R
Raymond
Guest
America The Bankrupt
The ship of state is on a disastrous course, There's no way to avoid
the worst result of racking up a big deficit - the outrage of making
our children and grandchildren repay the debts of their elders
GAO Head Takes Fiscal Show On The Road To Warn Of Trouble Ahead
(AP) David M. Walker sure talks like he's running for office.
"This is about the future of our country, our kids and grandkids," the
comptroller general of the United States warns a packed hall at
Austin's historic Driskill Hotel. "We the people have to rise up to
make sure things get changed."
But Walker doesn't want, or need, your vote. He already has a job as
head of the Government Accountability Office, an investigative arm of
Congress that audits and evaluates the performance of the federal
government.
Basically, that makes Walker the nation's accountant-in-chief. And the
accountant-in-chief's professional opinion is that the American public
needs to tell Washington it's time to steer the nation off the path to
financial ruin.
>From the hustings and the airwaves this campaign season, America's
political class can be heard debating Capitol Hill sex scandals, the
wisdom of the war in Iraq and which party is tougher on terror.
Democrats and Republicans talk of cutting taxes to make life easier
for the American people.
What they don't talk about is a dirty little secret everyone in
Washington knows, or at least should. The vast majority of economists
and budget analysts agree: The ship of state is on a disastrous
course, and will founder on the reefs of economic disaster if nothing
is done to correct it.
There's a good reason politicians don't like to talk about the
nation's long-term fiscal prospects. The subject is short on political
theatrics and long on complicated economics, scary graphs and very big
numbers. It reveals serious problems and offers no easy solutions.
Anybody who wanted to deal with it seriously would have to talk about
raising taxes and cutting benefits, nasty nostrums that might doom any
candidate who prescribed them.
"There's no sexiness to it," laments Leita Hart-Fanta, an accountant
who has just heard Walker's pitch. She suggests recruiting a trusted
celebrity - maybe Oprah - to sell fiscal responsibility to the
American people.
Walker doesn't want to make balancing the federal government's books
sexy - he just wants to make it politically palatable. He has
committed to touring the nation through the 2008 elections, talking to
anybody who will listen about the fiscal black hole Washington has dug
itself, the "demographic tsunami" that will come when the baby boom
generation begins retiring and the recklessness of borrowing money
from foreign lenders to pay for the operation of the U.S. government.
He's dubbed his campaign the "Fiscal Wake-Up Tour."
To show that the looming fiscal crisis is not a partisan issue, he
brings along economists and budget analysts from across the political
spectrum. In Austin, he's accompanied by Diane Lim Rogers, a liberal
economist from the Brookings Institution, and Alison Acosta Fraser,
director of the Roe Institute for Economic Policy Studies at the
Heritage Foundation, a conservative think tank.
Their basic message is this: If the United States government conducts
business as usual over the next few decades, a national debt that is
already $8.5 trillion could reach $46 trillion or more, adjusted for
inflation.
A hole that big could paralyze the U.S. economy; according to some
projections, just the interest payments on a debt that big would be as
much as all the taxes the government collects today.
And every year that nothing is done about it, Walker says, the problem
grows by $2 trillion to $3 trillion.
People who remember Ross Perot's rants in the 1992 presidential
election may think of the federal debt as a problem of the past. But
it never really went away after Perot made it an issue, it only took a
breather. The federal government actually produced a surplus for a few
years during the 1990s, thanks to a booming economy and fiscal
restraint imposed by laws that were passed early in the decade. And
though the federal debt has grown in dollar terms since 2001, it
hasn't grown dramatically relative to the size of the economy.
But that's about to change, thanks to the country's three big
entitlement programs - Social Security, Medicaid, and especially
Medicare. Medicaid and Medicare have grown progressively more
expensive as the cost of health care has dramatically outpaced
inflation over the past 30 years, a trend that is expected to continue
for at least another decade or two.
And with the first baby boomers becoming eligible for Social Security
in 2008 and for Medicare in 2011, the expenses of those two programs
are about to increase dramatically due to demographic pressures.
People are also living longer, which makes any program that provides
benefits to retirees more expensive.
Medicare already costs four times as much as it did in 1970, measured
as a percentage of the nation's gross domestic product. It currently
comprises 13 percent of federal spending; by 2030, the Congressional
Budget Office projects it will consume nearly a quarter of the
budget.
Economists Jagadeesh Gokhale of the American Enterprise Institute and
Kent Smetters of the University of Pennsylvania estimate that by 2030
Medicare will be about $5 trillion in the hole, measured in 2004
dollars. By 2080, the fiscal imbalance will have risen to $25
trillion. And when you project the gap out to an infinite time
horizon, it reaches $60 trillion.
