Far from Greece? Who Knows

July 18, 2015 Asheville , Columnists , Hendersonville , News Stories 1340 Views
Far from Greece? Who Knows

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To begin, this year’s federal budget deficit will be $486 billion, compared to $1.4 trillion in 2009. Explanations for the drop vary and are highly politicized. The deficit was high in 2009 because that was the year of the stimulus. Reductions have been attributed to Tea Party activism, sequestration, Obamacare, and off-budget agency funding.

Regardless, according to a source as mainstream as Wikipedia, the Government Accountability Office, Congressional Budget Office, Office of Management and Budget, and the US Treasury Department have warned about “long-run financing challenges, mainly driven by an aging population, rising healthcare costs per person, and rising interest payments on the national debt.” What’s more, the CBO “reported in July 2014 that the continuation of present tax and spending policy for the long-run (into the 2030s) results in a budget trajectory that causes debt to grow faster than GDP, which is ‘unsustainable.’” The CBO expects the deficit will in short order start heading for the trillions, arriving by 2025.

The deficit only adds to the national debt. An amazing website is usdebtclock.org. It shows a realtime accounting of a number of US financial indicators. It puts the national debt at $18.3 trillion. It was only at $18.2 trillion, or 101 percent of GDP when Tanner wrote his article a week ago. Said Tanner, “That’s right. We owe more than the value of all the goods and services produced in this country every year. It is as if your credit-card bills exceeded your entire pay check.” Per capita debt at the time of this writing was $56,973, and per taxpayer debt was $154,394.

Putting that in perspective, Greece’s debt before the last German bailout was higher than 177 percent of GDP. Tanner notes the US debt as a percentage of GDP may be better than Greece’s, but it is worse than France’s and Spain’s. But these are baby numbers, ignoring the “driving force” behind Greek’s monetary problems: entitlement programs. Greece’s debt including unfunded liabilities exceeded 875 percent of GDP, whereas at $90 trillion America’s debt would only be slightly over 500 percent.

Back to usdebtclock.org, the six largest budget items tracked on the home page are Medicare/Medicaid ($954,327,250,000 and rising about $10,000 per second), Social Security, $874,800,560 and rising about $1,000 per second), Defense/War ($590,315,467,000), Income Security ($310,777,486,300), Net Interest on Debt ($246,484,550,000), and Federal Pensions ($254,410,737,000). In the time it took to type this paragraph, Medicare/Medicaid spending has climbed to $954,327,268,000.

Last year, Greek government spending accounted for 49.3 percent of that nation’s economy. For all that is said of austerity, government spending decreased only 2.5 percent from its fourteen-year average. By way of comparison, federal spending in the US is only 20.5 percent of GDP. At least one estimate from the CBO, which has a reputation for underplaying hazards in the US economy, estimates federal government spending could rise to 34 percent of GDP by 2050. If state and local government spending were included in the calculations, the US would catch up to Greece’s current situation by then.

Tanner summarized the vicious cycle in which America finds itself. “The danger for the United States is that spending on entitlements will surge in the coming decades, which means that, absent reform, they take over the economy. Investors would respond to the weaker economic outlook by demanding higher returns in order to continue investing in US bonds, which would further drive up interest costs, making our problems even worse. And, of course, unlike Greece, there aren’t other countries or organizations available to bail us out.”

Tanner agrees with what the government accounting offices are saying in not so many words, that unchecked, the US economy will be where Greece’s is now. The outlook for growing the US economy to keep up with government spending is bleak. Greece had a bad business environment, ranking 84th in the latest Economic Freedom of the World Index for tax rates and regulation. The United States ranked second as recently as 2000, but now it is in 12 th place.

Then again, the real situation remains mysterious. More and more financial analysts are writing about a “fake economy,” one where the gold standard has been replaced by rules and reporting tricks designed to make the US look healthier than it actually is. Monetary policy analyst James Dorn wrote recently about illusions designed to create a sense of well-being. “Wealth has been created, but it is ‘pseudo wealth,’ created by distorted interest rates, not by productive investment in real assets.”

“Monetary policy has become a slave to boosting asset prices. Sound money has given way to speculative impulses as major central banks suppress interest rates and investors search for yield by taking on more risk.” He claims there is a “disconnect between the real economy and financial markets,” and “Once asset bubbles form, central banks have been reluctant to take away the punch bowl.”

This was one factor Tanner said was working to disguise the extent of America’s debt problem. America controls its own monetary policy, whereas Greece’s policy is but one of several interests in the controlling European Central Bank. An “advantage” the United States has over Greece, if self-destruction is the goal, is the United States is enjoying low interest rates while nobody wants to loan money to Greece. Interest rates on the dollar remain low only because the euro is so much worse off. Tanner described the United States as, in many ways, “the fastest horse in the glue factory.”

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