Right Thinking From The Left Coast
The Government is merely a servant -- merely a temporary servant; it cannot be its prerogative to determine what is right and what is wrong, and decide who is a patriot and who isn't. Its function is to obey orders, not originate them. - Mark Twain


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What’s costing the government so much

I posted recently about how the problems we have right now are caused because government has simply been spending too much, not because, as the leftiods will tell scream at you, government isn’t taxing us enough. In fact, I pointed out that at the current rate of spending, they are going to have to sock it to the middle class, and sock it to them hard. Of course, the leftists will deny that and lie about how they can confiscate enough from the “rich”, but the key here is what will qualify as rich so they can steal enough cash from the people.

Anyway, now I am going to give you some details of what the big spending problems are all about, and I am going to reference a great article from someone that knows numbers and money. And here is in a nutshell the obvious:

•Medicare, Medicaid and Social Security now account for 44% of total federal spending and are steadily rising.
•Previous Congresses (and Administrations) have relied on the assumption that we can grow our way out of this onerous debt burden.
•Unless entitlements are substantially reformed, the U.S. will likely default on its debt; not in conventional ways, but via inflation, currency devaluation and low to negative real interest rates.

The left will constantly tell you the problem isn’t spending, both now and in the future, but that government simply is letting people keep too much of their money. No, that wasn’t a mischaracterization, these collectivists really believe that anyone with an arbitrary amount they think is too high only got it illegally and someone else’s expense, and that they have to correct that imbalance and get that money back to those that deserve it more. That’s the whole “social justice” concept in a nutshell. And now all this stuff has become absolute and must have spending. Well, there is a consequence as the article points out.

I speak, of course, to the budget deficit and Washington’s inability to recognize the intractable: 75% of the budget is non-discretionary and entitlement based. Without attacking entitlements – Medicare, Medicaid and Social Security – we are smelling $1 trillion deficits as far as the nose can sniff. Once dominated by defense spending, these three categories now account for 44% of total Federal spending and are steadily rising. As Chart 1 points out, after defense and interest payments on the national debt are excluded, remaining discretionary expenses for education, infrastructure, agriculture and housing constitute at most 25% of the 2011 fiscal year federal spending budget of $4 trillion. You could eliminate it all and still wind up with a deficit of nearly $700 billion! So come on you stinkers; enough of the Pepé Le Pew romance and promises. Entitlement spending is where the money is and you need to reform it. image

Get that? The problem is with the entitlement obligations, which get worse when you look at the following graph

image
Remember first of all that the nearly $65 trillion of entitlement liabilities shown above are not some estimate of future spending. They are the discounted net present value of current spending should it continue at the projected demographic rate (importantly ­– it is much higher than the annual CPI + 1% used as a discounter because demand for healthcare rises much faster than inflation.) And while some Honorable Congressional Le Pews would counter that Medicaid is appropriated annually and therefore requires no discounted reserve, those words would surely count as “sweet nothings,” believable only to those whom they romance every several years at the polls. The incredible reality is that the $9.1 trillion federal debt that constitutes the next-to-tiniest ball in our chart is nothing compared to unfunded Medicaid and Medicare. It is like comparing Pluto to Saturn and Jupiter. The former (the $9.1 trillion current Treasury debt) does not even merit planetary status in our solar system of discounted future liabilities. It’s really just a large asteroid.

For those that miss it, the point is that the debt obligation on Medicare & Medicaid is staggeringly higher than anything else, and only kept from being realized through gimmickry. Those are some scary numbers. What does this mean?

Previous Congresses (and Administrations) have relied on the assumption that we can grow our way out of this onerous debt burden. Perhaps we could, if it was only $9.1 trillion, as shown in Chart 2. That would be 65% of GDP and well within reasonable ranges for sovereign debt burdens. But that is not the reality. As others, such as Pete Peterson of the Blackstone Group and Mary Meeker, have shown much better and for far longer than I, the true but unrecorded debt of the U.S. Treasury is not $9.1 trillion or even $11-12 trillion when Agency and Student Loan liabilities are thrown in, but $65 trillion more! This country appears to have an off-balance-sheet, unrecorded debt burden of close to 500% of GDP! We are out-Greeking the Greeks, dear reader.

The people that gave us Enron were far less criminal and destructive than our entitlement driven US government, and yet, the left wants government in charge of everything, particularly these costly entitlement programs, so they can get more and bigger. The fact is that we don’t have the money to keep this up, and unless we reform entitlements – to cut the obligations and outlays – drastically, we are doomed economically. But then again, that might be precisely the strategy of the crooks that have got us here. Great society my ass. It’s our doom.


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