The Turning Point for "Entitlement" Programs

By Alan Caruba

The result of all the drama emanating from Capitol Hill and the White House has been to get a lot of people wondering about the sustainability of Social Security and Medicare/Medicaid.

Both Democrats and Republicans agree that the “debt ceiling”, the limit on how much the federal government is permitted to borrow, must be raised. It is essentially an accounting fiction because, since 1960, it has been raised 78 times; 49 times by Republican presidents and 29 times by Democrat presidents.

What makes it an issue now? $14.3 trillion dollars worth of U.S. debt.

It is not just the size of this debt, probably the greatest that any nation has ever owed in history, it is that it was initially due to a financial rescue program in 2008 when President Bush and Congress sought to avoid a collapse of Wall Street and banks. The TARP funds were eventually repaid.

Part of the current debt is due to massive spending programs by the Obama administration, allegedly to “create or save” jobs and “stimulate” the economy. They did neither.

The Obama spending programs were, in essense, Democrat slush funds parceled out to the party’s faithful to ensure that teachers and other public service workers would be retained, that General Motors and Chrysler could avoid the normal bankruptcy procedures that would have restructured both companies—and likely reduce union power, and that favored contractors could receive funding for “shovel ready projects.”

A long term, on-going problem has been the current and future debt is attributed to meeting the obligations of Social Security, introduced in 1935 by President Franklin D. Roosevelt, and to the high costs of Medicare and Medicaid. The latter became law on July 30, 1965 as an amendment to the existing Social Security legislation.

In sum, both programs reflect the Democratic Party’s commitment to “social justice” (wealth redistribution) that began in the early part of the last century. Republicans were not immune to this. President George W. Bush added to the costs of Medicare with prescription coverage.

The battle on Capital Hill is between the Democrats, led by President Obama, who wants to raise taxes in the midst of what is called a recession but is truly a Depression 2.0. Raising taxes is what President Roosevelt did and it simply prolonged the Great Depression by sucking money out of the free market economy.

On the other side of the non-negotiating table are the Republicans who, thanks to the Tea Party members of the House, have been forced to reclaim their reputation as a party devoted to limited government and prudent fiscal policies.

It is assumed by all that the debt ceiling with be lifted. It is unknown whether the nation’s credit rating of AAA will be reduced as the result of a failure to substantially cut spending and, far more importantly, meet its obligation to repay its debt. Indeed, the central issue is all about credit.

A nation that must borrow billions every day to meet its obligations cannot afford to lose a rating that is rooted in the very beginning of its history when Alexander Hamilton, the first Secretary of the Treasury, insisted that all Revolutionary War debts be paid in full.

Social Security is the largest government benefit program in the world. It represents more than 20% of the federal budget and, together with Medicare/Medicaid, they accounted for 53% of total federal outlays in Fiscal Year 2008, with net interest payments accounting for an additional 8.5%.

Here’s the rub. At the time that Social Security was created, somewhere between 10 and 14 workers were paying into the system for every recipient receiving a check. By 2010, the ratio was about 3 workers paying in for 1 taking out.

Social Security is unsustainable.

When President Roosevelt was pitching Social Security, he promised that no worker would ever pay more than 1% of their income into the system. By 2010, self-employed persons like myself were paying 15.3% of their income into Social Security and Medicare/Medicaid.

President Roosevelt promised that Social Security would be self-sustaining and that its benefits “should not come from the proceeds of general taxation.” In practice, although a “trust fund” was set up, every dollar contributed to Social Security has gone into the general revenue fund and has been spent by Congress in any manner it saw fit.

In 1935 no one expected that Americans would routinely be living into their seventies, eighties, and nineties. The age at which recipients could begin to draw benefits was 65 and that coincided with the average lifespan nearly 80 years ago. Today, men on average live to age 78 and woman outlive them by a wide margin.

In the same fashion that the House has voted to repeal Obamacare and 26 States have joined together to argue in court that it is unconstitutional, Social Security and Medicare/Medicaid have arrived at a moment in time, a turning point, when both must be dismantled—assuming of course that the Congress and White House manage to avoid a financial catastrophe for all Americans.

