America’s Fiscal Doomsday Machine
Friday, October 27, 2017 17:17
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“Revealed: America’s Actual Debt”
by Brian Maher
“There is absolutely nothing wrong with America’s finances that a miracle couldn’t fix… as the great man said. Last year, the Congressional Budget Office’s crystal ball had the 2017 budget deficit in the mid-$500 billion range. The actual 2017 budget deficit? A somehow appropriate $666 billion – over $100 billion higher than estimated.
At just under $4 trillion, this year’s budget wrote a new chapter in government extravagance. Next year’s budget will write another… The House passed a $4 trillion 2018 budget yesterday. It was actually the Senate’s budget. The House passed it to clear the road for Trump’s tax plan. The entire affair is… complicated.
CNBC draws the broad sketch: The House on Thursday narrowly approved a Senate version of the 2018 federal budget, clearing the way for the GOP-controlled Senate to pass a massive set of tax cuts later this year. By passing the Senate version of the budget, House Republicans kick-started the reconciliation process, a window during which the Senate can pass legislation with only a simple majority instead of the 60-vote supermajority typically needed to end debate and move a bill to a vote.
The Committee for a Responsible Federal Budget – no laughter please – estimates the tax plan could add more than $2.2 trillion to the $20 trillion national debt. The national debt, as a percentage of GDP, has nearly doubled over the past 17 years. For your viewing pleasure, CBO’s projected trajectory of the national debt as a percentage of GDP:
The greatest burglars of America’s fiscal future? Social Security, Medicare and Medicaid… with interest on the debt into the bargain.
If you accept the CBO at its word, mandatory spending – including these budget-busters and a few others – will constitute 78% of federal spending by 2026. That leaves only 22 cents per dollar for education, science, transportation and a hundred other things… to say nothing of defense. On that note, we learned yesterday that Social Security spending exceeded $1 trillion this year for the first time ever — 76% more than Uncle Samuel spent on defense (or offense).
Former Treasury official Peter Fisher’s waggish observation gains current with each passing year: “The federal government, says he, is a “gigantic insurance company (with a sideline business in national defense and homeland security).” Much truth is spoken in jest. With the spirit of doom upon us today, let us sink further into the mire…
According to no less an authority than the United States Treasury, projected tax revenues to fund Social Security and Medicare over the next 75 years fall $46.7 trillion short. “Unfunded liabilities,” they’re called. But even these $46.7 trillion of unfunded liabilities may tell a mere fraction of America’s true indebtedness…
Economist and Boston University professor Larry Kotlikoff says Social Security, Medicare and Medicaid aren’t fully accounted for in official number crunching. These accounting shell games mask the actual debt, says Kotlikoff. America’s actual debt? Over the next 75 years, this Cassandra projects America’s true debt at an intergalactic $210 trillion.
Kotlikoff, with tears in his voice: “We have all these unofficial debts that are massive compared to the official debt. We’re focused just on the official debt, so we’re trying to balance the wrong books. If you add up all the promises that have been made for spending obligations, including defense expenditures, and you subtract all the taxes that we expect to collect, the difference is $210 trillion. That’s the fiscal gap. That’s our true indebtedness.”
Kind heaven – could our fair land really be $210 trillion in red one day? On days such as this, when our hopes for America crash upon the shoals of actuarial mathematics and we wonder why we even bother… our thoughts turn to author Robert Benchley. Benchley sat at his typewriter one day to tackle a vexing subject. He opened his piece with “The”… when the full weight of his burden collapsed upon his shoulders. He abandoned his typewriter in frustration. He returned shortly thereafter and resumed the task anew… With only “The” to work with… Benchley immediately knocked out the article, presented here in its entirety: “The hell with it.”
Below, our old friend David Stockman paints his own picture of America’s fiscal future with a cheery piece entitled “America’s Fiscal Doomsday Machine.” Have a stiff drink… and then read on.”
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“America’s Fiscal Doomsday Machine”
By David Stockman
Benjamin Franklin supposedly said, “In this world nothing can be said to be certain, except death and taxes.” If old Ben were still around he would surely add “debt” to his famous saying. The essence of debt in the present era is that it is perpetually increased and rolled-over. It’s never reduced and paid-off. To be sure, much of mainstream opinion considers that reality unremarkable – even evidence of economic progress and enlightenment. Keynesians, Washington politicians and Wall Street gamblers would have it no other way because their entire modus operandi is based on ever more debt.
Consider the public debt ceiling that Congress raised a couple months back – and will have to raise again in December when the time comes once again to kick the can down the road. The big spenders won a giant victory because they deplore and despise the public debt ceiling they more than anything else. They sanctimoniously admonish that it’s a relic of the nation’s fiscally benighted past and that it is a periodic threat to America’s good credit. It represents a blight on orderly governance, they claim.
