Running On Empty (October 1, 2005)
The nation is racing off a financial cliff with no bottom. But don't take my word for it--read this detailed account by a Republican who served as Commerce secretary for President Nixon. You might think a rock-ribbed Republican would rise to the defense of Presidents Reagan, Bush and Bush II. He does not; rather, he excoriates them all--along with all the Democratic presidents, too--for being fiscally reckless, borrowing vast sums of money to bribe constituencies today and saddling future generations with the tab plus interest.
Running On Empty: How The Democratic and Republican Parties Are Bankrupting Our Future and What Americans Can Do About It
The author makes it clear it wasn't always like this; the Founding Fathers and plenty of subsequent leaders were rock-solid on the dangers of accumulating enormous public debt. Yet now we have Vice President Dick Cheney stating that "Reagan proved deficits don't matter." Read this book and then try to agree with Mr. Cheney. You can't.
How much will the Federal government have to come up with, via taxes or borrowing or both, to pay for the retirement benefits and Medicare for the 77 million Baby Boomers who start retiring in 2008? Try $27 trillion--or $43 trillion. The numbers vary depending on who's doing the estimating, but the bottom line is obvious--the sum is more money than the nation could ever hope to raise. The entire Federal government consumes about $1.4 trillion annually at the moment, of which $400 billion is borrowed from the Chinese and Japanese central banks (and a few other foreign central banks).
Do you have any idea how much interest we collectively pay on the $8 trillion in Federal debt we already have? $335 billion, and it goes up every year. Check the official U.S. Treasury website and see for yourself. And since we're borrowing $400 billion more every year, we're insuring that the interest expense will go up every year. And this is with interest rates at their lowest level in a generation. If that doesn't frighten you, you're in absolute denial. We are paying almost as much in interest as we are for the entire U.S. Military, and if interest rates shoot up--well, then the interest expense will be greater than the cost of the Armed Forces. That's an astonishingly large and permanent burden on future taxpayers.
The author forces you to accept these numbers, for everyone who's ever looked at it, from the GAO to blue-ribbon panels from both parties, reaches the same conclusions. Certainly the current generation of retirees is the greediest on record, happily scarfing up huge benefits of which they paid only a fraction of the cost during their working years; so as I have noted here before, Boomers: Prepare to Fall on Your Swords, the Baby Boomers will have to accept benefits much more constrained than those their freeloading parents raked in. (Estimates suggest cutting benefits by half might just save the system from complete collapse--if we raise taxes enough to eliminate the deficit immediately.)
But as the author notes, the Republicans are in the grip of a theology of tax cuts, and they really don't care about deficits because fiscal reality is not part of their religion. The Democrats, meanwhile, have never seen a social entitlement program they didn't want to increase, even if 80% of the recipients are doing just fine without the government handout (for instance, the new Medicare drug plan give-away).
The road to ruin is paved with profligate public borrowing and entitlement spending without limits. Reality has a way of interceding on fantasy, so mark the years 2006-2015 as the decade the chickens come home to roost. The best we can hope for now is a quick collapse of the dollar and an end to foreign financing of our mad borrowing. As long as the Asian central banks continue to pour the drinks, then the debt addicts currently leading our nation will happily slosh another $400 billion or $500 billion a year onto future generatiions.
But read the book and come to your own conclusions.
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copyright © 2005 Charles Hugh Smith. All rights reserved in all media.
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