This response is from a regular reader sent directly to me. I blocked out his name only because I don’t know whether he wants it to be revealed. I am in complete agreement with what he says. It is precisely this reason that I believe the situation is hopeless.
As I have said on other occasions, the situation might be resolvable with a hard-nosed turnaround specialist in charge. Even here, the emphasis is on “might!” In a political context where citizens have been conditioned to believe they are entitled to live at the expense of government (read that to mean other citizens because government has nothing that it first does not take from someone else), the situation is beyond hopeless.
Instead, our politicians pretend and lie about the true economic condition, which is equivalent to dead man walking.
Monty,
Today the CBO released “The Budget and Economic Outlook: Fiscal Years 2012 to 2022″.
http://www.cbo.gov/ftpdocs/126xx/doc12699/01-31-2012_Outlook.pdf
It is ridiculously long…but make sure to look at pages 14 & 67… They are the 2 most important pages in the report…in my opinion.
The CBO is projecting a $1.079 Trillion deficit in 2012.
And they are projecting Spending to skyrocket to $5.520 Trillion in 2022 (from $3.598 Trillion in 2011).
Congressional Budget Office reports another $1 trillion deficit
http://www.politico.com/news/stories/0112/72205.html“The government faces a fourth year of trillion-plus deficits in 2012, according to new projections released Tuesday—numbers which also show little relief in the future unless Washington comes to grips with needed changes in its tax and spending policies.
The $1.079 trillion deficit now projected for this fiscal year ending Sept. 30…”CBO: Taxes Will ‘Shoot Up by More Than 30 Percent’ Over Next 2 Years
http://cnsnews.com/news/article/cbo-taxes-will-shoot-more-30-percent-over-next-2-years“According to the CBO report, federal tax revenues equaled $2.302 trillion in fiscal 2011, and will increase to $2,523 trillion in fiscal 2012, $2,988 trillion in fiscal in 2013, and $3,313 trillion in 2014.
As a percentage of GDP, according to CBO, federal tax revenues were 15.4 percent in fiscal 2011, and will be 16.3 percent in 2012, 18.8 percent in 2013, and 20.0 percent in fiscal 2014.”America already has a $15+ Trillion National Debt — 100% of GDP (and rising).
The U.S. fiscal crisis can be simply summarized. Since 2009, the federal government has been spending 24 to 25 percent of GDP, while tax collections have fallen to 15 percent. When his first four years end, Obama will have grown the debt by $6 Trillion.
If Obama/Congress are unable/unwilling to deal with the fiscal crisis — trillion-dollar deficits as far as the eye can see — how does America avert the future that Italy faces? Italy’s debt is 120% of GDP; ours, at 100% of GDP, is not all that far behind.
The fiscal situation is much worse than most people realize.People are wildly underestimating the deficits America is going to run in this decade.
Here is why:
1)The average rate of interest the Fed has had to pay to borrow for the last two decades has been 5.7%. However, Obama/CBO is projecting the cost of money at only 2.5%.
A return to the normal Fed rate would, by 2020, add $5 trillion to the cumulative deficit.
2)They are overestimating growth in 2012-2022. 2.5% is more likely than the ridiculous numbers they are projecting. That would add $4 trillion by 2020.
Taken together, a U.S. return to a normal rate of growth of 2.5%, higher than today, and a normal rate of interest for the Fed could add as much as $9 trillion to the deficits between now and 2020.
3)The 5 biggest budget items are Defense-Military ($700 B), Social Security ($725 B), Medicare ($560 B), Medicaid ($275 B), and Interest on the Debt ($227 B)… Since it is (politically) impossible to cut any of these items, at best, this Congress will only slightly reduce the rate of speed at which we are heading toward a debt default.
In 2011, we spent $2.467 T on the big 5 budget items – Defense-Military ($700 B), Social Security ($725 B), Medicare ($560 B), Medicaid ($275 B), and Interest on the Debt ($227 B) – and only collected $2.302 T in taxes.