Medicare so dominates the nation's fiscal future that some economists
believe health care reform, rather than budget measures, is the best
way to attack the problem.
"Obviously health care is a mess," says Dean Baker, a liberal
economist at the Center for Economic and Policy Research, a Washington
think tank. "No one's been willing to touch it, but that's what I see
as front and center."
Social Security is a much less serious problem. The program currently
pays for itself with a 12.4 percent payroll tax, and even produces a
surplus that the government raids every year to pay other bills. But
Social Security will begin to run deficits during the next century,
and ultimately would need an infusion of $8 trillion if the government
planned to keep its promises to every beneficiary.
Why is America so fiscally unprepared for the next century? Like many
of its citizens, the United States has spent the last few years
racking up debt instead of saving for the future. Foreign lenders -
primarily the central banks of China, Japan and other big U.S. trading
partners - have been eager to lend the government money at low
interest rates, making the current $8.5-trillion deficit about as
painful as a big balance on a zero-percent credit card.
In her part of the fiscal wake-up tour presentation, Rogers tries to
explain why that's a bad thing. For one thing, even when rates are low
a bigger deficit means a greater portion of each tax dollar goes to
interest payments rather than useful programs. And because foreigners
now hold so much of the federal government's debt, those interest
payments increasingly go overseas rather than to U.S. investors.
More serious is the possibility that foreign lenders might lose their
enthusiasm for lending money to the United States. Because treasury
bills are sold at auction, that would mean paying higher interest
rates in the future. And it wouldn't just be the government's problem:
All interest rates would rise, making mortgages, car payments and
student loans costlier, too.
A modest rise in interest rates wouldn't necessarily be a bad thing,
Rogers said. America's consumers have as much of a borrowing problem
as their government does, so higher rates could moderate
overconsumption and encourage consumer saving. But a big jump in
interest rates could cause economic catastrophe. Some economists even
predict the government would resort to printing money to pay off its
debt, a risky strategy that could lead to runaway inflation.
Macroeconomic meltdown is probably preventable, says Anjan Thakor, a
professor of finance at Washington University in St. Louis. But to
keep it at bay, he said, the government is essentially going to have
to renegotiate some of the promises it has made to its citizens,
probably by some combination of tax increases and benefit cuts.
But there's no way to avoid what Rogers considers the worst result of
racking up a big deficit - the outrage of making our children and
grandchildren repay the debts of their elders.
The ship of state is on a disastrous course, There's no way to avoid
the worst result of racking up a big deficit - the outrage of making
our children and grandchildren repay the debts of their elders
GAO Head Takes Fiscal Show On The Road To Warn Of Trouble Ahead
(AP) David M. Walker sure talks like he's running for office.
"This is about the future of our country, our kids and grandkids," the
comptroller general of the United States warns a packed hall at
Austin's historic Driskill Hotel. "We the people have to rise up to
make sure things get changed."
But Walker doesn't want, or need, your vote. He already has a job as
head of the Government Accountability Office, an investigative arm of
Congress that audits and evaluates the performance of the federal
government.
Basically, that makes Walker the nation's accountant-in-chief. And the
accountant-in-chief's professional opinion is that the American public
needs to tell Washington it's time to steer the nation off the path to
financial ruin.
>From the hustings and the airwaves this campaign season, America's
political class can be heard debating Capitol Hill sex scandals, the
wisdom of the war in Iraq and which party is tougher on terror.
Democrats and Republicans talk of cutting taxes to make life easier
for the American people.
What they don't talk about is a dirty little secret everyone in
Washington knows, or at least should. The vast majority of economists
and budget analysts agree: The ship of state is on a disastrous
course, and will founder on the reefs of economic disaster if nothing
is done to correct it.
There's a good reason politicians don't like to talk about the
nation's long-term fiscal prospects. The subject is short on political
theatrics and long on complicated economics, scary graphs and very big
numbers. It reveals serious problems and offers no easy solutions.
Anybody who wanted to deal with it seriously would have to talk about
raising taxes and cutting benefits, nasty nostrums that might doom any
candidate who prescribed them.
"There's no sexiness to it," laments Leita Hart-Fanta, an accountant
who has just heard Walker's pitch. She suggests recruiting a trusted
celebrity - maybe Oprah - to sell fiscal responsibility to the
American people.
Walker doesn't want to make balancing the federal government's books
sexy - he just wants to make it politically palatable. He has
committed to touring the nation through the 2008 elections, talking to
anybody who will listen about the fiscal black hole Washington has dug
itself, the "demographic tsunami" that will come when the baby boom
generation begins retiring and the recklessness of borrowing money
from foreign lenders to pay for the operation of the U.S. government.
He's dubbed his campaign the "Fiscal Wake-Up Tour."
