Thursday, June 7, 2012

America’s Mathematically Certain Nightmare

In coming years, effective tax rates may reach 50, 60, even 70 percent. This will be no socialist paradise. It will be a national nightmare, because even with confiscatory tax rates, politicians will still have no choice but to chop Medicare and Medicaid—leaving tens of millions of people without adequate health care. Retirement ages will be raised well beyond 70. And if you are in the military, start looking for another career, because everything from our aircraft carrier fleet to the man on the beat is going to be mothballed.
Sound unbelievable?
Here it is: One in seven households is on food stamps. Another one in seven Americans receives or lives with someone who gets Medicare. More than one in seven households relies on Social Security. More than one in four has at least one person on Medicaid. One in 50 households has a member relying on unemployment benefits. Thousands more have members on disability.
Add it all up and 49.1 percent—almost half—of America lives in a household where at least one member receives some type of government benefit!
Did you get that? Roughly half of America is on the government dole. Many households receive more than one government handout.
Greek historian Alexander Tyler wrote: “A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves money from the public treasury. From that moment on, the majority always votes for the candidates promising the most money from the public treasury, with the result that a democracy always collapses over loose fiscal policy ….”
The democratic process becomes one big race to vote for the politicians promising the biggest handouts. Consequently, government finances continue to erode under the pressure of fulfilling the hundreds of campaign promises necessary only to buy votes. A similar process occurs when spending bills are sent to the House and Senate. To secure the votes needed to pass legislation, each congressman and senator gets his own special spending project included in the bill, to curry his vote.
According to official government statistics, America’s total unfunded liabilities (primarily the amount we have promised voters in Social Security, Medicaid and Medicare) is now over $61 trillion. But the actuaries at the cato Institute, using real-world accounting practices that the government demands businesses use, say the shortfall is actually closer to $119.5 trillion!
Meanwhile, America’s total gdp (the value of all the goods and services produced in the entire country for the year) is only a little over $15 trillion.
USA Today reports that if the government were to actually try to balance its budget, the typical American household would have had to pay nearly allof its income in taxes! That is just to balance the budget, never mind paying down the debt.
Even if starting tomorrow America said it would spend no additional money beyond current outlays for Social Security, Medicare, Medicaid and so on—the nation is still on an inescapable trajectory toward bankruptcy.
America’s national debt, not including retirement liabilities, has already passed our gdp. Once a nation’s debt reaches 90 percent of gdp, the risk of total economic collapse skyrockets. That’s what happened in Greece. It is happening in Spain now.
And if nothing is done, it will happen in America soon too.
America’s debt to gdp ratio is now around 103 percent! The big expenses like ObamaCare haven’t even begun to hit yet—and already the government is forced to borrow one out of every three dollars it spends. And of those borrowed dollars, last year about 40 percent were printed up out of thin air by the Federal Reserve because America couldn’t find any borrowers to lend it money at current rates.
America faces a mathematically certain nightmare. Just like in Greece, our economy is growing too slowly and tax revenues do not get close to covering all our spending “needs.” Programs will be cut. Austerity will come to America. The government will print money. But as sure as 1 plus 1 equals 2, economic collapse is coming to America. The only question is how soon.