4)America is headed for an entitlement crisis. Between 2010 and 2030, spending on Medicare, Medicaid and Social Security will explode. And with the Baby Boomers retiring en mass over the next 18 years (2011-2029), at the rate of 10,000 a day, it will be impossible for any politician to do what is necessary in order to save us from going over the falls. Any talk of cutting entitlements and they will be quickly thrown out of office.
Is America then headed for an inevitable default?
Weimar Germany, Here We Come!
These are all symptoms though. This is not the problem. They are mere symptoms of the disease, the rot of our soul. The nations soul has been rotted out.
Eventually the world will realize that the U.S. deficit and debt are beyond the capacity of this U.S. government to bring under control.
At that point, the ratings agencies and world markets will begin to treat the U.S. debt the way they treat the debts of Italy and Spain.
As soon as interest rates rise the deficit-debt will explode…and it will be all over for America.
I think the CBO’s report is ridiculously optimistic. The situation is much worse than they are willing to admit.
There would be a Revolution in this country if they put out the real numbers and accurate projections.
This letter has been long enough…
I’d love to see your analysis and thoughts on the CBO’s “The Budget and Economic Outlook: Fiscal Years 2012 to 2022″… at AT or somewhere…
Blessings and all the best, [Name Withheld]
I can’t comment on the future, for no one knows for sure what’s to come. However, I can comment on the past in which I was part of, in which I experienced a somewhat similar situation of the possible outcome of the article above.
I lived in Brazil during the 80′s. Back then inflation was 3%. A day. Yes, a day. What does this have to do with the US? It all depends on how you see it: either everything or nothing.
I vividly remember going to a super-market. Prices were adjusted a few times a day, 7 days a week. At one point supermarkets were displaying electronic prices: there was a digital display tag by each item. Talk about sophistication for the late 80′s! This allowed prices to be easily adjusted several times a day without having someone stick countless price tags on top of each other.
My salary back then was adjusted every month. If you deposited your money in a checking account, the bank would pay you nearly 3% a day in “interest”, just to keep up with inflation. Caveat: the minimum deposit was around US $1,000, a fortune those days for most Brazilians. Back then my salary was around US $500 a month. So, I wouldn’t quality, and I’d literally lost all my salary in days. It was as if I was getting paid in ice cubicles in a hot climate. You could see the value of your money melt away. The bank was your freezer.
So, I got clever. I joined my salaries with 2 other friends and we opened a common checking account. So, we qualified for the minimum $1,000 bucks or so. Then I had to create a Lotus 1-2-3 (electronic spreadsheet of the day) to convert all our money to “shares”. Talk about fun stuff.
I did alright. But, what about the poorer population? They are the ones who got totally robbed.
How do you think accounting works in this scenario? How do you manage your cashflow? Companies were clever. They had about 4 versions of their balance sheets: the official (nominal values for the goverment), the adjusted one (all values in “shares” based on inflation), a managerial one (same as adjusted but several accounts had to be reclassified to make accounting sense) and the last one…. you’ll get a kick out of this one: the dollar based one. Back then the dollar was the back-bone, the absolute reference for value. How times have changed.
Why do I mention this? We humans do survive hyper-inflation. We work hard, we’re creative, but we’re also incredibly dumb. Brazil got rid of these problems; they’re a different country now. The US can do the same, but it will be hard. In the end, I see all of this as a good thing: sometimes fires are necessary to clear the dead wood in the forest and so new vegetation can start afresh.
It’s unfortunate that in this process many will suffer. So, be prepared the best you can. Just learn one think: the government is never there to protect the people, but its own interests.
Roger
[...] titles include: “A Financial Crisis in 2012 is Inevitable! Here’s Why,” “Government Is Dead Man Walking-The Fiscal Situation Is Much Worse Than Most People Realize,” and “The Financial Crisis Of 2008 Was Just A Warm Up Act For The Economic Horror Show That Is [...]
[...] titles include: “A Financial Crisis in 2012 is Inevitable! Here’s Why,” “Government Is Dead Man Walking-The Fiscal Situation Is Much Worse Than Most People Realize,” and “The Financial Crisis Of 2008 Was Just A Warm Up Act For The Economic Horror Show That Is [...]