Tuesday, May 22, 2012

Drowning in Debt

Would you consider it over the top to call our government's handling of our national finances “Psychotic”? If not psychotic, then what shall we call it? Would “denial” be a more palatable term? Perhaps we could label it an “addiction” making them less accountable for their actions? However you choose to label it, we're a country that's in so deep in debt that we have reverted to simply pretending it doesn't exist, or used unsound accounting to convinced ourselves that our debt doesn't matter. More or less we have adopted a "grown-up" way of pulling the blanket over our head to hide from the monster lurking in the closet.

Liberals in this country, for the most part, will admit that we are running up “unsustainable” deficits. Yet, these same liberals adamantly oppose any and all serious efforts to do anything about it. If a private fiduciary did the same with a client's funds, we would call this a breach of ethical behavior and failure in their due diligence obligation, making the offending fiduciary liable for criminal and civil charges in a court of law. Among the general public, once again you'll find plenty of people who admit that this nation has a huge problem. Yet, when you leave generalities, get down to specifics, and start looking for programs to cut, then suddenly everyone gets nervous and says, “never mind.” At the other end of the perceived political spectrum, Conservatives claim a devotion to fiscal responsibility, but when given the opportunity to demonstrate their self discipline they fair no better than the Liberals. Regardless of what others may decide to call it, I will call it what it is, "treason."[1]

This fiscal foolishness is a natural outgrowth of ladling out public funds to special interests. There is so much collective money that few people feel or appreciate it even when billions are saved. Yet, if we yank even a few million away from special interest groups like PBS, Planned Parenthood, or the unions, they squeal like pigs that are about to accidentally be put in the wolves pen at the zoo.

In the face of that, people have to realize that this country is on pace to go bankrupt — and it could happen relatively soon if we don't start taking serious steps to control our spending. Mike Pence thinks we could be just ten to fifteen years away. Tom Coburn is less optimistic and thinks it could happen in as little as five years. If that happens, we’re not a tiny country like Greece — we’re the biggest economy in the world. That means there’s no cavalry coming to pay our bills for us because we ARE (or were) the cavalry.

What happens then? Well, we don’t know for sure, but we can make some educated guesses about what COULD happen and how it will impact YOUR life.

1. Your life savings will evaporate. Inflation is a fact of life. Thomas Sowell has noted, “As of 1998, a $100 bill would not buy as much as a $20 bill would buy in the 1960′s.” That’s under normal circumstances. However, the thing governments have traditionally done when they simply can’t pay their debts is print more money. The problem with this is the further you expand the money supply, the less the money you already have on hand is worth. This can wipe out the savings of a lifetime in a relatively short period. Imagine spending billions of dollars just to buy a loaf of bread. Sound far-fetched? Well, guess what? That has happened in the Weimar Republic, which was crushed under debts from WWI and decided to pay it off by printing more money. It could happen here, too, and all the money you’ve scrimped and saved could become worthless in a short order.

2. Your taxes will skyrocket. We've been conned into thinking that we can fund a massive government on the backs of the rich. This is simply not so. It’s not working today and it’s not going to happen in the future. We cannot tax the rich enough to pay off our debt or even enough to keep the government going long-term. Even if we could, the rich have the resources to flee the country for greener pastures if they're being taxed into oblivion. The middle class? Not so much. What that means is the more desperate the government gets, the more the average American is going to be hammered with new taxes. How much more of your income can you afford to send overseas to pay China for the money they've loaned us to keep PBS, Planned Parenthood, and the National Endowment of the Arts going? What about if the country goes bankrupt and your income tax rate shoots up to fifty percent? How are you going to pay your mortgage? How are you going to feed your kids? When the government runs out of cash and it can’t borrow any more money, then it will start leveling massive taxes on the American people.

3. Your life will be brutal. If the government goes bankrupt, you'll have an extremely angry, confused, and frustrated populace that has little faith in its leaders — combined with a horrific economy and a reduced ability of the government to keep order. Under those circumstances, widespread rioting and violent crime seem entirely plausible. When Argentina had its crisis, violence went up 142% and “young men began looting supermarkets.” Here’s some of what happened during the German hyperinflation of the currency in Weimar Republic after it started printing money night and day,

“The flight from currency that had begun with the buying of diamonds, gold, country houses, and antiques now extended to minor and almost useless items — bric-a-brac, soap, hairpins. The law-abiding country crumbled into petty thievery. Copper pipes and brass armatures weren't safe. Gasoline was siphoned from cars. People bought things they didn't need and used them to barter — a pair of shoes for a shirt, some crockery for coffee. Berlin had a “witches’ Sabbath” atmosphere. Prostitutes of both sexes roamed the streets. Cocaine was the fashionable drug.”

4. Your government checks, housing, food stamps, and health-care will disappear. Contrary to what most people believe, Medicare, Medicaid, Supplemental Security Income (SSI), and Social Security are paid out of the same fund that pays for everything else. In other words, if the government goes bankrupt, there is no money in any lock-box set aside to pay for these programs. So, if you're receiving Social Security, , Medicare, welfare, food stamps, or any other similar programs, those checks could stop or be slashed down to nothing. That seems unthinkable to people, but if the government doesn't have any money, then it can't pay it out to people. As they say, “You can't get blood out of a turnip.”

5. You will be very poor. If taxes and inflation escalate dramatically, both of which are very likely if we go bankrupt, economic activity will slow to a crawl and we'll go into a depression. We're not talking about a “This is the worst economy since the Depression” situation that we hear every time there's a mild downturn in the economy; we're talking about a REAL depression. Established and well managed businesses will fail in record numbers, the stock market will topple, unemployment will soar to heights not seen since the thirties, and the government will be too concerned with maintaining its own power to be concerned with your needs. 

If that happens in a country like America, where people have been so prosperous for so long, it’s going to produce utter misery. It’s not a lot of fun to be poor under the best of circumstances, but it’s much worse to go from having a comfortable life with a bright future to stealing vegetables or a crust of bread to eat and wondering how you’re going to keep warm while homeless in the winter.

I know what you're thinking, "it couldn't happen here in the richest country in the world", but this only displays how ill-informed you are, when one does the real accounting (assets minus liabilities) to arrive at net worth, we are far from the richest country in the world...

US Total Household Value (Home Equity + Stock Value): $48.8 trillion
US Social Security, Medicare, and Prescription Liabilities (Does not include National Debt): -$119 trillion

US Net Worth: -70.2 trillion

[1]  “Treason against the United States shall consist only in levying war against them, or in adhering to their enemies, giving them aid and comfort.” U. S. Constitution, Art III. My justification for calling their failure to address the debt issue is that by selling our debt to foreign powers, namely China, they are handing immense authority over our currency, property, and economy over to their whim.