America The Bankrupt

GAO Head Takes Fiscal Show On The Road To Warn Of Trouble Ahead

(AP)  David M. Walker sure talks like he's running for office.

"This is about the future of our country, our kids and grandkids," the comptroller general of the United States warns a packed hall at Austin's historic Driskill Hotel. "We the people have to rise up to make sure things get changed."

But Walker doesn't want, or need, your vote this November. He already has a job as head of the Government Accountability Office, an investigative arm of Congress that audits and evaluates the performance of the federal government.

Basically, that makes Walker the nation's accountant-in-chief. And the accountant-in-chief's professional opinion is that the American public needs to tell Washington it's time to steer the nation off the path to financial ruin.

From the hustings and the airwaves this campaign season, America's political class can be heard debating Capitol Hill sex scandals, the wisdom of the war in Iraq and which party is tougher on terror. Democrats and Republicans talk of cutting taxes to make life easier for the American people.

What they don't talk about is a dirty little secret everyone in Washington knows, or at least should. The vast majority of economists and budget analysts agree: The ship of state is on a disastrous course, and will founder on the reefs of economic disaster if nothing is done to correct it.

There's a good reason politicians don't like to talk about the nation's long-term fiscal prospects. The subject is short on political theatrics and long on complicated economics, scary graphs and very big numbers. It reveals serious problems and offers no easy solutions. Anybody who wanted to deal with it seriously would have to talk about raising taxes and cutting benefits, nasty nostrums that might doom any candidate who prescribed them.

"There's no sexiness to it," laments Leita Hart-Fanta, an accountant who has just heard Walker's pitch. She suggests recruiting a trusted celebrity — maybe Oprah — to sell fiscal responsibility to the American people.

Walker doesn't want to make balancing the federal government's books sexy — he just wants to make it politically palatable. He has committed to touring the nation through the 2008 elections, talking to anybody who will listen about the fiscal black hole Washington has dug itself, the "demographic tsunami" that will come when the baby boom generation begins retiring and the recklessness of borrowing money from foreign lenders to pay for the operation of the U.S. government.

He's dubbed his campaign the "Fiscal Wake-Up Tour."

To show that the looming fiscal crisis is not a partisan issue, he brings along economists and budget analysts from across the political spectrum. In Austin, he's accompanied by Diane Lim Rogers, a liberal economist from the Brookings Institution, and Alison Acosta Fraser, director of the Roe Institute for Economic Policy Studies at the Heritage Foundation, a conservative think tank.

Their basic message is this: If the United States government conducts business as usual over the next few decades, a national debt that is already $8.5 trillion could reach $46 trillion or more, adjusted for inflation.

A hole that big could paralyze the U.S. economy; according to some projections, just the interest payments on a debt that big would be as much as all the taxes the government collects today.

And every year that nothing is done about it, Walker says, the problem grows by $2 trillion to $3 trillion.

People who remember Ross Perot's rants in the 1992 presidential election may think of the federal debt as a problem of the past. But it never really went away after Perot made it an issue, it only took a breather. The federal government actually produced a surplus for a few years during the 1990s, thanks to a booming economy and fiscal restraint imposed by laws that were passed early in the decade. And though the federal debt has grown in dollar terms since 2001, it hasn't grown dramatically relative to the size of the economy.

But that's about to change, thanks to the country's three big entitlement programs — Social Security, Medicaid, and especially Medicare. Medicaid and Medicare have grown progressively more expensive as the cost of health care has dramatically outpaced inflation over the past 30 years, a trend that is expected to continue for at least another decade or two.

And with the first baby boomers becoming eligible for Social Security in 2008 and for Medicare in 2011, the expenses of those two programs are about to increase dramatically due to demographic pressures. People are also living longer, which makes any program that provides benefits to retirees more expensive.

Medicare already costs four times as much as it did in 1970, measured as a percentage of the nation's gross domestic product. It currently comprises 13 percent of federal spending; by 2030, the Congressional Budget Office projects it will consume nearly a quarter of the budget.

Economists Jagadeesh Gokhale of the American Enterprise Institute and Kent Smetters of the University of Pennsylvania estimate that by 2030 Medicare will be about $5 trillion in the hole, measured in 2004 dollars. By 2080, the fiscal imbalance will have risen to $25 trillion. And when you project the gap out to an infinite time horizon, it reaches $60 trillion.

Medicare so dominates the nation's fiscal future that some economists believe health care reform, rather than budget measures, is the best way to attack the problem.

"Obviously health care is a mess," says Dean Baker, a liberal economist at the Center for Economic and Policy Research, a Washington think tank. "No one's been willing to touch it, but that's what I see as front and center."

Social Security is a much less serious problem. The program currently pays for itself with a 12.4 percent payroll tax, and even produces a surplus that the government raids every year to pay other bills. But Social Security will begin to run deficits during the next century, and ultimately would need an infusion of $8 trillion if the government planned to keep its promises to every beneficiary.

