home

Get It While You Can?

I was never one to buy into the whole "me generation" myth of a vast majority of hundreds of millions of people living their lives on the basis of an 'I got mine - screw everyone else' mentality - but it seems that that has been truly the case for too many years among the real leaders of America and the western world - the financial policy makers and corporations and the military industrial complex - and that they have been doing exactly that for so many years now that the problems they have created for the entire population and for the world may now, finally, be insurmountable.

I can see no way out of the situation they have placed all of us in.

I do know that sailing merrily along with my head buried in the sand refusing to look at or acknowledge an onrushing disaster short of and contributing to catastrophic climate collapse that would dwarf anything the world has ever seen would be the most delusional in denial way I can think of to live my life.

I do not have the skills, education, experience, ideas, or the brains to figure out even the least of ways to approach much less deal with the problem, but I have never been one to throw my hands up, roll over and give up, and live in a fantasy that everything will somehow be alright and the problem will just evaporate if I pretend it is not there.

One of the legacies of six years of the George W. Bush Administration is that America has gone "From $20 trillion in fiscal exposures in 2000 to over $50 trillion in only six years? What shall we do for an encore... shoot for $100 trillion?"

Typing this I feel like Alice talking with the Cheshire Cat:

"But I don't want to go among mad people" Alice remarked.

"Oh, you can't help that" said the Cat: "We're all mad here. I'm mad.  You're mad."

"How do you know I'm mad?" said Alice.

"You must be" said the Cat, "or you wouldn't have come here."

Since at this point I don't know what else to say about the subject and the problem I refer to - I wonder If we have finally truly arrived at a 'Get It While You Can' stage of western civilization.

I really hope there are people out there smart enough, skilled enough, and dedicated enough to do something about this.

The rest of this diary is a cross posting of an article from December 19, 2006 by Dr. Chris Martenson and posted on AxixOfLogic December 26.

Martenson is an economist, holds an MBA from Cornell and PhD from Duke, and is the author of the website and blog titled "The End Of Money".

-----------------------------------------------

The United States is Insolvent
© Dr. Chris Martenson

Prepare to be shocked.

The US is insolvent. There is simply no way for our national bills to be paid under current levels of taxation and promised benefits. Our combined federal deficits now total more than 400% of GDP.

That is the conclusion of a recent Treasury/OMB report entitled Financial Report of the United States Government that was quietly slipped out on a Friday (12/15/06), deep in the holiday season, with little fanfare. Sometimes I wonder why the Treasury Department doesn't just pay somebody to come in at 4:30 am Christmas morning to release the report. Additionally, I've yet to read a single account of this report in any of the major news media outlets but that is another matter.

But, hey, I understand. A report is this bad requires all the muffling it can get.

In his accompanying statement to the report, David Walker, Comptroller of the US, warmed up his audience by stating that the GAO had found so many significant material deficiencies in the government's accounting systems that the GAO was "unable to express an opinion" on the financial statements. Ha ha! He really knows how to play an audience!

In accounting parlance, that's the same as telling your spouse "Our checkbook is such an out of control mess I can't tell if we're broke or rich!" The next time you have an unexplained rash of checking withdrawals from that fishing trip with your buddies, just tell her that you are "unable to express an opinion" and see how that flies. Let us know how it goes!

Then Walker went on to deliver the really bad news:

Despite improvement in both the fiscal year 2006 reported net operating cost and the cash-based budget deficit, the U.S. government's total reported liabilities, net social insurance commitments, and other fiscal exposures continue to grow and now total approximately $50 trillion, representing approximately four times the Nation's total output (GDP) in fiscal year 2006, up from about $20 trillion, or two times GDP in fiscal year 2000.

As this long-term fiscal imbalance continues to grow, the retirement of the "baby boom" generation is closer to becoming a reality with the first wave of boomers eligible for early retirement under Social Security in 2008.

Given these and other factors, it seems clear that the nation's current fiscal path is unsustainable and that tough choices by the President and the Congress are necessary in order to address the nation's large and growing long-term fiscal imbalance.

