Still On The Eve Of Financial Destruction

Still On The Eve Of Financial Destruction
 
Although it has been a while since we published the first article, “Eve Of Financial Destruction” on the Ezine website about how dire the nation’s financials are, that does not mean we have stepped back from the eve of financial destruction. Consider some statistics from a recent article in Reason magazine by Veronique de Rugy, “Our Unsustainable Debt”:

- In 2009, the Federal government spent .5 TRILLION on revenue of only .1 TRILLION. The resulting deficit of .4 TRILLION would require each American household to kick in an additional ,000 in taxes to cover this shortfall that the Obama administration has incurred. 2010 results are expected to be about the same, another TRILLION plus deficit.

- The .4 TRILLION was about 10% of the nation’s total GDP, a level that has not been seen since World War II when deficit spending was in high gear to pay for the war effort.

- The Congressional Budget Office (CBO) forecasts that unless changes in spending are made, the country’s annual deficits for the next ten years will average about a TRILLION dollars a year. This would require each American household to pay an additional ,700 a year to cover the annual shortfall.

- The CBO estimates that America’s total, cumulative public debt reached .5 TRILLION in 2009 which is about 53% of GDP. This high a percentage has not been attained in over 50 years.

- In 2010, this percentage will exceed the 60% threshold, a level that many economists believe puts a country in financial peril.

- Just three years ago, prior to the Obama administration and the bailouts of banks, auto companies, insurance companies and others, the CBO did not expect the percentage to hit 60% until 2023.

- Without changes to Social Security and Medicare, the total cumulative debt will exceed TRILLION by 2020, or 85% of GDP.

- By 2020 the Federal government will spend about 0 billion each year JUST TO PAY INTEREST ON THE DEBT! Given that the Federal government only collected about .1 TRILLION in taxes in 2009, 0 billion comes out to a whopping 43% of today’s tax collections. This 0 billion in annual interest payments comes out to about ,800 per family per year.

In another recent article by Rana Foroohar in the May 3, 2010 issue of Newsweek, we learn that:

- Greece’s financials have fallen so far that it will require an international bailout in order to keep its government solvent.

- Italy’s debt levels are five times as high as Greece’s and is also teetering on the brink of insolvency.
Germany may consider pulling out of the euro zone to protect its own economy and not be sucked under by the weaker euro countries.

- Great Britain has totaled more debt than any other major economy in the past eight years. Both Great Britain and the United States are in danger of losing their AAA credit ratings if their respective financials do not improve according to the article.

Why are all of these numbers important:

- First of all, if every American household is burdened with paying an additional ,800 a year to pay the interest on the national debt, that reduces how much they can spend to grow the economy and provide jobs by ,800 per household. Thus, debt levels this high would severely stunt economic growth.

- As foreign entities hold more and more of the \Federal government’s debt instruments, it gives them more and more leverage and power in international diplomacy, trade, etc. This reduces our freedom and ability to compete and manage world affairs to our advantage.

- As we eat up more and more of the world’s capital, investment in other areas of the world economy would suffer as the resources that may have been used to start a new factory or research new ideas is sucked into paying off national debts.

- As our debt levels grow exponentially, at some point in time investors will demand higher returns on U.S. Treasury bonds, much like we are seeing with the higher than average rate the Greek government now has to pay to get anyone to buy their government bonds. This, in turn, will accelerate out debt problems as the interest rate we have to pay goes ever higher.

- Finally, the political class, in their continual quest to not think through a problem or act courageously, may opt to just inflate our way out of debt by introducing high levels of inflation that would allow them to pay off old debt with highly inflated dollars of new debt. However, that would significantly reduce the buying power of all American consumers as their savings would buy less and less than it did yesterday.

The bottom line is that high debt and high deficit spending levels really matter and they really matter now. Unfortunately, the Obama administration and the sitting political class have opted not to do anything and allow a very weak deficit commission come

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