What is particularly frightening is that neither political party has offered a serious plan to defuse the debt bomb. The Democrats are just piling up more debt as if there were no limit, and the Republicans, to date, are only proposing measures to reduce the increase, rather than reverse it. When the debt bomb explodes — within the next one to three years — expect to see record high real interest rates and/or inflation, coupled with a collapse of many "entitlements." It will be like the neutron bomb, the buildings will be left standing, but the people will not.
05 October 2009
Our Unsustainable Federal Spending
Democrats love to talk about sustainable energy policy, sustainable agriculture, sustainable environmental policies, sustainable cities, and sustainable housing. But, they never give a fig about sustainable government, sustainable public sector spending, sustainable health care, and sustainable deficits. Indeed, they almost seem to court governmental catastrophes as just an excuse for more government and a still bigger catastrophe.
Richard W. Rahn wrote an article in the Washington Times on 22 September about the growing problem of sustainability in the federal government. He notes that the Congressional Budget Office (CBO) has estimated the additional federal debt grew by $4 trillion for the 2010-19 period in the last 8 months. In the same 8 months, the amount of taxpayer debt grew from $5.9 to $7.5 trillion.
The taxpayers now own or insure about 80% of the $14.6 trillion of home mortgages outstanding debt in the United States. This was not enough for the Democrat Congress, so it passed a bill outlawing bank student loans and requiring that all student loans be from the federal government. Social Security, Medicare, Medicaid, and other entitlement programs are growing faster than the economy. They will take more than 100% of federal tax revenues this year. All other federal spending, including defense and interest payments on our debt, will be funded by government borrowing.
There is no way to tax ourselves out of this dilemma, especially not by only taxing the rich. The only thing that can happen is that the entitlement programs will have to be cut back. The growing Medicare, Medicaid, and Social Security entitlements will have to be cut. In other words, rationed retirement and health care are coming.
Planned increased taxes and anti-trade policies such as the tariff on Chinese tires and the failure of Congress to approve the trade treaties with South Korea, Colombia, and Panama will make it harder to grow the economy to produce more tax revenues for the federal government. The Chinese, who have bought a large part of our debt, are looking to diversify their investments. We are driving other debt buyers away also, so we will have to offer higher interest rates to attract more bond and debt buyers. This will make business investment less attractive, further retarding growth of the economy.
So much for the Democrat commitment to sustainability.