Why is America so fiscally unprepared for the next century? Like many of its citizens, the United States has spent the last few years racking up debt instead of saving for the future. Foreign lenders — primarily the central banks of China, Japan and other big U.S. trading partners — have been eager to lend the government money at low interest rates, making the current $8.5-trillion deficit about as painful as a big balance on a zero-percent credit card.

In her part of the fiscal wake-up tour presentation, Rogers tries to explain why that's a bad thing. For one thing, even when rates are low a bigger deficit means a greater portion of each tax dollar goes to interest payments rather than useful programs. And because foreigners now hold so much of the federal government's debt, those interest payments increasingly go overseas rather than to U.S. investors.

More serious is the possibility that foreign lenders might lose their enthusiasm for lending money to the United States. Because treasury bills are sold at auction, that would mean paying higher interest rates in the future. And it wouldn't just be the government's problem: All interest rates would rise, making mortgages, car payments and student loans costlier, too.

A modest rise in interest rates wouldn't necessarily be a bad thing, Rogers said. America's consumers have as much of a borrowing problem as their government does, so higher rates could moderate overconsumption and encourage consumer saving. But a big jump in interest rates could cause economic catastrophe. Some economists even predict the government would resort to printing money to pay off its debt, a risky strategy that could lead to runaway inflation.

Macroeconomic meltdown is probably preventable, says Anjan Thakor, a professor of finance at Washington University in St. Louis. But to keep it at bay, he said, the government is essentially going to have to renegotiate some of the promises it has made to its citizens, probably by some combination of tax increases and benefit cuts.

But there's no way to avoid what Rogers considers the worst result of racking up a big deficit — the outrage of making our children and grandchildren repay the debts of their elders.

[bellal-2009]

tejasdemo, I used to think that way too. The reality is it's a corrupt mess of overspending, theivery, and fleecing with you and I picking up the tab. I'm completely convinced that govt. cannot manage anything efficiently and cost effectively.

[tejasdemo]

Taxes arent bad you know. What's bad is how their spent. Properly spent, they pay for hospitals (which in turn have to hire people, which in turn produces more taxable income).

They pay for roads ( folks have to be hired for that too)

They pay for services for the mentally ill so they dont end up on the streets.

They pay for police and fire departments so we are safe and our children grow up feeling safe and confident so they end up informed,productive citizens instead of becoming angry and disenfranchised.

They pay for education. Books, playground equipment, field trips. (notice I did not say teacher salaries...they already make enough and paying them more is a cop out to a good, well rounded education.

They pay for intiatives for cleaner air so you and I and our children can breathe and live.

Stop cutting back taxes and start pushing for reasonable taxes that will benefit all of us.

[bluestardad]

stay the course?

[bellal-2009]

whoops, misspelled implement.

[bellal-2009]

thewordengin, I have absolutely no idea how we could possibly impliment any of your suggestions. I personally don't consider wealthy people criminals. Bill Gates' and Warren Buffet's billions are funding the Gates Foundation which just may irradicate some third world diseases and stop AIDS infection. Bono and Oprah are funding aid to Africa.

[thewordengine]

Let's fix this problem now. First, stop expensive U.S. aggressions on foreign soil. Second, bring charges against big oil for obviously gauging us this last summer, third, stop talking minimum wage increase and start talking salary caps for the glutonous rich (is it too much to ask for a family to live on less than $10 million a year?), fourth, identify candidates of third parties that can win elections (the republicrats are all funded by corporations that are only concerned with their bottom lines and shareholders stock dividends). We the working class drastically outnumber the criminal class (those making more than $10/year), we have to stop buying into corporate funded advertisements, and start employing common sense, or the day will come when we live in shanti's outside of the wealthy suburbs. Change now!

[tejasdemo]

Republicans are responsible for this mess. Period. And they're rich friends are laughing all the way to the bank

[bellal-2009]

sharncedar, social programs are great we have a wonderful social safety net. It's the entitlement programs that are going to bury us. Young people just assume there will be no Social Security, Medicare or anything else when they grow up. And you know what, they'll probably be better off with that line of thinking. They will learn to fund their retirement and take tax advantages for doing so. They will learn to be responsible for themselves, think ahead and plan for a rainy day.

[mjv2944]

Needy and the greedy, and guess who's winning. The rich will take the last slice of bread from your kids, just to keep the life style with which they are accustomed. They don't care, and they definitely want to have a two class system. If I remember right, Clinton, even with all teh problems he had, left a surplus which ahs disappeared quite rapdidly under those so called conservative repubs. Remember, war makes the rich richer. Stay the course will only bring certain economic failure.

[bluestardad]

MORE BANKRUPCIES second only to 1930, Sales of Existing homes at record lows, Foreclosures at Record Highs, but hey we are building more and bigger houses to sit and stand empty. Guess the economy is not as good for the average consumer that we are told by the government spin misters. %u201CStay the Course%u201D vote Republican. EAT ROOTS!

[sharncedar]

This is from MSNBC:

"Federal Reserve Board's Survey of Consumer Finances shows that nearly 40 percent of the country's wealth is held by the richest 1 percent."

