The Bankrupt States of America

May 24, 2012M. Noonan

…The big difference between the official deficit and standard accounting: Congress exempts itself from including the cost of promised retirement benefits. Yet companies, states and local governments must include retirement commitments in financial statements, as required by federal law and private boards that set accounting rules.

The deficit was $5 trillion last year under those rules. The official number was $1.3 trillion. Liabilities for Social Security, Medicare and other retirement programs rose by $3.7 trillion in 2011, according to government actuaries, but the amount was not registered on the government’s books… (emphasis added)

The report goes on to note, among other things, that for Social Security to be solvent we’d need to have $22.2 trillion set aside and earning interest. Clearly, that is an impossible sum – we don’t have it and we can’t get it, ever. And that is just Social Security – it doesn’t count the cost of Medicare, Medicaid, the upcoming ObamaCare bill, other entitlements and, of course, all the other bloated, wasteful spending which is built in to our government. And it entirely leaves aside the amount of debt our State and local governments have accrued. The bottom line: the United States is bankrupt.

For now, we’re able to play around with this – pretend, that is, that we’re not bankrupt and that money will be there for everything. But the reality is there – Paul Ryan is right: we’re heading for the most predictable financial disaster in human history. Unless we take charge of our nation and reform our taxing, spending and regulations, we’re doomed to an economic wipe out which will make the Great Depression seem like small potatoes. If you want to see where we’re heading, look at Greece…and land of riots, bank runs and a government which can’t even pony up for the prescription drugs they promised the people of Greece; and I don’t mean “having trouble paying”…the Greek government simply stopped paying for the drugs. They are out of money.

We’re probably three to five years away from that point…maybe as many as 7 years if we really go flat out with money-printing and financial gimmicks (which would also be disastrous in terms of rapid inflation and other dislocations). But unless we fundamentally change how things are done, we’re doomed sooner or later (and I think sooner – the latest data from Europe and China indicates they are in recession and I bet we’ve been in recession for a couple months now, but the data are being fudged…they were being fudged in Europe and, especially, China, too…but you can’t “hide the decline” forever). This is why November 6th is so crucial – a re-elected Obama, even if he’s set with a fully GOP Congress, simply will not make any move to disturb business as usual. Even if he’s not able to increase spending the fact that we won’t have a filibuster-proof majority in the Senate will prevent any budget from being passed…and we’ll be saddled with year after year of “continuing resolutions” which lock in place the bonanza of extra spending Reid and Pelosi piled on in 2009. Obama must go if America is to avoid catastrophe.

Romney, on the other hand, is enough of a business man to know we can’t go on like this – and while he might want to compromise more with the left than we’d like, an increasingly conservative/libertarian Congress will ensure that a lot of really good policies are enacted. Additionally, the force of circumstances will push Romney and the Congress towards the radical solutions needed. It won’t do anyone any good getting a good write-up about bi-partisanship in the Washington Post if failure to act responsibly leads to35% unemployment in 2014. With their backs against the wall, a GOP government has a good chance of doing something worthwhile.

This is serious, good people – we’re in quite a fix and like Obama’s old preacher used to say, “America’s chickens are coming home to roost”. We’ve spent too much for too long while harrying wealth creators with a regressive tax and regulatory system. It is change it, or die.