The Best Part Of Waking Up Is Hot DOOM! In Your Cup

I often (like, all the time) hear people tell me that I'm being overly alarmist about our national debt and entitlement crisis, that we have time to implement more moderate measures to solve the problem. My response is usually, "What time, exactly, do you think we have?"

Congressman Paul Ryan's "Roadmap for America's Future" -- the most serious and "politically-feasible" (I really hate that term) plan -- takes several decades simply to get us back to where we were a few years ago, debt-wise. Harry Reid speaks blithely of waiting twenty years to even begin thinking of reforming Social Security.

We don't have twenty years to dick around. We may not even have ten. We may not even have five.

The few politicians who actually are thinking of the problem still assume that we have decades to slow-roll the changes. I don't think we have that much time. Nor do a lot of other people. Why? Debt. Specifically, the costs to service our debt.

Here's a pull quote:

[T]his scenario is likely to prove optimistic. For the five years ending 2007, consumer price inflation averaged 3.2%. Inflation appears on a path to exceed 5% annually (see “Higher Inflation is on the Way“). Sustained inflation of 5% would imply interest rates of 7%. At those rates, federal net interest payments would exceed $1 trillion a year.

That’s more than the federal government will this year spend on Defense ($768 billion), Medicare ($494 billion), Social Security ($748 billion) or all other non-defense, non entitlement programs combined. The $800 billion additional annual spending will also more than offset efforts by the bi-partisan “Gang of Six” to craft a deal to cut the budget deficit by $4 trillion over the next 10 years.

Our whole "plan" (to the extent that our government even has a plan for getting us out of this mess) is founded on the belief that our borrowing costs will remain low -- that the interest-rate environment will remain at or near zero indefinitely. Well, it won't, and I don't think enough people are thinking about what a huge dent interest-payments on the debt is going to put into our budget. Our entire federal budget will be eaten up with four things: Medicare, Medicaid, Social Security, and debt-service payments. That means any additional spending (like, oh, say, the military) will have to come from borrowed money...which will have to be borrowed at higher rates, which in turn causes debt-service costs to rise yet again. This is the vicious debt-spiral many European countries now find themselves in.

What has basically happened during the past forty or fifty years is that we've spent most of our actual capital -- mainly on our vast welfare state and government apparatus, but also on our huge military. We are like a couple who lives paycheck-to-paycheck: any money that comes in goes right back out. Nothing gets tucked away. An unexpected expense -- a busted water-heater, broken-down car, or an unexpected illness or injury -- all of a sudden puts you in a hell of a financial hurt. So you borrow. You can't really afford even the payment much less the whole loan, but what can you do? You may even cast caution to the winds and buy that jet-ski you've had your eye on (on credit, of course). Why not? You're already screwed; being screwed a little bit more hardly matters at this point, right? Then something else breaks and you have to borrow again (if you can), and the monthly bills start to pinch you where you live -- it's either service your debt or pay the rent, because you can't do both. At that point, the spinning plates will come crashing down -- you will either default on your debt to avoid starving your family into oblivion, or you will force your family to live like animals in a cave so you can pay off the debt you ran up.

So the frustrated call goes up: "Okay, we're boned! I get it! But what can we do about it?" Answer: I don't know. Maybe nothing, at this point.

There are too few people who understand the gravity of the problem, and too many people who depend on a government check. The only real solution would require a combination of deep cuts to entitlement programs, a vast downsizing of our federal and state governments (and thus their spending), and a dedicated years-long effort to pay off our debt. But these solutions are waved off as "politically unfeasible", which is tantamount to simply admitting that the problem cannot be solved at all.

I've often said that circumstances will impose a solution on us if we don't find one ourselves -- we simply cannot continue as we are. And the reckoning is not comfortably far off in the future; it's unfolding right now, before our very eyes.

Bummer cat says, "Way to kill my buzz, Captain Bringdown".

posted by Monty at 09:26 AM

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