Wow! I know David Walker's been vocal lately about his concern over our economic future but it seems almost impossible to ignore the implications of his statements above. From $20 trillion in fiscal exposures in 2000 to over $50 trillion in only six years? What shall we do for an encore...shoot for $100 trillion?

And how about the fact that boomers begin retiring in 2008...that always seemed to be waaaay out in the future. However, beginning January 1st we can start referring to 2008 as `next year' instead of `some point in the future too distant to get concerned about now'. Our economic problems need to be classified as growing, imminent, and unsustainable.

And let me clarify something. The $53 trillion shortfall is expressed as a `net present value'. That means that in order to make the shortfall disappear we'd have to have that amount of cash in the bank - today - earning interest (the GAO uses 5.7% & 5.8% as the assumed long-term rate of return). I'll say it again - $53 trillion, in the bank, today. Heck, I don't even know how much a trillion is let alone fifty-three of `em.

And next year we'd have to put even more into this mythical interest bearing account simply because we didn't collect any interest on money we didn't put in the bank account this year. For the record, 5.7% on $53 trillion is a bit more than $3 trillion dollars so you can see how the math is working against us here. This means the deficit will swell by at least another $3 trillion plus whatever other shortfalls the government can rack up in the meantime. So call it another $4 trillion as an early guess for next year.

Given how studiously our nation is avoiding this topic both in the major media outlets and during our last election cycle, I sometimes feel as if I live in a small mountain town that has decided to ignore an avalanche that has already let loose above in favor of holding the annual kindergarten ski sale.

The Treasury department soft-pedaled the whole unsustainable gigantic deficit thingy in last year's report but they have taken a quite different approach this year. From page 10 of the report:

The net social insurance responsibilities scheduled benefits in excess of estimated revenues) indicate that those programs are on an unsustainable fiscal path and difficult choices will be necessary in order to address their large and growing long-term fiscal imbalance.

Delay is costly and choices will be more difficult as the retirement of the `baby boom' gets closer to becoming a reality with the first wave of boomers eligible for retirement under Social Security in 2008.

I don't know how that could be any clearer. The US Treasury department has issued a public report warning that we are on an unsustainable path and that we face difficult choices that will only become more costly the longer we delay.

Perhaps the reason US bonds and the dollar have held up so well is that we are far from alone in our predicament. In a recent article detailing why the UK Pound Sterling may fall, we read this dreadful evidence:

Officially, [UK] public sector net debt stands at £486.7bn. That's equal to US$953.9bn and represents a little under 38% of annual GDP. Add the state's "off balance sheet" debt, however - including its pension promises to state-paid employees - and the total shoots nearly three times higher. Research by the Centre for Policy Studies in London says it would put UK government deficits at a staggering 103% of GDP.

If we perform the same calculations for the US, however, we find that the official debt stands at $8.507 trillion or 65% of (nominal) GDP but when we add in our "off balance sheet" items the national debt stands at $53 trillion or 403% of GDP.

Now that's horrifying. Staggering. Whatever you wish to call it. More than four hundred percent of GDP. And that's just at the federal level. We could easily make this story a bit more ominous by including state, municipal and corporate shortfalls. But let's not do that.

Here's what the federal shortfall means in the simplest terms.

1) There is no way to `grow out of this problem'. What really jumps out is that the US financial position has deteriorated by over $22 trillion in only 4 years and $4.5 trillion in the last 12 months (see table below, from page 10 of the report). The problem did not `get better' as a result of the excellent economic growth over the past 3 years but rather got worse and is apparently accelerating to the downside.

US net SS positions (image: table)

Any economic weakness will only exacerbate the problem. You should be aware that the budgetary assumptions of the US government are for greater than 5% nominal GDP growth through at least 2011. In other words, because no economic weakness is included in any of the deficit projections presented, $53 trillion could be on the low side. Further, none of the long-term costs associated with the Iraq and Afghanistan wars are factored in any of the numbers presented (thought to be upwards of $2 trillion more).

2) The future will be defined by lowered standards of living. As Lawrence Kotlikoff pointed out in his paper titled "Is the US Bankrupt?" posted to the St. Louis Federal Reserve website, the insolvency of the US will minimally require some combination of lowered entitlement payouts and higher taxes. Both of those represent less money in the taxpayer's pockets and, last time I checked, less money meant a lower standard of living.

