by Gary L. Fisher
“We suffer from a fiscal cancer. It is growing within us and if we do not treat it, it could have catastrophic consequences for our country.” – David Walker, Former Comptroller General of the United States.
David Walker made this statement on a 2007 episode of Sixty Minutes. Walker used to be the nation’s #1 accountant. As head of the US Government Accountability Office or GAO, he was charged with “improving transparency, enhancing government performance, and assuring accountability for the benefit of the American people. “ The GAO is the non partisan office charged with telling us how we’re doing fiscally, from a national perspective.
Walker left that role ultimately to proselytize to the nation about the financial illness that was developing in the nation’s fiscal infrastructure. Believing as he did, that if he approached the message from an individual basis he could garner more interest and attention, since many people find GAO pronouncements about as exciting as a story problem. His appearance on television was part of that process. Unfortunately, his message didn’t create much more action that it did when he was inside the government tent.
When Walker first started his outspoken crusade the federal debt was 8.7 trillion. Today that number has increased to a breathtaking 18 trillion under the Obama Administration. That’s right. The federal debt has more than doubled the amount it took nearly 232 years to build to.* You don’t need to be an economist to know that it simply isn’t a positive trajectory. Rather, it’s “categorically unsustainable”, as Walker said, when it was ‘only’ 8 trillion. The federal debt is the sum of two numbers. The first is $12.92 trillion in public debt, which consists of all the outstanding Treasury bills, notes and bonds held by individuals, corporations, foreign governments and others. By the time you read this that number will have risen precipitously. However, to obtain a real – time number simply go to www.usdebtclock.org. You can watch the numbers clicking away in a very rapid fashion.
IOUSA is the best book that I’ve ever read which addresses this situation, putting it in to layman’s terms. Authors Addison Wiggin and Kate Incontrera have assembled commentary and insight from Walker among others that helps illustrate the impact on the average person in America. Since it’s 2007 publication date until now, many of the issues discussed appear to be coming to fruition.
One of the key concepts that they illustrate is the idea of the federal debt as a percentage of Gross Domestic Product (GDP). GDP is the total market value of goods and services produced by labor and property located within a country in a given year. It’s useful to know the debt as it relates to GDP because it is highly indicative of any particular country’s ability to actually pay back the debt owed. So to put this in to perspective, America’s GDP was 13. 5 trillion in 2007 when the federal debt was a mere 8 trillion. Today the GDP is approximately 17.4 trillion with a debt of 18 trillion. That means our debt is nearly 95% of our GDP, and it’s predicted to get much worse. (This quote is from the book. Sadly it was right on target. “US Debt to GDP was 101.5% in 2014 according to tradingeconomics.com. and Forbes “The US Debt; Why It Will Continue To Rise”, 9/18/2014.”).
The largest components of the debt are*:
Medicare : 923 billion
Social Security : 861 billion
Defense/War: 595 billion
Income Security: 310 billion
Net Interest on Debt: 238 billion
Federal Pensions: 250 billion
*Source: USDebtClock.org
What this means to the average American is disturbing. The current portion of this debt per American citizen is $185,000, or an astounding $732,000 per family! As Walker is quoted in the book, “The facts aren’t Democrat or Republican, the facts aren’t liberal or conservative. The facts art the facts…our financial condition is worse than advertised and we need to act; we need to act soon because time is working against us”. Remember that Walker said this before the election of President Obama and the creation of an entirely new government program with the Affordable Care Act, and the increase of the federal debt by another 10 trillion.
The very first director of the Congressional Budget Office was Alice Rivlin. She discussed the current (as of 2007) state of affairs in the book. “ Deficits matter”, says Rivlin. “Deficits occur when the federal government is spending more than it’s collecting in revenue, and that means it has to borrow money. We are not paying the government’s services we are asking our government to provide. The government then in turn, borrows money and passes the IOU or bill right along to the next generation.
Rivlin went on to say: “Increases in longevity and rising medical care spending are symptons of being a rich country. However, we have to do something about it. Unless we are willing to raise taxes and keep on raising them, or close down the rest of the federal government, we’ve got a very big problem staring us in the face.”
Ultimately, that’s the core message of IOUSA. While politicians on both sides of the aisle continue to kick the proverbial can down the street, future generations of bright-eyed young people, retirees, and the elderly face a future of rising taxes, diminished or vanished services, and extended waits for promised benefits. The Social Security statements that people have recently started receiving stipulate clearly that under current trend lines, they will only be able to pay a percentage of promised benefits by 2033. That’s most unfortunate news for millions who have been paying in to the system for decades.
Thomas Jefferson said “No generation can contract debts greater than may be paid over the course of its own existence.” While that sounds great, it’s fundamentally untrue. Our nation is in fact passing along this legacy of debt to future generations (as well as current ones). As for Jefferson, his public proclamations aside, he lived a lavish lifestyle, funded almost exclusively by debt. He died broke. His estate had to be sold off for pennies on the dollar. His grandson, Jefferson Randolph, paid on the remaining debt for most of his life. Luckily, we can’t experience that same thing today. When one passes on now, their debt passes on with them. However, on a national level, IOUSA makes it clear that we are following Jefferson’s example of letting our grasp exceed our reach fiscally. The ramifications of which may be manifest for years to come, unless and until some real action is taken by our political representatives. Until then, bracing for a future of lowered benefit expectations and higher taxes just might be a prudent financial course of action.
*Source: http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt_histo5.htm
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