For decades now, we have been told that our children and grandchildren will bear the burden of our massive national debt. Thus far, nothing has been done to tackle the issue, while it has been manageable. Now, we are the generation that was spoken of- the ones that will suffer the injustice of the debt. It is our responsibility- though unfair- to do what those before us refused. We cannot push it off to the next generation yet again. Instead of denying the truth until it is too late, we should acknowledge it and address it.
The United States Federal Government has been in the hole continuously since 1837, but it was not until after World War Two that it ballooned out of control. Both the current magnitude or our debt as well as the projected rate of increase is cause for serious concern. As of April 2010 the national debt stood at $12.8 trillion, and was projected to hit $14 trillion within one year. Off balance sheet liabilities are much larger- the combined unfunded liabilities for Social Security, Medicare, and Medicaid were $108 trillion. Guaranteed Fannie Mae and Freddie Mac liabilities could be from $3-5 trillion. There are possibly other debts the public has not been told about as well- but let’s assume this is all. That is well over $120 trillion, a figure too large to comprehend- it would take over two and a half Billion years for the average working man to pay off. The next few years in Washington will seal the fate of the US dollar and potentially redefine America.
On paper, it might not be too late yet to reverse course, but there is reason to worry that it is- in real life. Indeed, if there was to be the willpower and political courage to take action, it should have been expressed when the problem was smaller. The longer action is delayed the harder it will be to act. Let us suspend political reality and consider what would be necessary to get our house in order while we still can:
Massive spending cuts across the board would be mandatory- in both welfare and warfare spending. There is no room for debate- both liberals and conservatives would have to unclench their hands from their most treasured and beloved accomplishments. Far too long we have compromised and increased welfare and warfare spending- now it is time to compromise by shrinking both.
Starting with welfare: Social Security , Medicare, Medicaid, and smaller programs would have to be phased out. It is still possible to pay off most of the Social Security benefits, if the retirement age is raised from 65 to at least 68 if not 70. Only if healthcare costs fall significantly is there any hope of fulfilling the promises we have made with Medicare and Medicaid. A free market in healthcare would need to be restored immediately, despite the protests of the medical establishment which has protected itself from competition with government intervention. Medicare and Medicaid would need to be modified in some way to give vouchers to recipients of the welfare so they could participate in the market and have an incentive to drive down costs.
Corporate welfare- including bailouts, subsidies, regulations, etc.- would need to be cut to zero, and never allowed to rear its head again.
On to warfare spending: The United States has over 700 bases worldwide; most of them would need to be closed. As for the wars in Iraq and Afghanistan, declare victory and leave. What is primarily left in these two countries is costly nation building. We could not stick around and force them to set up a democracy. The Pentagon would be directed to focus its energy on defending our soil, and maintain a strong defense for only one purpose: to protect the United States of America from foreign attack.
Additionally, foreign aid would need to be cut. Any transfer of wealth to other nations would need to be done by individuals voluntarily giving their own money.
Stepping back into political reality, I can imagine only a fraction of readers are nodding their head in agreement with the above. “But we have got to help the poor- we can’t leave them in the streets!” “The world is too dangerous for America to be isolationist!” This is the very thinking that keeps us electing spendthrifts in Washington. Santa Claus is always more popular in elections. Unfortunately, the Santa(s) that run in every election steals toys from one child to give to another. The government has no money, it must first confiscate what it spends from someone else. Bluntly, you have no choice, if you want to reign in the debt and regain our financial footing- scale back federal government to the strictly limited role that is laid out in the Constitution. Individual states that are financially stable can pick up some of the roles the federal government plays now, if the people so choose.
There has been no empire in history that has reached our scale, and exercised the necessary discipline to maintain their might. There is no reason to believe that we are going to change that, sadly. The most productive way to exert our efforts is in educating the people to provide for themselves- not in funding the next political Santa Claus. While there are people running for office that understand the gravity of our situation, are trying to do something about it, they are greatly outnumbered.
The more likely outcome of our financial situation is that Washington will continue to increase spending. As they have trouble selling more and more treasuries to wary foreigners who expect to be repaid, tax hikes will increase and Ben “Helicopter” Bernanke will be pressured into monetizing the debt by purchasing treasuries- being the lender of last resort for the US government. But Bernanke has no money either- he simply has the ability to dilute the wealth of dollar holders and give the difference to Washington- which is nothing but a hidden tax. Any significant inflation will prompt dollar holders to demand extremely high interest rates, or they will dump their dollars in favor of more stable currencies. Either spells disaster for America.
Inflating is a subtle, indirect way of defaulting. Paying back worthless dollars is no different than a direct default, where we would refuse to pay back 100 cents on the dollar. The latter option is more honest and would be the choice of a sane Washington. In the next decade, and possibly before the next Presidential election, we will find out which route we are taking.
Faced with such a crisis, we are inclined to think it is simply impossible and deny it- after all the mainstream mantra tells us everything will be fine. But the same experts that are endlessly repeating such propaganda are also the same ones that failed to even see a housing bubble, or the effect it would have on the broader economy. Do they really have enough credibility to tell what lies ahead for us now?
