Will either candidate make tough cuts?
To the editor: Election time is upon us. It's a time when the country selects a candidate to steer us through our problems. Yet, not one in a hundred know the extent of this country's troubles. Most have been fed statistics sliced and diced by people who do not have the best interests of the country at heart.
The federal government currently spends around $3.82 trillion and collects $2.3 trillion in taxes. The balance of $1.5 trillion is borrowed. To translate the federal government's financial position to a family budget, lets remove eight zeros:
Annual family income: $23,000
Annual spending $38,200
New debt added to credit card every year: $15,000
Outstanding balance on the credit card: $160,714
This means 40 cents of every dollar spent is borrowed and will need to be collected to repay the lender in the future. How long do you think this can go on? To balance the budget and have a meaningful pay down on our past debts, the Federal budget would need to be cut in half. Since half of the budgeted items are "mandatory" like Social Security and Medicare, you would need to cut the other half, but that half is "everything else" including defense.
Even if the budget could be cut in half, you would only be paying down the outstanding debt at the rate of $300 billion per year ($3,000 in the household example.) At that rate, it would take 60 years, even with minimal interest, to pay off the $16 trillion ($160,714 in the household example) we already owe. Clearly something must change.
The $16 trillion debt is the amount of money already spent that the government did not have, so it has issued an IOU called a "bond" to get the money. This is the debt as calculated by the Financial Accounting Standards Board (FASB). If the government were a corporation it would be required to state its debt using Generally Accepted Accounting Principles, or GAAP accounting. In this method, money that the government has promised to spend on things like federal pension plans are added as liabilities. Many people are aware that the Social Security program is over $7 trillion underfunded, but how many know that in spite of all the noise about governments making sure the pensions of the postal employees are well funded, the federal pension program is over $5.7 trillion underfunded, or that the Medicare program is $64 trillion underfunded? These liabilities total well over $100 trillion.
When one attempts to add in the liabilities brought to the American taxpayer through the special bank lending and guarantee programs at the Federal Reserve, which must be estimated because they do not tell us what they are putting us on the hook for, some of the estimates double. Keep in mind that the entire value of all goods and services produced in the U.S. comes to "only" $14 trillion. Having liabilities amounting to more than 10 years of your entire production is bankruptcy.
If you break down even conservative estimates of the GAAP debt, which includes the promises the government has made to its citizens, it comes to $400,000 for every man, woman and child in the country. There are rich people in this country, but taxing them will not get you the nearly half a million dollars per person necessary to cover these promises.
The costs to regular commerce, run the court system, maintain the roads and bridges is "overhead" to an economy. At one time, the U.S. had some of the lowest corporate tax rates in the world. The tax rates stood still while the rest of the world lowered theirs and became more competitive. With the recent reduction in corporate tax rates in Japan, the U.S. now has become the country with the highest corporate tax rates of any industrialized nation in the world. If you add up federal, state and local government spending, it comes to 41.6 percent of the US gross domestic product. That level of "overhead" is unsustainable.
Both parties claim that they have plans to correct our path. There is no country in the history of the world that has racked up this kind of debt which has not found itself in a financial crisis. To say we are headed the way of Greece is an understatement.
We need a leader who will face these truths and make the painful cuts necessary to make the U.S. competitive again. Ron Paul proposed deep budget cuts by slashing five cabinets out of the government. Even the Paul Ryan budget has no significant cuts. The U.S. military budget is larger than that of the next 17 largest military budgets combined, yet Romney fails the Ryan budget for defense cuts.
I would have watched the presidential debates if the debate commission would allow a third party candidate like the Libertarian Gary Johnson to participate. He also proposes significant budget cuts by bringing the government in line with its constitutional duties. I have no interest in listening to two candidates who live in fantasy land.
The economy is addicted to stimulus. The first step to curing any addiction is admitting there is a problem; however, the nation is still in denial. History tells us that the U.S. bond market, and, therefore, the economy, is going to hit the wall eventually - regardless of who is elected president in 2012. I suggest that you prepare for impact.