© Alan Caruba, 2011

More about → The Turning Point for "Entitlement" Programs

Destroying the Dollar

By Alan Caruba

Something I never thought I would ever see in my former hometown, a wealthy New Jersey suburb of New York City, was a Dollar Store, but one opened recently in a former supermarket. Dollar Stores are giving Wal-Mart, Target, and similar outlets a run for their money and it’s not hard to see why. The local one has just about everything you could need and all for astonishing low prices.

In countless ways people are looking to save money these days. The looming problem, however, is the question of what happens when Americans wake up to learn that even a dollar can no longer buy anything?

“When Faith in U.S. Dollars and U.S. Debt is Dead the Game is over – And that Day is Closer than You May Think” is the cheery title of an article recently posted on EconomicCollapse.com.

There’s a reason why both the mental condition and the financial condition are called a Depression. It’s hard to be happy about anything when your nation’s currency is not worth the paper on which it is printed. The Federal Reserve’s answer, some fear, is to print more money and to continue to buy U.S. debt with it. It is doubtful, however, this Ponzi scheme will continue.

There isn’t a day that goes by when some U.S. government agency doesn’t send me a news release to announce that it is giving millions for something and, if our elected leaders are negotiating a solution to this insane spending and giving, there is precious little evidence of it.

New unemployment numbers are up. The administration continues to churn out thousands of pages of new regulations. It has stalled the energy sector from oil and gas exploration that could create thousands of jobs. And China is divesting itself of U.S. securities, anticipating a bad outcome for our economy.

Meanwhile, the so-called “entitlement” programs represent sixty percent of all the money the government spends. Without some changes, these programs are unsustainable. The Democrats’ answer is to depict Republicans as wanting to kill grandma.

The Gross Domestic Product

In a Mid-May article posted on American Thinker.com, Randal Hoven spelled out a number of facts that are overlooked in the political battles between liberals and conservatives. “The entire debate is about a difference that is less than 4% of GDP. According to International Monetary Fund figures, government in the U.S. is spending 41% of GDP in 2011. The current debate is about whether government spends 40% or 44% of GDP.”

The government is absorbing far too much of the Gross Domestic Product for its own purposes. We are in a league shared by Greece and other nations with a serious financial crisis.

While the federal and state governments plunders every cent they can extract from those still fortunate to have a job, any investments, or will die at some point, both Republicans and Democrats have participated in expanding government since the last Great Depression.

While President Obama’s constant blaming of George W. Bush for his first two years became a joke, Hoven notes that Bush expanded Medicare with a prescription program and many of the “liberal” programs we conservatives denounce occurred while Bush was president. “No Child Left Behind”? Bush. Outlawing light bulbs? Bush. Ethanol subsidies? Bush.

The absurdity of President Obama’s mantra that millionaires and billionaires be taxed more ignores the fact that such taxes, even if we took all of their money, would barely cover the rate at which government spends and wastes such income.

While negotiations, we’re told, are occurring or will, the greatest impediment is Obama’s open disdain and dislike for Republicans. This cannot be underestimated in terms of finding a solution.

At the heart of our current problems is that, having inherited a financial crisis, Obama devoted the last two years to a government takeover of both the health care industry and the financial sector with two bills, each of which exceeded 2,000 pages and vastly expanded government bureaucracy.

More government control of the economy is the last thing this nation needs at this time. Or any time.

Social Security will be insolvent by 2037 and, together with Medicare, they have unfunded liabilities of $107 trillion in today’s dollars. That is seven times the size of the U.S. economy and ten times the size of the national debt.

The real problem for the United States is the falling confidence and faith in the U.S. dollar. It is the default reserve currency of the world. Just about everything trades in U.S. dollars. It’s not only Americans losing faith in our government’s ability to maintain its value, it is everyone else.

In April, Standard & Poor’s downgraded its outlook on U.S. government debt from “stable” to “negative.” It warned that the U.S. could lose its prized AAA rating. Unless Congress and the current occupant of the White House take specific steps to fix Social Security and Medicare, the dollar compared to other major national currencies will continue to fall. It has fallen 17% since 2009. Moody’s rating service has also issued its own warning.

Pretty soon, nobody will want to buy U.S. securities used to currently borrow 41 cents of every dollar the government spends. The U.S. borrows about $168 million every single hour.

