Let's review some of the cold hard facts about the current financial condition of the United States. Deficits will not become surpluses in the foreseeable future. Discretionary spending for social programs is going to get squeezed, as more and more money flows into big entitlements. Surpluses from promised improved economic conditions will be woefully small compared to the growing national debt. The president's plan to address financial problems does not yet include any meaningful spending cuts (note: In a recent interview, on Meet the Press, the president said he reduced spending by $1 trillion in 2011. Actually, he increased federal spending by $147 billion and increased the national debt by more than $1 trillion).
If the country moves forward and does not address spending, several issues will eventually drag our nation down. They include:
• The U.S. will not be able to borrow more money and/or print money indefinitely without serious repercussions. These could include reluctance on the part of global creditors to lend. This in turn would increase borrowing rates for the Treasury. Similarly, printing money eventually will increase inflation, despite assurances to the contrary. Hyper inflation would have a devastating impact on our nation’s purchasing power and the cost of living for our citizens.
• Keynesians, such as The New York Times' Paul Krugman, continuously assure us that spending is the key to financial recovery. This concept is axiomatic, to a degree. There is a level of spending by the government that surely will prop up the economy thereby avoiding significant long-term damage. However, it has limits, and the longer Congress waits to address spending and the resultant national debt, the more overbearing the problem will become. There seems to be no middle ground for Keynesians when it comes to spending.
• An economic recovery in the U.S. that will make a meaningful dent in the deficit has never happened to the extent necessary to reduce the projected levels of debt during the next decade. If projections of $25 trillion or more are even close to being accurate, the U.S. will be in hock for a very long time assuming that it posts $1-3 trillion surplus indefinitely, a virtual impossibility based upon history (see below).
• The burden of greater debt is going to fall on the shoulders of millennials if entitlements are not reformed. The sh*t will hit the fan in approximately 2033. So, if you are about 42 years old, you may have a problem collecting Social Security when you turn 62. These payments along with Medicare, which also becomes available at about the same age, are surely in jeopardy based upon forecasts. An effort to slow the drain on Social Security caused by the vast number of baby boomers reaching the eligible age will only serve to benefit young people. The choices are to do nothing and receive much less when you need it, or reform the system now and assure it will be solvent when the next generation needs money in retirement. Ironically, this issue has no direct impact on the rich, if you assume the highest tax rates remain the same indefinitely.
It is shocking that the president is refusing to even consider entitlement reform, and more shocking that millennials, the generation that will be most affected by inordinately high levels of debt, are not clamoring for action. Frankly, many older people already receive Social Security payments and will likely be gone before payments are in serious jeopardy. My personal interest in this problem is not for my own sake but for my children and grandchildren.
To make progress on the debt issue, several myths should be debunked. The economy cannot realistically grow fast enough to bring the national debt under control. We are currently not in a recession technically, and yet, our annual deficits are still $1 trillion or more. During the Clinton administration, surpluses (if you believe the numbers are accurate) only reached a highpoint of $230 billion, the highest in history. Should Americans believe anyone who projects an economic recovery significant to make a dent in the current $16 trillion national debt? I do not.
Excessively increasing the money supply will increase inflation at some point. The last thing our citizens need is higher costs without accompanying higher wages. I am dumbfounded that some economists have been lured into such a false sense of security about inflationary risk; maybe they were born after the last round of devastating inflation in the 1980s that affected our country.
Spending cuts do not directly affect rich people, the money not spent on pork barrel projects, outdated social programs, and the like does not go into the pockets of the 1%. It is true that taxes are less likely to increase if the country's financial condition is brought under control. But, there is a limit to the amount of tax hikes the system can withstand. It should also be noted that Obama reaped $600 billion over ten years from the wealthy on January 1, 2013. This amount is a rounding error compared to $16 trillion of debt.
Millennials are on deck. They will experience the brunt of future cuts in services and a likely tax hike for the middle class. Twenty years will pass quickly, and the next generation will be hurt badly if Congress continues to kick the can down the road.