Is this statistic true? If it is, that is a very serious matter, a matter of crime. It's unAmerican. For these same folks to dare to whine about the cost of social programs seems suicidal to me. You would think they would hide in their ugly McMansions and cower in fear there, not come out and try to take the food off the table of some poor old people or take the medicine from some poor kid.

297 million of us. 3 million of them. They have half of everything, and are trying to take the rest. Perhaps we should discourage them.

[sharncedar]

This is another attempt by big banking and the bloodsucking thieves to try to cut our benefits and social security.

The "bankruptcy" of America is being intentionally engineered to lower the standard of living and get rid of the safety net, which really torques the most evil rich people who infest our country like vermin. They want one thing and one thing only - compliant and easily oppressed servants. They want to hurt and break Americans until we are willing to work as slaves, to clean their toilets, to raise their kids, to die for them while they drink champagne and laugh on our graves.

[bluestardad]

What do we Leave Behind In Iraq if we leave now?
The answer to this question is that we leave no more dead or maimed American Soldiers, family members, contractors, nor journalists. We take with us our two Billion TAX Dollars a week back to America and put it to use in America. Leaving the forty plus billion tax dollars still unaccounted for behind in Iraq to be used as those who took them see fit. We leave the Iraqi people who are currently fighting each other to fight. There will be no more need for (IED) Improvised Explosive Devises because we would have removed all our lightly armored Hummers and equipment. Halliburton will have to renegotiate their contract with the Iraqi leaders. So you see we can disengage from Iraq without any %u201CImmediate Threat%u201D of harm to the American People and without the fear of them coming after us with a mushroom cloud, yellow cake, or chemical weapons. It is a %u201CSlam Dunk%u201D that there are currently people at the Rand Corporation, Harvard Business School, Ohio State University, Virginia Military Institute, at most American High Schools or other businesses, that if ask, can come up with a operational plan to disengage from Iraq and bringing our troops and equipment home safely to America.

[gladetryst]

Vote Libertarian!

[manner6]

"Medicare so dominates the nation's fiscal future that some economists believe health care reform, rather than budget measures, is the best way to attack the problem."

Oh really? This could have happened during the Clinton administration. REMEMBER?

[bellal-2009]

Sorry rbird, that was a bit callous. I certainly was not referring to people who cannot afford electricity. I meant the retirees, and there are many, who do not need freebies. The ones who retired from companies with big pension packages. It seems as though the current generation of retirees has it better than any previous or future generations.

[jsilver2th]

So why does El Presidente say everything's great- this is his big spending binge.

[pjkbp]

Sorry about the duplicate posts...
I clicked multiple times thinking it wasn't working.

[pjkbp]

FINALLY! Thank you for this article!
I've been preaching about how the US is Bankrupt for many years.
Americans have false perceptions built mostly by the Media in this country. The Media not affected by unfair trade. "foreign competition" or anything else outside the good old USA. thinks there is no such thing as Steel dumping, or any other unfair practice by other countries.
Factories closing all over the US for the last 30 years have not attracted more than a few seconds on the nightly news. We let foreign auto makers build plants in our country while not paying US taxes without a single article in the Press about how this in hurting our economy. The fact that the Japanese keep all US autos, trucks and just about every other US product out of Japan is never a topic of how this is hurting the US economy. The Japanese and others suck billions out of our economy while all the US does is go into debt burrowing money from these same countries. We need to wake up and address UNFAIR TRADE and OUR NATIONAL DEBT.. Wake Up America! When GM and FORD's stock goes up so does our economy. GM, FORD and our US companies bring money into our economy instead of sending it overseas. Foreign Plants in the US are here to do one thing. suck money out of economy! They trade one job for 1000, we gain one job and loose a thousand while our national debt goes up and our children will pay dearly and they will have a lower standard of living.

[pjkbp]

FINALLY! Thank you for this article!
I've been preaching about how the US is Bankrupt for many years.
Americans have false perceptions built mostly by the Media in this country. The Media not affected by unfair trade. "foreign competition" or anything else outside the good old USA. thinks there is no such thing as Steel dumping, or any other unfair practice by other countries.
Factories closing all over the US for the last 30 years have not attracted more than a few seconds on the nightly news. We let foreign auto makers build plants in our country while not paying US taxes without a single article in the Press about how this in hurting our economy. The fact that the Japanese keep all US autos, trucks and just about every other US product out of Japan is never a topic of how this is hurting the US economy. The Japanese and others suck billions out of our economy while all the US does is go into debt burrowing money from these same countries. We need to wake up and address UNFAIR TRADE and OUR NATIONAL DEBT.. Wake Up America! When GM and FORD's stock goes up so does our economy. GM, FORD and our US companies bring money into our economy instead of sending it overseas. Foreign Plants in the US are here to do one thing. suck money out of economy! They trade one job for 1000, we gain one job and loose a thousand while our national debt goes up and our children will pay dearly and they will have a lower standard of living.