4th Mar, 2010

SKY-HIGH SPENDING, ESCALATING BUDGET DEFICITS AND MOUNTING GOVERNMENT DEBT—— Trillions of Reasons to Oppose the Status Quo in Washington (PART V)

PART V

“RUNNING ON EMPTY”

Peter G. Peterson is a former Chairman of the Federal Reserve Bank in New York.  He critiqued the state of the national debt and congressional budgeting process in his book, Running on Empty. He calls for a comprehensive long-term budget for the next 50 years and not just one year at a time.  He calls for Congress to enact long term cost control reforms in all its current major programs.  He emphasizes the need to use the “accrual accounting” method that is so common in the private sector.  It tracks long term liabilities but “Congress pretends never to have heard of it.” (    ).  They are allowed to ignore some unfunded retirement obligations and leave over a trillion dollars off of its annual deficit calculations.  This is part of the illusory accounting methods that make government less than transparent.

Peterson also calls for a “generational impact statement” that calculates and discloses the long-term effects of any new spending or tax bill.  He notes that “what often makes marriage couples stop fighting is a good look at their kids.  Americans need to ask [their] leaders . . . to do the same – to look at our kids.”  (p. 224-225).  He further adds:

“Citizenship means looking out for one’s neighbors and giving a hand to those less fortunate. But it also means understanding the big issues of one’s time, seeing past the hype and spin, and working together to hold political leaders accountable.  Your time is coming, and when it does, your generation, like every generation, will get the government it deserves.  If it is distracted by pseudo-issues and gridlocked by special interest, it will be because too few of you paid attention and made your voices heard.

Finally, realize that we are all in this together.  Yes, your generation is fiscally encumbered as no generation before in American history.  Yes, you have not only a right but a duty to stand up to those who would borrow still more from you and your children.  . . . Work together to rebuild a society based on thrift, stewardship and justice between generations.”  (p. 232-233).

AMERICA’S ALARMING FOREIGN DEBT

It is not healthy for a nation to incur foreign debt as it has with China and Japan and other foreign countries.  The debt we are incurring is to cover internal shortages at home due to the unfunded budget decisions and government mandates and entitlements that have built up over decades.  Unless appropriate policy changes are made, projected spending for Medicare, Medicaid, Social Security and Federal employee retirement programs alone will by 2030 consume all tax revenues collected by the Federal Government.  (p. 39).

A huge economic challenge in America is the aging of our population and the cost of meeting those upcoming retirement needs.  Just as the “boomers” once overwhelmed the schools as children, the job market as they came of age and the housing market as mature adults, they are now on track to overwhelm America’s retirement systems as they enter elderhood . . . As recently as 1960, there were 5.1 taxpaying workers for every social security beneficiary.  This ratio is officially projected to fall to 2.2 by 2030.  By 2040, the Census Bureau projects that the population age 65-74 will grow by roughly 85% and the population age 85 and over will grow by roughly 235%.  (p. 61).

Beginning in 2008, the baby boom generation reached 62.  That is the earliest age at which Social Security retirement benefits may be claimed.  That is the age when about half of all prospective beneficiaries choose to retire.  By 2011, those individuals will reach 65 and be eligible for Medicare.  We are entering an era of enormous demands on our nation’s financial resources.

The accounting and bookkeeping practices of Congress would not be tolerated in the private sector.  As Peter Peterson has written, “If Congress had to abide by its own rules, it would have to throw itself in jail for fraudulent accounting.” The unfunded Social Security and Medicare benefits liability, which the Congressional books and records do not properly account for, amounts to more than $27 trillion.  It is called “unfunded” because Congress doesn’t actually have a penny of this money in the bank.

The ultimate test of a moral society is the kind of world it leaves to its children. (p. 27).  The fiscal and moral issues that we are faced with as we move into the second decade of the 21st Century raise serious concerns about that transition.

A RETURN TO CORRECT PRINCIPLES —- WORKING TO REGAIN THE PEOPLE’S CONFIDENCE

Amazingly, after they just completed what is said to be the worst fiscal year in America’s history, the President and the Democrat majority in Congress are willing to incur trillions of dollars of new and additional debt through their healthcare reform experiment.

Alan Greenspan has said, “All recessions are psychological”.  Consumer confidence is extremely low right now as we watch and feel the adverse effects of the mishandled economy by our national leaders. Congress seems to add to rather than resolve those difficulties.  During the recent fiscal year, revenues fell 17% and spending surged 24%.  That is without the new healthcare reform experiment, which would double and nearly triple the new debt created this year. In just one year, President Obama has taken the deficit up to nearly 75% of the previous 8 years combined. He is on track to take our nation’s debt and deficit spending to unimaginable new levels.

If the President is smart, he will leave the Bush tax cuts alone and not add new and unnecessary burdens to the current mix. Things are mixed up enough already.  There is surely a lot of work to be done and we need the right kind of “change” like never before.  Unfortunately, it’s not happening.  Wrong principles and wrong decisions are taking us in the wrong direction.

Responses

This was good. What can be done? The President heads us in the wrong direction and congress follows or is it the other way? no matter…wrong direction.

Dear Lavar:

Great article! It is nice to see that there have been some Republican victories as of late, and that the message may be getting through a little bit in Washington. Nonetheless, many politicians are still out of touch with the average voter/taxpayer/citizen. Many companies get into trouble looking only at the upcoming quarter, or year. A longer-term budgeting process makes sense for everyone.

We are glad that you are carrying the flag for us! You are right on the mark in your philosophy and stance.

Best Regards,

Jim and Sarah Peters

Thank you for your comments and your confidence. Share the issues you would like us to address going forward and I will cover those as well in upcoming newsletters. Your insights are much appreciated.

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