Happy 1st B-Day Savannah: Oh, and You Owe $365,000
Sadly it’s true. Every American, from the moment of their birth is guaranteed a legacy of crushing debt. It was a debt they did not ask for, had no chance to object to, and like the worst type of mortgage will only continue to grow in size.
Today, the Federal debt consists of two components. The first component is the debt from direct borrowing by the Government. That amount now stands at $11 trillion. The second component is the promises to pay for social programs the Government has created. These are not imaginary numbers. They are official US Government numbers, and they look like this:
Social Security: $ 13 Trillion (T)
Medicare (A) $ 35 T (Hospital Stays)
Medicare (B) $ 34 T (Doctor Visits)
Medicare (D) $ 17 T (Drug Benefit)
Other. $ 1 T
Sub-Total $ 100 Trillion
Add back in $ 11 T (Direct Borrowing)
Total $ 111 Trillion (Today’s Dollars)
Divide this total by the population of the United States and we find every man, woman, and child owes $365,000. What is absolutely critical to understand is that this $111T funding shortage represents today’s dollars. It would take this much money in the bank today, earning interest, to manage the US debt. Since there is not one single dollar in the bank that means this obligation is growing with inflation. If we use 4 percent as an inflation rate, which is conservative when talking health care, then add another $4.4T to the debt for next year – and continue compounding every year after that.
Let us look at this growth from our one-year olds perspective. At age 1, she owes $365,000 on her “Born in the USA Mortgage.” By the time she reaches age 19 and perhaps has a job and could theoretically start paying off this debt she will owe $768,000! This of course assumes Government never borrows another dollar or increases any social program – something they have never refrained from doing in the past.
This is a legacy of the Greatest Generation of self-serving individuals and politicians in history. They cared and care only for themselves and have no moral compulsions about allowing following generations to pay for their greed. The last major nation to eliminate laws making a son responsible for paying his father’s debts was Germany in the 1800s. Yet here today, in the United States, it is considered acceptable to burden not only your children, but your grandchildren and everyone else’s children and grandchildren with your debts. This is the worst type of theft ever committed; theft by one generation on another, all legalized by Government.
Everyone in Congress is aware of this problem. Yet, Congress has refused to address the problem. On the contrary they add to the problem every time they are in session. This year they have agreed to bailouts for the banking and mortgage industries that will probably cost tens of billions (B) of dollars. They have passed new GI Bill benefits which will cost $62B over the next 10 years. Then there is a new 1,100 page education bill which has a price tag of $169B over the next 5 years. Then to fund these programs and all their continued wars and social programs during the coming year they quietly increased the Federal debt limit $800B from $9.8T to $10.6T. This was in addition to increases the previous year and every other year for the last seven which has DOUBLED the US debt.
Many people think they can ignore this problem, which somehow will be fixed without too much pain. These people are wrong. This debt, these obligations are too large, they cannot be paid. This will affect everyone; the poor, the middle class, the wealthy – none will escape – the country may never regain its economic vitality. This is not my projection alone; the President of the Federal Reserve Bank of Dallas, in a speech on May28th, called this problem a “frightful storm.” He went on to say, “Were I not a taciturn banker, I would say the mathematics of the long-term outlook for entitlements, left unchanged, IS NOTHING SHORT OF CATASTROPHIC.” (Emphasis mine)
How will this endgame be played? First there will minor attempts to push the problem down the road. This won’t work. The Medicare money bomb will come due in 2017. There will be calls to raise taxes. Undoubtedly they will, but taxes cannot be raised enough. There will be cuts in benefits, a ‘needs based’ approach, but this will not be enough. There are only two approaches that can work. One massive cuts in the Social Security and Medicare programs, not a likely approach for a politician. Two, the Government and Federal Reserve will resort to extreme monetary inflation. Foreign nations will see this; they will no longer buy US debt or invest in the United States. The economy will suffer huge losses, anyone on fixed incomes will be in extreme hardship, and there will be layoffs and large-scale unemployment. Society will be in crisis. The United States Government will effectively be bankrupt!
Government will say this crisis could not have been predicted. It was a failure of capitalism and the free market. Only Government is capable of fixing the problems which face the nation. The individual must be willing to do their fair share to help the nation through these troubled times.
Will Government succeed with this farce? Will individuals believe this tired old story? It is certain that those who have saved nothing, who have prepared for nothing but good times will support it. What about those people who believe in hard work and already pay 80% of the income tax or who believe that as an individual you are responsible for your life and your family’s well being? What will Savannah’s generation say? Will they rightfully state, “Under what despotic legal philosophy may one generation steal from the next? We reject the tyranny that anyone or any group has a right to burden another with their debts. Government has overstepped its moral boundaries and we will not be bound by this injustice.”
What will happen then? We will soon see.