3) Every government facing this position has opted to "print its way out of trouble". That's an historical fact and our country shows no indications, unfortunately, of possessing the unique brand of political courage required to take a different route. In the simplest terms this means you & I will face a future of uncomfortably high inflation, possibly hyperinflation if the US dollar loses its reserve currency status somewhere along the way.

Of course, it is impossible to print our way out of this particular pickle because printing money is inflationary and therefore a `hidden tax' on everyone. Consider, what's the difference between having half of your money directly taken (taxed) by the government and having half of its value disappear due to inflation? Nothing. Except that the former is political suicide while the latter is conveniently never discussed by the US financial mainstream press (for some reason) and therefore goes undetected by a majority of people as the thoroughly predictable outcome of deficit spending. All printing can realistically accomplish is the preservation of some DC jobs and the decimation of the middle and lower classes.

In summary, I am wondering how long we can pretend this problem does not exist. How long can we continue to buy stocks and flip houses, forget to save, pile up debt, import Chinese made goods, and export debt? Are these useful activities to perform while there's an economic avalanche bearing down upon us?

Unfortunately, I am not smart enough to know the answer. I only know that hoping a significant and mounting problem will go away is not a winning strategy.

I know that we, as a nation, owe it to ourselves to have the hard conversation about our financial future sooner rather than later. And I suspect that conversation will have to begin right here, between you and me because I cannot detect even the faintest glimmer that our current crop of leaders can distinguish between urgent and expedient.

What we need is a good, old-fashioned grassroots campaign.

In the meantime, I simply do not know of any way to fully protect oneself against the economic ravages resulting from poorly managed monetary and fiscal institutions. For what it's worth, I am heavily invested in gold and silver and will remain that way until the aforementioned institutions choose to confront "what is" rather than "what's expedient". This could be a very long-term investment.

Are you shocked?

< In the Long Shadow of 9/11 | Let the oversight begin. >
  • The Online Magazine with Liberal coverage of crime-related political and injustice news

  • Contribute To TalkLeft


  • Display: Sort:
    Moral anarchy (5.00 / 1) (#2)
    by aw on Tue Jan 02, 2007 at 09:02:54 AM EST
    What is finally at the root of these reactionary forces that have so disturbed the social fabric and threatened to undo the republic? If a $4 billion dollar investment in chattel labor was worth the price of civil war and 600,000 dead in 1860, is it really any wonder that the richest Americans would not suffer for too long a political consensus that pushed their share of national income down by a third, and held it there--about at the level of their counterparts in "socialist" Europe--for a generation? Make no mistake about it, from the days of the American Liberty League in 1936 (the group Franklin Roosevelt had in mind with his crowd-pleasing battle cry, "I welcome their hatred!") they never gave up on returning to their former glory. They just failed to do it. Ordinary people had powerful institutions and laws on their side that thwarted them--unions, churches, and, yes, government programs that were ratified by large majorities decade after decade.

    The scale of the disorder in our national priorities right now is truly staggering; it approaches a moral anarchy the Right would defend as the natural order. Alexander Hamilton, the conservative genius of the financial class, warned this could happen. Speaking to the New York State legislature in 1788, he said:

    As riches increase and accumulate in few hands; as luxury prevails in society; virtue will be in a greater degree considered as only a graceful appendage of wealth, and the tendency of things will be to depart from the republican standard. This is the real disposition of human nature: It is what, neither the honorable member nor myself can correct. It is common misfortune, that awaits our state constitution, as well as others.

    Conservatives who revere the founding fathers tend to stress the last point--that there is nothing to be done about this "common misfortune."  It is up to the rest of us, who see the founding fathers not as gods issuing edicts but as inspired although flawed human beings--the hand that scribbled "All men are created equal" also stroked the breast and thighs of a slave woman considered to be his property--to take on "the tendency of things " and to hold our country to its highest, and most humane, ideals.

    As stewards of democracy, we, too, have a covenant--with one another.


