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June 04, 2009

The Decline and Fall of the Welfare Empire

Tony Blankley's in a Dark Ages sort of mood.

I'll delete the Rome comparisons and quote the factual stuff. But I suggest a read-the-whole-thing.

Okay, I Won't: Let me quote this from the opening, because his theme here really hits it:

The Roman historian Livy famously described the terminal plight of the late Roman Republic: "Nec vitia nostra nec remedia pati possumus" ("We can bear neither our shortcomings nor the remedies for them")

In other words, like Rome, our nation is not strong enough to support the massive debt our ever-expanding obligations impose on us, nor courageous or wise enough to confront them.



In 2012, federal debt will be more than $15 trillion. Annual interest probably will be between $1 trillion and $1.7 trillion -- depending on whether long bonds remain at about 3.5 percent or go to recent historic rates (6 to 7 percent). Deficits will average about $1 trillion a year -- $22 trillion by 2019. Yearly interest payments then will be more than $2 trillion. That's the good news.

That assumes the world will continue to buy our Treasury notes at plausible rates. We had a slight foretaste of the future last week, when 10-year U.S. Treasury bond yields shot up 60 basis points on soft demand and a Standard & Poor's warning of a possible ratings downgrade of British bonds. The bond market may well rebel ultimately against our government's excessive borrowing and spending (insufficiently supported by adequate national economic strength).

The "good news" of only $22 trillion in debt supported by purchasable bonds also assumes that our economy will recover this year and that we then will have continued steady economic growth. Of course, the more the government borrows the less will be available for the private sector (the part of the economy that produces things). And the less available borrowing there is for investment and consumption in the economy the slower the economy will grow -- if it grows at all.

But the not-so-good news on top of this astounding and growing indebtedness is that we will have to borrow even vastly more than the current budgets propose. Starting in 2017 (just eight years from now), the Medicare trust fund will be depleted. We then will begin to experience a Medicare revenue shortfall that ultimately will total between $35 trillion and $40 trillion during the following 60 years. Social Security's depletion will begin 20 years later and will have a shortfall of a little less than $10 trillion during the same period.

...

Not only does continued, increased government borrowing ever more sap our economy but also, as the baby boomers retire, we will move from the recent statistic of four workers for each retiree to two workers for each retiree. That means a weaker economy, as this smaller work force will not produce enough to support all of government's costs -- even with massive and persistent tax increases. And if, as seems possible, sometime in the next decade the world resists lending our government sufficient money (because our economy will be too small to produce enough to pay the ever-growing interest on the debt), then we finally will be forced to make choices of what to buy and what to forgo. Maybe only subsidized pain pills rather than medical treatment for old people? Only 50 percent payment of Social Security benefits? Default on federal debt payments? Or what the Chinese already are worried about: monetizing the debt, leading to hyperinflation?

One part I cut: Obama's projected deficits understate the real indebtedness greatly, as he assumes a ridiculously low amount of spending for (wait for it) national defense.


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posted by Ace at 04:27 PM

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