally just fail, and in effect become the vassals of another nation.
Consider the example of Weimar Germany. Most of us have seen pictures or films of the wheelbarrows full of money, but not realized how they came about. Money does not grow on trees. Money is printed by people with the power to do so. It costs them next to nothing to make, but it acquires worth the moment they spend it. The money that filled those wheelbarrows was printed by the German government as a means of paying off war debts. It was economically ruinous to the ordinary citizens of Germany, but it was hugely beneficial to the German government, and to large industrial concerns with debts. They inflated until they were done paying the war reparations, then they simply revalued the Mark, and went about their business. This was not precisely the plan–I don’t think there was a plan–but that is how it worked out. It was the global Depression which brought about Hitler, not the hyperinflation.
We can, and in my view should, do something like this, but openly and quickly, and in a way which benefits everyone. We further need to rectify the problems with our financial system. My proposal for how to do this is contained HERE.
A key component of this proposal that many people miss is that I have redefined what Capitalism is. This is not a small issue. People really need to ponder this, and grasp this, since in its own way this is as original a critique as those offered by Marx and Adam Smith; assuming my logic is sound, of course. I’m seeking critics and if you qualify, please comment.
Assuming my logic is sound, the beauty of this proposal is that it could also be used to pay off the debts of all developing nations, which have been lassoed by global financial interests. Developing the mechanics of that process here would take me too far off track, though. The net is simply that if you can write checks in any amount, you can pay any debt, and if the entity holding that debt disappears–as in my plan–so too does the debt.
Net, net: This is what a useful, peaceful revolution looks like. This would be Hope and Change.
If this makes sense to you–if this is information you think should be available to other Americans as they assess the plans of various political candidates–then please pass this link along to as many people as you can. Thank you!!!