To show that the looming fiscal crisis is not a partisan issue, he
brings along economists and budget analysts from across the political
spectrum. In Austin, he's accompanied by Diane Lim Rogers, a liberal
economist from the Brookings Institution, and Alison Acosta Fraser,
director of the Roe Institute for Economic Policy Studies at the
Heritage Foundation, a conservative think tank.
Their basic message is this: If the United States government conducts
business as usual over the next few decades, a national debt that is
already $8.5 trillion could reach $46 trillion or more, adjusted for
inflation.
A hole that big could paralyze the U.S. economy; according to some
projections, just the interest payments on a debt that big would be as
much as all the taxes the government collects today.
And every year that nothing is done about it, Walker says, the problem
grows by $2 trillion to $3 trillion.
People who remember Ross Perot's rants in the 1992 presidential
election may think of the federal debt as a problem of the past. But
it never really went away after Perot made it an issue, it only took a
breather. The federal government actually produced a surplus for a few
years during the 1990s, thanks to a booming economy and fiscal
restraint imposed by laws that were passed early in the decade. And
though the federal debt has grown in dollar terms since 2001, it
hasn't grown dramatically relative to the size of the economy.
But that's about to change, thanks to the country's three big
entitlement programs - Social Security, Medicaid, and especially
Medicare. Medicaid and Medicare have grown progressively more
expensive as the cost of health care has dramatically outpaced
inflation over the past 30 years, a trend that is expected to continue
for at least another decade or two.
And with the first baby boomers becoming eligible for Social Security
in 2008 and for Medicare in 2011, the expenses of those two programs
are about to increase dramatically due to demographic pressures.
People are also living longer, which makes any program that provides
benefits to retirees more expensive.
Medicare already costs four times as much as it did in 1970, measured
as a percentage of the nation's gross domestic product. It currently
comprises 13 percent of federal spending; by 2030, the Congressional
Budget Office projects it will consume nearly a quarter of the
budget.
Economists Jagadeesh Gokhale of the American Enterprise Institute and
Kent Smetters of the University of Pennsylvania estimate that by 2030
Medicare will be about $5 trillion in the hole, measured in 2004
dollars. By 2080, the fiscal imbalance will have risen to $25
trillion. And when you project the gap out to an infinite time
horizon, it reaches $60 trillion.
Medicare so dominates the nation's fiscal future that some economists
believe health care reform, rather than budget measures, is the best
way to attack the problem.
"Obviously health care is a mess," says Dean Baker, a liberal
economist at the Center for Economic and Policy Research, a Washington
think tank. "No one's been willing to touch it, but that's what I see
as front and center."
Social Security is a much less serious problem. The program currently
pays for itself with a 12.4 percent payroll tax, and even produces a
surplus that the government raids every year to pay other bills. But
Social Security will begin to run deficits during the next century,
and ultimately would need an infusion of $8 trillion if the government
planned to keep its promises to every beneficiary.
Why is America so fiscally unprepared for the next century? Like many
of its citizens, the United States has spent the last few years
racking up debt instead of saving for the future. Foreign lenders -
primarily the central banks of China, Japan and other big U.S. trading
partners - have been eager to lend the government money at low
interest rates, making the current $8.5-trillion deficit about as
painful as a big balance on a zero-percent credit card.
In her part of the fiscal wake-up tour presentation, Rogers tries to
explain why that's a bad thing. For one thing, even when rates are low
a bigger deficit means a greater portion of each tax dollar goes to
interest payments rather than useful programs. And because foreigners
now hold so much of the federal government's debt, those interest
payments increasingly go overseas rather than to U.S. investors.
More serious is the possibility that foreign lenders might lose their
enthusiasm for lending money to the United States. Because treasury
bills are sold at auction, that would mean paying higher interest
rates in the future. And it wouldn't just be the government's problem:
All interest rates would rise, making mortgages, car payments and
student loans costlier, too.
A modest rise in interest rates wouldn't necessarily be a bad thing,
Rogers said. America's consumers have as much of a borrowing problem
as their government does, so higher rates could moderate
overconsumption and encourage consumer saving. But a big jump in
interest rates could cause economic catastrophe. Some economists even
predict the government would resort to printing money to pay off its
debt, a risky strategy that could lead to runaway inflation.
Macroeconomic meltdown is probably preventable, says Anjan Thakor, a
professor of finance at Washington University in St. Louis. But to
keep it at bay, he said, the government is essentially going to have
to renegotiate some of the promises it has made to its citizens,
probably by some combination of tax increases and benefit cuts.
But there's no way to avoid what Rogers considers the worst result of
racking up a big deficit - the outrage of making our children and
grandchildren repay the debts of their elders.