So when the Donald agreed with Sen. Schumer to permanently abolish the public debt ceiling, it descended on the beltway like manna from heaven. Not Barack Obama, Bill Clinton, Jimmy Carter or even the Great Texas Porker, Lyndon Johnson, dared to utter the thought of it – at least not in polite company.
Notwithstanding all the good he has done disrupting the status quo, the Donald has become the foremost enemy of America’s very financial survival. The Donald has boxed himself in with his reckless promise to place cuts to Medicare and Social Security off limits. But when you set those two giant entitlements aside, along with Medicaid, you have taken $2 trillion per year off the table. And that quickly mushrooms to nearly $2.5 trillion per year when you add in $200 billion for Veterans, the earned income tax credit and retirement checks for former military and civilian employees of the Federal government.
Look folks, the federal budget is a Fiscal Doomsday Machine. The depository of American wars and entitlements have run rampant. Under the pile drivers of a global empire and the retiring baby boom, it is rapidly propelling the nation toward fiscal catastrophe. That grim outcome is virtually guaranteed if the only remaining safety brake — the debt ceiling — is summarily abolished.
Due to entitlements, debt service and the slow pipeline of appropriated spending there is no such thing as an annual Federal budget or accountability for how much Uncle Sam spends and borrows. Instead, the $4.1 trillion that Congressional Budget Office (CBO) projects the Federal government will spend in FY 2018, and the $563 billion it will borrow, reflects the dead hand of the past.
Entitlements and other mandatory spending alone is projected to reach $2.566 trillion or 63% of total FY 2018 outlays.
Another $307 billion will be required for interest on the nation’s $20 trillion public debt, while upwards of half the $1.22 trillion for so-called “discretionary” or appropriated programs also reflects funds appropriated years ago.
Altogether, $3.5 trillion, or 85% of outlays, is already baked into the cake for the FY 2018 budget.
The Federal spending machine is almost entirely on autopilot and heading for disaster owing to ballooning populations and debt. Ten years from now the combined cost of mandatory programs and debt service will reach $5.12 trillion compared to just $2.87 trillion during FY 2018.
Entitlement spending will be nearly double – even if Congress took a 10-year recess! As shown below, that means the Federal spending share of GDP is now inexorably climbing toward 30% owing to baby boom retirements, even as revenue under current law is stuck at about 18% of GDP. The CBO’s latest projection of the widening fiscal gap – soon more than 10% of GDP annually leaves nothing to the imagination.
America really does have in place a Fiscal Doomsday Machine:
In the chart above, it is easy to see why the beltway argument – that we’ve already spent the money and must liquidate by borrowing whatever it takes – is so thoroughly wrong. The tidal forces driving the budget are so enormous and dangerous that some kind of automatic, institutionalized braking force is absolutely necessary.
The fiscal realities of empire, demographics and debt have now become insurmountable.
In the case of demographics, it is all right here. The baby boom is retiring at a rate of 10,000 per day, and the wave will not crest until there are nearly 100 million Americans over 65 years of age – double today’s 50 million. Needless to say, at an average cost of $35,000 per year for retirement pensions and medical care alone, the fiscal math becomes prohibitive.
The voting and political math is downright impossible, and has been that way for the last 34 years. The last time any significant chunk was taken out of social security or medicare benefits was back in 1983 when the Congress did agree to the Greenspan Commission’s proposal to delay the payment date of the Social Security cost of living allowance (COLA) by the grand sum of 90 days on a one-time basis!
There was one other change, that I was personally involved in, that seals the case. Working with Greenspan we had narrowed the benefit cut options down to a binary choice and presented it to the swing vote on the commission. That happened to be 88 year-old Claude Pepper – a left-over from the New Deal era and champion of America’s elderly lobby.
Did he want a reduction in early retirement benefits immediately or an increase in the retirement age starting 30 years hence? Apparently, Senator Pepper concluded he would not live to be 118, and chose the second option! All of that happened when the over 65 population was about 28 million, not 100 million.
There is no plausible scenario in which Congress will proactively and voluntarily address reform for the ballooning population of elderly Americans. It will only happen when action is forced by the debt ceiling mechanism – the equivalent of a credit card cancellation on a national level.
The recent utter failure to do anything at all about ObamaCare and the underlying health care system that is already consuming 18% of GDP only reinforces the case for a complete fiscal overhaul. The cost of the medical entitlements alone relative to national income will double from 5% to 10% over the next three decades.
Where that leads, of course, is to fiscal catastrophe. Without a fiscal braking mechanism that is external to voluntary legislative action, the day of reckoning will be catastrophic.
Even by the CBOs own Rosy Scenario based long-term projections, the nation’s public debt ratio is heading for a Greek-style 150% within the next 25 years, and by my own more sober view of the economic future far worse than that. When Washington descends into complete fiscal disarray, the meltdown will be on and the grim reaper of recession will be just around the corner.”
Source: http://coyoteprime-runningcauseicantfly.blogspot.com/2017/10/americas-fiscal-doomsday-machine.html
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