After a lifetime of being warned, suddenly now politicians are becoming aware of the looming fiscal disaster that threatens the immediate future of the American republic… and they’re blaming the other guy.
ABC News produced a report on the $1.6 trillion deficit that is jaw-dropping in its obtuseness. They purport to be “trying to wrap their heads around this” and “wondering, how did we get here, especially when it wasn’t long ago that we had a surplus.” Guess who they blame it on?
(Note: ABC revoked bloggers’ ability to display their videos, but they did upload this one to YouTube, so here’s a link to the YouTube version.)
Un. Freaking. Believable.
First of all, did you notice how they tacked a commercial for national health care onto the end of that — without even a word regarding how much worse it will make the deficit picture? I’ll repeat this as many times as it needs to be repeated until everybody gets it: to be advocating subsuming 1/7 of the US economy without raising taxes while facing a $1.6 trillion annual deficit is criminal. The President and his buddies in Congress should be Thrown. In. Jail. for even suggesting it.
Secondly, did you notice how they blamed the entire picture on George W. Bush? President Obama was blamed in passing because he “adopted a lot of those same policies” as the Bush administration. President Obama gladly concurs (with my emphasis):
“It keeps me awake at night, looking at all that red ink,” said President Obama in Nashua, N.H., on Feb. 2. “Most of it is structural and we inherited it. The only way that we are going to fix it is if both parties come together and start making some tough decisions about our long-term priorities.”
Yeah, the structural part came from past Democrats and he inherited it (we’ll talk about this next, oh yes, we will); but the deficit went from what was then a record high of $438 billion during George Bush’s last year in office, to a current $1,600 billion, in just a single year. Not a penny of that 4X increase can be blamed on George Bush; it’s Obama’s deficit, and the lying sack of #*@!&$ knows it.
Oh, and just a reminder from 7th grade Civics class: Congress actually holds the purse strings. The record deficit years during the Bush administration occurred after Democrats took over Congress. Recall that the size of the deficit quadrupled during the first month of Obama’s term. They did it with “stimulus” legislation that was really aimed at rewarding Democratic donors, a bill written behind closed doors with Republicans locked out, passed in crisis mode in the dead of night without allowing anybody to read the bill. They did it with unprecedented government takeovers of insurance, banking, and automobile industries. Remember all that? Yeah, the current administration inherited the mess. Yeah, yeah.
In no way do I excuse George Bush and the Republicans in Congress from what I’m going to describe next, though. The criminal fraud in government accounting has been perpetrated by the entire government, and virtually no hands are clean. The Republicans are particularly culpable for spreading the loco-weed dream that we had a surplus at the turn of the millennium, and then spending it, when anybody with the slightest accounting sense knew perfectly well that the surplus was fiction. But let’s not let Pelosi, Reid, and Obama off the hook; they’ve taken a disastrous situation and immediately made it much, much worse, with the Day of Reckoning moved forward by a decade or so, and the size of the Armageddon amplified by a factor of 2.
Here’s where we get into the real mess. This ABC video did not mention once the real causes of the enormous deficit that promises to continue into the future: favored Democratic programs that have grown out of control. By far the largest drains on the national budget, and the items threatening massive deficits into the foreseeable future, are Social Security, Medicare, Medicaid, and federal pensions. These were created by federal legislation decades ago, so they never appear in the annual budget bills in Congress; this is the “structural spending” that President Obama is pleased to say that he inherited. Just from the demographics of retiring Baby Boomers, paying for the Medicare, Medicaid, and Social Security programs using tax revenue will require additional taxes amounting to $12,000 per year per household in the next couple of decades — either that, or we need to eliminate all other government spending (including military.)
I’m going to let economic analyst John Williams describe how we really got into the deficit mess we’re in, from his 2004 newsletter entitled Federal Deficit Reality. Take it away, John.
Misleading accounting used by the U.S. government, both in financial and economic reporting, far exceeds the scope of corporate accounting wrongdoing that has received partial credit for recent stock market turbulence. The bad boys of Corporate America, though, still were subject to significant regulatory oversights and the application of GAAP accounting to their books. In contrast, the government’s operations and economic reporting have been subject to oversight solely by Congress, America’s only “distinctly native criminal class.”
Nearly four decades ago, President Lyndon Johnson’s political sensitivities led him and the Congress to slough off some of the costs of an escalating Vietnam War through the use of accounting gimmicks. To mask the rapid growth in the federal government’s budget deficit, revenues from the surplus being generated by Social Security taxes were added into the general cash fund, without making any accounting allowance for the accompanying and increasing Social Security liabilities. This accounting-gimmicked reporting was dubbed “unified” budget accounting.