    A Parable for Our Times

    RE: have a covenant--with one another. (none / 0) (#3)
    by Edger on Tue Jan 02, 2007 at 09:31:28 AM EST
    The Treasury Dept. is quoted in Martensons article saysing:
    Delay is costly and choices will be more difficult as the retirement of the `baby boom' gets closer to becoming a reality with the first wave of boomers eligible for retirement under Social Security in 2008.

    2008 used to be "in the future". Not anymore.

    It's next year.............

    Parent

    Ummm.... (none / 0) (#1)
    by Edger on Mon Jan 01, 2007 at 11:56:56 AM EST
    Anybody have any spare change?

    The Japanese, and now to a larger extent,... (none / 0) (#4)
    by Bill Arnett on Wed Jan 03, 2007 at 04:27:39 PM EST
    ...the Communist Chinese are the masters of our fate and the captains of our destruction, and while we engage in the futility of warring for oil they circle the globe purchasing every oil contract in sight and making deals with people whom the bush maladministration decrees that we cannot have even a diplomatic relationship.

    The senseless oil war and reckless spending of the republican government will result in America paying the very highest of premiums for the oil we seek - human lives by the thousands and the abject surrender of our moral authority.

    When our bankers decide they have had enough and pull the financial rug out from beneath us, there will be nothing humorous about America's "pratfall" from grace.

    That time is coming, sooner rather than later I fear, but all you hear from the bush gang is how well the economy is doing, while all along they know of the awaiting disaster we face AND DO NOTHING ABOUT IT.

    The biggest job facing the democratically controlled congress and people like David Walker, U.S. Comptroller General, is to disabuse Americans of the notion that America is still the premier leader and money-making entity on earth and force people to own up to the reality of how badly republicans have betrayed this country and warn of our impending collapse while bush cheer-leads America into obscurity.

    Great diary, Edger, I'm thinkin' maybe I'll do one of these myself someday soon (this is actually the first diary I have read!).

    I wonder if this... (none / 0) (#5)
    by Edger on Wed Jan 03, 2007 at 04:42:19 PM EST
    ...When our bankers decide they have had enough and pull the financial rug out from beneath us, there will be nothing humorous about America's "pratfall" from grace.

    ...is when they (bushco or successors) launch, to create their own rapture?

    Parent

    They are indeed scary people. (none / 0) (#6)
    by Bill Arnett on Thu Jan 04, 2007 at 01:52:19 PM EST
    Well (none / 0) (#7)
    by Edger on Thu Jan 04, 2007 at 02:04:22 PM EST
    If they attack Iran (maybe, likely(?), justified with a faked attack by Iran on one of the US ships in the Gulf or the Indian ocean) their rapture might not be far off. Unfortunately we share a planet with them...

    Parent
    The good news: there really isn't any. (none / 0) (#8)
    by aw on Mon Jan 15, 2007 at 01:32:45 PM EST
    The world economy is under growing threat from risks such as climate change, terrorism, pandemics and oil prices because of inadequate action by governments and business, a network of experts said on Wednesday. A report by the World Economic Forum, the reinsurer Swiss Re, Citigroup bank and US broker Marsh and McLennan warned of "a fundamental disconnect between risk and mitigation". It said levels of risk were rising in almost all of the 23 categories on which the network had focused over the last year.

    ...
    It said climate change and associated severe storms, water shortages or rising sea levels would have an impact "far beyond the environment".

    While effective measures to mitigate global warming could also improve resilience to oil price shocks by diversifying energy supply, the report said, ineffective steps "will almost certainly be a factor in major interstate and civl wars within the next 50 years".

    There's more--all depressing.

    It just gets better and better doesn't it? (none / 0) (#9)
    by Edger on Mon Jan 15, 2007 at 01:48:11 PM EST
    That looks like an interesting article ;-/

    Do you have a link for it, aw?

    Parent

    So sorry, Edger (5.00 / 1) (#10)
    by aw on Mon Jan 15, 2007 at 02:58:32 PM EST
    I forgot it.

    link

    Parent

    Thanks, aw. (none / 0) (#11)
    by Edger on Mon Jan 15, 2007 at 03:06:44 PM EST
    Maybe that is what it's going to take to really get some momentum dealing with global warming.

    People tend to sit up and take notice pretty quickly when they feel their wallet being lifted - even asleep people...

    Parent