In April, CNSnews reported that “the federal government made $125 billion in ‘improper payments’ in fiscal 2010, more than eleven times the total 2010 spending by the U.S. State Department.”

That’s a government that doesn’t know what it’s doing and isn’t in a hurry to fix it.

That’s why a Dollar Store just opened in one of the most affluent suburbs of New Jersey.

I know the economists and others keep saying that the Recession that began in 2007, ended in 2009. I know they can and will cite all manner of good economic indicators, but if faith in the U.S. dollar continues to falter, it won’t matter.

© Alan Caruba, 2011

More about → Destroying the Dollar

The Fog of Numbers

By Alan Caruba

There are several reasons why Rep. Paul Ryan and his fellow Republicans in Congress want to cut four trillion dollars from the 2012 budget. Here are just four of them:

• The 1994-1996 Social Security Advisory Council

• The 1995 Bipartisan Commission on Entitlement and Tax Reform.

• The 1999 National Bipartisan Commission on the Future of Medicare

• The December 2010 bipartisan Commission on Fiscal Responsibility and Reform.

Most of us have heard of “the fog of war” in which the participants have difficulty finding the enemy, get disconnected from their own lines, suffer “friendly fire” deaths because of the confusion of the battlefield, and must contend with the awful fear that war embodies.

Lately, I’ve been thinking about the fog of numbers as Americans struggle to understand just how seriously our entire national economy is threatened. Like some weird kabuki theatre, we watch politicians engage in insane disputes over cutting a few billion from the torrent of spending and borrowing that has got us to this point.

In late March, the Cato Institute published Policy Analysis No. 673, authored by Michael Tanner. The title was “Bankrupt: Entitlements and the Federal Budget.” I grant you this does not have the enticement of an article about Charlie Sheen or Kim Kardashian, but it does have the mordant power of reading one’s own obituary in advance.

Tanner begins by noting that the U.S. government “is about to exceed its statutory debt limit of $14.3 trillion” noting that “if one considers the unfunded liabilities of programs such as Medicare and Social Security, the true national debt could run as high as $119.5 trillion.

To put this in perspective, the entire annual gross domestic product, GDP, of the United States is about $14 trillion, so the debt limit means that the government needs every single dollar earned from the sale of all products and services just to meet its current debt limit. Some limit! And Congress will have to increase it in order to avoid having the U.S. default on the trillions it has borrowed.

Starting with the Roosevelt era during the Great Depression Congress looked for “a safety net” that would protect seniors who had worked their entire life. The answer was Social Security, but at the time, most people died well before the payback began at age 65. The government got to keep all the money they were required to pay in. What no one anticipated was that people in 2010 would have a life expectancy of 78 years of age and many lived well into their 80s and 90s.

This was followed by Medicare, an expansion of the Social Security program to provide health insurance coverage to people 65 and over or for those meeting other special criteria. It was signed into law on July 30, 1965 by Lyndon B. Johnson, famed for the failed “War on Poverty” and the failed Vietnam War which he escalated while in office.

Now add to those programs the fact that the Bush43 and Obama presidencies “have been the two most profligate political eras of modern times. Federal government spending has nearly doubled over the last ten years. As a result, we now face budget deficits that are unprecedented in the post-World War II era.”

A deficit is the difference between the revenue the government takes in and what it pays out. “In Fiscal Year 2011, the federal government will spend $1.65 trillion more than it takes in…this represents the second largest budget deficit in the last 65 years.”

You will hear that the cost of the wars we have been fighting since 9/11 is to blame, but those coasts are in actuality “only a small fraction of the deficits.” What you probably have heard is that government workers are actually making more money than those employed in the private sector.

Here, too, the numbers are scary. Those employed producing goods of all kinds peaked in 2000 at 24.6 million. By 2007 the numbers for government works and private sector workers were about equal at 22.2 million. By March 2010 the private sector workers had decreased to 18.6 million, but the government employees had increased. We are reaching a point where too few people are making things and they are being taxed to pay for government workers who push paper.

These are numbers worth keeping in mind as we begin the early stages of the 2012 election campaigns and we watch the present Congress address an unsustainable situation created by previous congresses going back to the 1930s.

The Republican caucus will announce its budget and it will seek to trim trillions over the next decade. That’s all to the good, but it may not be enough if government continues to grow and continues to spend.