The government’s accounting then, as it is now, was on a cash basis, reflecting cash revenues versus cash expenditures. There were no accruals made for monies owed by or due to the government at some time in the future.
The bogus accounting understated the actual deficit for decades and even allowed for claims of budget surpluses in the years 1998 to 2001. While there were extensive self-congratulatory comments between the President, Congress and the Fed Chairman, at the time, all involved knew there never were any actual budget surpluses. There hasn’t been an actual balanced budget, let alone a surplus, since before Johnson and his cronies cooked the bookkeeping…
Williams goes on to discuss the US Government’s books being reported using accrual-based accounting and Generally Accepted Accounting Principles (GAAP,) just as every corporation in America is required to do. If you’re using accrual-based accounting, GAAP requires that future obligations be accounted as long-term liabilities, and that hard assets be accounted as assets and depreciated as they age. Rolling Social Security, Medicare, and Medicaid into the accounting completes the picture.
In 2008, using cash-based accounting as the government usually does, the US government faced a deficit of around $450 billion. Using accrual-based accounting according to GAAP, which reflects future obligations, the deficit was actually closer to $5.1 trillion. That number reflects the receipts from Social Security and Medicare that we actually owe to future generations. And whereas the national debt stood at around $9 trillion at the end of 2008 in terms of actual treasury bills, when we include the accrued obligations of SSI, Medicare, Medicaid, federal pensions, and other structural entitlements, the national debt actually totals roughly $65 trillion.
Sixty five trillion dollars in debt. That is larger than the entire world’s Gross Domestic Product combined.
Recall the reassuring words from the video, “We had a surplus.” Anybody with a computer can check for themselves; the national debt increased during the years with the alleged surplus. Even without GAAP, the surplus was an accounting fiction.
But the reality is much worse than that. Fiscal hawks have been warning, not just during those years, but for at least 3 decades before them, that the trajectory of federal spending was leading us to a fatal precipice, that we would have to make massive changes in structural spending to avoid; the relatively small deficit of the late 1990s was just a short respite from a long-standing and entirely predictable slide into insolvency. The position of this video and its clueless authors, that everything was fine but then along came Bush, is pernicious, mindless pap written by ignoramuses who don’t know enough fiscal history to wipe their shoes with. The economy started toward this cliff ‘way back during the FDR administration, sped up the career during the Great Society, and we’ve been trying to get the attention of the Democratic shopaholics ever since.
I wish there was a way to make criminal the degree of ignorance displayed in ABC’s video without endangering liberty generally. Sawyer and Muir deserve a week in the stocks being pelted with rotten vegetables for their level of stupidity. My God.
All members of Congress from the 1960s forward, along with all members of the government financial apparatus from the same period, are equally guilty for the five-decade cover-up of the government’s financial irresponsibility, the result of which we will see shortly. That’s the cover-up, and I won’t say what I think those people deserve. The current and future budget deficits themselves represent the complete and utter collapse of Democratic social policy. There is no other significant cause of the crisis. Ours is the economy the Democrats broke. Very simply put, no economy can afford the Utopian dreams of modern progressives. They are simply beyond the means of humanity. Even the relatively modest support currently offered by the US government has produced a debt larger than the ability of the entire world to pay.
The entire world will pay, though. With debt that large spread throughout the world in the form of US Treasury notes and US dollars, when the collapse comes, the world’s economy will collapse with it.
The collapse will come as hyperinflation. It’s very simple: the T-bill is the last bubble. The world’s investors will shortly figure out, based on the massive deficits, that the T-bill is a terrible investment, and they’ll start dumping them. This has already begun. Once foreigners stop buying our debt, the Fed will have to buy it in order to finance the deficits — and they’ll buy it using dollars that don’t exist yet. This will expand the money supply dramatically, which will dilute the value of the dollar dramatically. Your savings will be worthless, and so will your pension. It might stop if the government could dramatically cut Social Security, Medicare, Medicaid, and federal pension payments — and I do mean dramatically. But the political will does not exist to do that, and the voters would thrash any politician who tried.
I’m not a financial consultant, so my comments cannot be taken as financial advice. However, I’m getting to know Jesus a lot better these days, because when the collapse comes, only those who know how to rely on His provision will have enough to get by. Beyond that, I think I’ll buy gold and firearms, and learn to garden. The good days are about to end.
Financial Times tells us that there’s at least one Fed board member who sees the collapse coming and is warning people about it. Too little, too late, but…