(Released on 7/11/10)
In response to many of our readers regarding the statistics in last week’s commentary, they come from a new book entitled “Comeback America” written by the former comptroller of the United States and now the CEO of the Peter G. Peterson Foundation, David Walker.
As comptroller of the United States, Walker is more than just familiar with the fiscal facts of our country having lived and breathed those numbers. He warned Congress and the administration for years of the coming fiscal doom unless serious reforms of federal spending programs are undertaken. Last week we pointed out that as of the end of the federal fiscal year on September 2008, total liabilities and unfunded promises amounted to more than $56.4 trillion, more than three times what it was in 2000. It is estimated by the end of September last year, that fiscal hole had grown to more than $63 trillion.
Most of us aren’t even millionaires so it is difficult to conceive what a trillion dollars is. As one California congressman noted, ONE trillion dollars doesn’t even equal spending a million dollars a day since the birth of Christ. Now multiply that times sixty-three (63) and that was the size of the black hole last year. Goodness only knows how much larger it will be at the end of September this year! Oh, yes, you can bet it will be even larger thanks to the growing interest on the money the nation has borrowed to fund all sorts of programs and the Social Security and Medicare programs that have been set on autopilot thanks to promises made by past Congressional sessions and administrations.
And what happens as this shortfall continues to grow? And these debts are very real, unlike the imaginary money the federal government has resorted to in the past by merely printing more money. We have run the course on that option – that is to merely print more money – as we watched the value of the dollar fall in recent years. The recent reversal of the dollar’s fortunes against the European Euro is a result of the very crisis that America will be faced within the coming years, with mountains of debt coming due for Greece and the realization that many in the European Union (EU) may be faced with the identical fiscal crisis as the tab comes due to pay for the overly generous benefits that workers in Europe have come to expect.
While Americans don’t enjoy the generous benefits that European workers enjoy such as lengthy paid vacations and short work weeks, Americans have been promised generous health care benefits under Medicare and retirement benefits under Social Security. So it is not so much that it is America that is solely in this financial quagmire as much as it is a global challenge. What singles out America is our past image as the strongest and most powerful nation on the earth and that has held us from falling into financial ruin, at least in the near term. But financial ruin can and will be on the distant horizon unless our nation’s leaders undertake reform.
Those reforms and solutions are not complex and one doesn’t have to be the proverbial “rocket scientist” to figure it out, but the solutions will be hard for Americans to swallow. For example, we have to come to understand that cutting taxes and increasing federal spending are not synonyms. Yet, that is what Americans believe, that taxes can be reduced while expecting the federal government to do more.
Just from our own lessons we learned with our checkbooks, we, as families, cannot continue to spend on dinners out, movies and trips to the water park if there isn’t enough money in our checkbooks or we have maxed out our credit cards. For the federal government, it has done both and continues to spend. At the same time, tax protestors and tea party advocates demand that taxes be cut and, no doubt, will bring pressure to bear on Congress as many of the generous tax cuts initiated by the previous administration sunset this year.
The common sense solution to this growing fiscal black hole is that first we must curtail spending and making promises of “milk and honey” to voters/taxpayers. On the other hand, if we cannot break our addiction to the generous promises of the federal government, then the only alternative is to raise taxes. Walker believes that absent any significant reforms to current government programs, federal taxes will have to double from current levels by the year 2030. This would mean that there will be less money for education and health care and the proverbial social safety net.
Either alternative would demand the extreme, a choice that is more than likely unacceptable politically. Thus, the common sense solution must involve both cutting spending and raising taxes.