This time we’ve been forewarned
We are living in a seminal period of our history, and regardless of whether we’re Democrats, Republicans or independents, it is now in our best interests to cease the shrillness and address the fiscal storm that is about to engulf us.Perhaps the best thing to come out of this past election is that Americans may be more aware, more focused and more concerned about the issues confronting us than at any time since the second World War. One of the hard realities facing us is that America can no longer afford guns, butter and entitlements. Unless we put political partisanship aside, we will see the American dream vanish within a generation or two, perhaps even sooner.The topic both parties spent precious little time discussing during the last election campaign was the fiscal calamity that is upon us. Last January, the International Monetary Fund determined that the United States is heading toward insolvency. The IMF estimates that to reverse the current trend, we would have to increase federal income taxes by 60 percent or reduce Social Security and Medicare benefits by 50 percent. Those estimates are also shared by the Department of Treasury, the Office of Management and Budget, and the Federal Reserve. Statisticians, actuaries and leading economists from around the world tell us that if our profligate ways of spending without corresponding increases in revenue are not redressed, a devalued U.S. dollar, a spike in interest rates, a stock market crash or a paralyzed economy (that would also take much of the world’s economy down with us) are likely to occur.During the halcyon days of the 1990s, America was able to absorb the growth of Social Security and Medicare spending for two significant reasons: The end of the Cold War resulted in a 40 percent decrease in defense spending as a percentage of GDP; and the entitlements for retirees born in the 1930s were being supported by a far greater number of baby boomers who were hitting their peak earning and taxpaying years. But those demographics are changing radically as a growing number of retirees will depend upon a smaller taxpayer-to-retiree ratio. The Europeans are aging even faster than we are and are already feeling the effects of this demographic shift. The cost of old-age benefits in Europe is crowding out just about every other expense item, including military expenditures, which is one of the reasons Europe (NATO) is reluctant to participate in Iraq and elsewhere.It’s been said that there are liars, damned liars, and statistics, but the following are difficult to argue with. In 2003, Social Security and Medicare benefits ran a modest $23 billion deficit. By 2020, that deficit is projected to be an obscene $718 billion, and by 2040 it is projected to grow to an unthinkable $4.3 TRILLION deficit. Feel free to read those numbers again. Even adjusted for inflation, the numbers are staggering.Exacerbating this fiscal situation is that higher life expectancy means that the baby boomers are projected to receive Social Security and Medicare benefits for up to 30 percent of their lifetimes, and funding this liability will require a 300 percent increase in payroll taxes. These are situations America has never faced before.Americans refused to adhere to common sense during the lead-up to the Civil War. The result was the worst crisis in our 228-year history. Today, we are again building toward crisis, which defined here means a condition of instability leading to a significant change in our way of life. Unless this crisis is addressed immediately, our children and grandchildren will pay for OUR abdication of OUR fiscal responsibility. Economists from every major economic think tank project that life in these United States will be radically different for our progeny than what we experience today unless an economic course correction is made.America was built upon the values of personal responsibility, thrift, prudence, stewardship, foresight, and compassion. While these values still exist, we are slowly moving off our axis. And it’s not up to Congress to make the realignment. It’s up to us! The United States was once the world’s largest creditor nation. Today we’re the world’s largest debtor nation. Making matters worse is the fact that our primary creditors are Western Europe and Japan, who are aging even faster than we are and one day will need their capital for their own retirees.I don’t have the answers. Hell, I barely made it through Econ 101. But further political enmity will get us nowhere. Both parties must actively engage to solve this problem. But is that possible in a polarized political environment? I don’t know, but finger pointing will not lead to solutions because history has taught us that a house divided against itself cannot stand.At present, we have an estimated $53 trillion government debt and liabilities that neither the Republicans nor the Democrats in Congress have chosen to address in any serious detail. That equates to an average “share-of-government-debt” per household of almost one-half million dollars.Let’s be clear: Both Republicans and Democrats own this crisis. While Congress controls the purse strings, it’s up to the executive branch to begin using its power to initiate a bipartisan process to extricate us from this emerging economic catastrophe. We vilified the NSA and FBI and for failing to predict 9/11. We then castigated the CIA for inaccuracies regarding WMDs. But there are no excuses regarding the coming crisis because we, the citizens of the republic, have been made aware of the situation. We’ve been advised of the problem. Now we must do something about it.Butch Mazzuca of Singletree, a Realtor, writes a weekly column for the Daily. He can be reached at firstname.lastname@example.orgVail, Colorado
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