© Alan Caruba, 2011

More about → The Fog of Numbers

Spinning the Democrat Loss

By Alan Caruba

It is now generally agreed that the Democratic Party will sustain large losses in the midterm elections. It will be interesting to see how their candidates and leadership explain why they lost.

My guess is that we shall hear a lot of talk about racism. This is the chief charge leveled against the Tea Party movement and it is utterly without substance. Democrats, however, are very likely to spin the loss as bigotry in general and, in particular, directed against America’s first black president. Obama has been rejected for reasons obvious to anyone who is unemployed, has had their home foreclosed, and an electorate aware of multi-trillion dollar deficits as far as the eye can see.

The next fallback position will be, of course, to blame the economy, but the Democrats literally own the economy and have owned it going back decades to the 1930s when Franklin D. Roosevelt was elected and reelected while prolonging the Great Depression for ten years until the economy was rescued by a full-employment program called World War Two.

Those were the years when Social Security, a huge Ponzi scheme, was introduced, followed by Medicare. Both are now insolvent and, like all socialist schemes, have “run out of other people’s money.”

The effort to take over one-sixth of the nation’s economy with Obamacare is a major reason for the Democrat failure at the polls. Forced through a Democrat controlled Congress through bribery and arm-twisting in the face of enormous public rejection and protest, the Democratic Party experienced a paroxysm of hubris that ignored the will of the People.

There is, too, a widespread sense that Congress, including some RINOs, Republicans in Name Only, has failed the People. The critical role of the “independents”, voters who do not identify with either party, will be manifested and it can no longer be ignored by either party. Last week, a Rasmussen Reports poll revealed that an astonishing 65% say that Congress has failed to perform its critical duty to maintain the welfare of the nation.

The statistics of government failure whether it is Social Security, Medicare and Medicaid, Fannie Mae and Freddie Mac, all give voice for a return to the founding principles of the nation; a smaller, limited central government.

In a recent Wall Street Journal article, John Fund noted that “It took Democrats in the House of Representatives 40 years to become out-of-touch enough to get thrown out of office in 1994. It took 12 years for the Republicans who replaced them to abandon their principles and be repudiated in 2006. Now it appears that the current Democratic majority has lost voter confidence in only four years.”

What those inside the D.C. Beltway have failed to comprehend is that, in an era of the Internet and instant access to encyclopedic amounts of information about the legislative actions of Congress, they no longer can fool all of the people all of the time, nor even some of the people all of the time. A core of about 25% believes in liberalism. The rest of the population does not.

The voters, too, will have rejected a vicious Democrat campaign of personal destruction directed against Republican candidates, accusing them of sexual misbehavior, witchcraft, and other misdeeds that were not only lies, but totally irrelevant at a time when the nation’s economy is in serious trouble.

Along with the Democratic Party, the nation’s mainstream media will suffer a continuing loss of the credibility necessary to their existence. In media critic, Bernie Goldberg’s words, it was “a slobbering love affair” with Barack Obama that got him elected.

I think, too, that many saw the rally staged by Jon Stewart and Steven Colbert of the Comedy Channel as an insult to the seriousness of the nation’s problems. Having people like Muslim convert, Cat Steven, participate, or Sheryl Crow who advocates bizarre environmental ideas, simply degraded the event further. There were few laughs to be had from the small crowd that attended.

There will be payback as daily newspapers grow thinner, as news magazines like Newsweek get sold for $1 and the assumption of its debt. The network news programs will continue to lose viewers, while Fox News channel continues to thrive, along with a bevy of conservative radio hosts and commentators.

Ultimately, though, this is a loss to be laid at the feet of the first openly socialist president of the United States, Barack Obama, and it is testimony to the rejection of his political philosophy and his determination to “transform” the nation.

Washington, D.C., with its legions of lobbyists and the need to raise huge amounts of money to get reelected does strange things to the judgment of those in Congress. No matter how the numbers turn out following the election, Republicans must keep in mind that they did not so much “win”, as the Democrats lost.

The same forces are at work and will be on a faster schedule if Republicans do not prove responsive and fail to make the changes necessary to save the nation from economic ruin.

© Alan Caruba, 2010

More about → Spinning the Democrat Loss