Thursday, December 17, 2015

''The Federal Government Will Be Just A Massive Health Care Plan That Pays Bond Interest by 2025!'

'Break Open When Elected!'
No matter who is the next President of the United States, he/she is going to have one whale of a problem right off the bat to solve if he/she wants to get anything else done during their 4/8 years in the White House from 2017 to either 2021 or 2025.

'The Size of Federal Entitlements Crowding Out Everything Else!'

They are not going to want to hear that on their first day when their staff comes in and says: 'Uh, President Trump, you know all those tax cuts you want to make to help the economy explode and create millions of new can't do them without making the national debt explode even more than it did under President Obama!'

Or for President Hillary Clinton: 'Uh, President Clinton, you know all those programs you want to pass making college almost free for everyone and all the other things you promised on the campaign trail, well, can't do those without making the national debt explode even more than it did under President Obama!'

The truth of the matter is that we have painted ourselves into not the proverbial corner but the actual corner of fiscal insanity. No President short of Superman or Hercules cleaning out the Augean Stables is going to be able to unwind the trajectory of our national debt until and unless he/she does 1 thing to fix it all, which we discuss later.

Take a look at the following charts below, both gleaned from data in CBO documents and projections. Notice in the first one a little dotted red line that goes right across the middle of the chart. That is the historical average of the percentage of GDP that typically comes in as revenue in all forms of federal taxes: income, payroll, estate, capital gains and dividend taxes.

Take a look at what happens along about 2021, 2022 and 2023. The blue graph denoting 'all other federal spending' starts to diminish until it completely vanishes at 2025 under that red dotted line.

You know what that means?

What that means is that nothing except Social Security, Medicaid, Medicare, CHIP, Obamacare and Net Interest on the national debt can be or will be paid by revenue paid to the federal government by taxpayers. All Entitlements Plus Net Interest.

EVERYTHING ELSE will have to be paid for by more borrowing from overseas or domestic sources. 100% of it. Including defense. Including transportation. Including environmental protection.

Everything. Every round of ammunition, every R&D dollar spent at the NIH to cure cancer, every dollar spent on environmental protection or research will come from money we will be forced to raise overseas or beg for in some fashion or manner.

Even President Obama's own commission came to this unsettling conclusion in 2010, even though he has done next to nothing to do anything about it:

"By 2025 (federal) revenue will be able to finance only interest payments, Medicare, Medicaid and Social Security," the National Commission on Fiscal Responsibility and Reform stated in its final report.  "Every other federal government activity -- from national defense and homeland security to transportation and energy -- will have to be paid for with borrowed money."

Take a look at the second chart below. You will see the disproportionate growth entitlement programs have had on chewing up bigger shares of the federal budget since 1980 when the rapid rate of inflation in overall medical health care costs drove up the costs of Medicaid and Medicare faster than the rest of the budget.

And this is even without interest rates being anywhere close to what they could have been had we had any sort of normal recovery and economic growth from the Great Recession of 2008! Interest rates have effectively been near or at zero when adjusted for inflation. Historically, interest rates of 5% would not have seemed 'extraordinarily high' in the past.

With a national debt approaching $20 trillion by the time President Obama leaves office, after more than doubling the national debt accumulated under President Bush 43 from 2001-2009, 'normal' interest rates of 'only' 5%/year would cost the federal government $1 trillion in net annual interest payments to bondholders who expect to be paid on time and in full. Per year. Each year. In the national federal budget.

Where would that come from when we are already spending 100% of all tax revenues from all sources on entitlements alone? The tooth fairy?

So, as much fun as it is to watch the current campaign primary drama unfold before our very eyes, keep in mind that we are going to be electing someone to sit in the Oval Office in the White House starting on January 21, 2017 to figure out what to do on this, perhaps our most serious current political threat mainly because it is so invisible, hard to understand and confusing in the first place to most people.

What is that 'One Thing' the next POTUS has to do to make things (relatively) right again for 315 million people by then? 

Our next President is going to have to be able to work with Congress and the Senate from Day One, meaning compromise their brains out to get a deal done in some fashion that first gets our annual budgets to balance so we don't have to keep adding to the national debt each year and make our interest payments only that much higher when 'normal' interest rates return to the scene.

And then, they are going to have to agree to some compromise deal that keeps them balanced for a very long time.

And then, they are going to have to figure out a way to start paying down this debt, either through direct payments as was done from 1998-2001, the last time we had balanced budgets in America, or ...just let inflation take care of it by making future dollars worth less and thereby pay back the current debt with those depreciated dollars.

Maybe 'President Donald Trump' can restructure the $20 trillion bonds we will owe in 2017 much as he did with many of bank loans he negotiated down to 1 cent on the dollar when he took some of his properties into bankruptcy. That $20 trillion in national debt might be knocked down to $200 billion just like that overnight!

Inflation is, sadly, the time-honored way most governments have 'paid off' (sic) their national debt over time. Britain just made their last debt payment to the United States for loans incurred to help prosecute World War II so you can just imagine how much the pound had depreciated since 1945 in terms of buying power.

So, no matter who you 'want' to win the Presidency, and no matter who you think might do the best job advancing your interests and politics, keep in mind that whoever it is from either side is going to be severely handicapped at delivering any of their promises simply because of one thing:

We did not do the job of balancing the budget and keeping entitlements in line over the past 30 years.

So good luck! Hope you vote for the right candidate who can pull this off! 

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