I guess you heard that the Congressional Budget Office (CBO) has said our federal national debt will be about $22 trillion by 2020. I think it will be many trillions higher than what they say but don’t confuse our government national debt with our government negative net worth. What we owe in debt and entitlements is now well over $70 trillion and is now increasing by $5 trillion a year.
The obligations we owe exceeds the whole gross domestic products of the world ten times over. People really have to be blind to the facts to think that we can ever repay these obligations in today’s dollars. So something radical has to be done. Entitlements like Social Security and Medicare have to be severely cut or the government will just have to print more money. If government cuts the entitlements it will mean old age poverty and health rationing and if government prints more dollars to pay for the obligations the dollar will become rapidly worthless.
Our government knows these things about our entitlement debt. These pencil-neck geeks are not ignorant they probably are planing to save the day with both entitlements cuts and inflation. Nevertheless, such bureaucratic plans will fail because elected people still rule this nation. That could change very soon but that is the way it is now.
The health care bill is such a government high priority because health care is the largest part of future federal government budgets. Once government controls health care they will first try to control the cost by forcing cuts on health care providers. This will force many of them to stop taking Medicare and low ball insurance plans that pay only what the government pays. Then people in these programs will have a real problem finding a doctor so Government will then pass laws requiring all health providers to take their government set fee. Then the more expensive and best health care providers will go out of business and many good doctors will quit or retire. What remains will be a government run health care system like they have in Britain. There will be long waits to see mostly mediocre doctors most people will never ever get past seeing the nurse. The elderly, terminally ill and unproductive members of our society will be denied any expensive medical procedures or medications.
Government will intend to pay for Social Security by raising the age that you can retire and by raising the contributions that you and your employer put in. I also think they will want to limit cost of living increases. (They will probably want to give cost of living increases (of cooked inflation numbers) minus one percent). So if you live long enough after retirement you will slowly go into poverty.
I think government will probably want to keep the cooked official inflation at about 4 or 5 percent a year because they know if it goes higher it will completely shut down the economy making things worse. The actual inflation rate under their planning would be about 7 percent. So government pencil-necks might think that in about ten years the dollar would be worth about half of what it is today. Therefore, the debt obligations of the United States would be effectively cut in half in today’s dollars and cut to near 25 percent in just 20 years.
So will this “plan” to cut social costs and this inflation management “plan” work and will it keep the United States government from default? It could if it actually worked as planned but American people are not that passive and government debt will be much more than what the government is projecting. It always is.
Americans are a unruly bunch unlike the Brits. In order to pass this health bill and not have it ruled unconstitutional by the Supreme Court they probably should wait until this administration stacks the court with liberals. Right now it should not pass the constitutional test and even if it does it is very likely that there will be a political backlash in 2010 and 2012 that will repeal most of the health care reforms that they pass.
The health insurance companies are not going down without a fight and they have a very big lobby in Washington. The American people will soon become enraged under any government run health care system and they will fire their elected officials.
There is also demographics to deal with. It will be almost impossible for government to pass anything that the baby boomers do not like. They have the votes. So real cuts in Social Security or other entitlements in the lifetime of the bulk of the “baby Boomers” is not a political reality.
So if we are going to live in reality we should know that on the government spending side there is not going to be any major cuts so everything will have to be done through inflation, but that is impossible without also bringing about a complete collapse of our system. Why? Because the debt number will be worse than the blind optimists or politician pleasing bureaucrats in government are conveying to their leaders.
The CBO says we will be 22 trillion in debt by 2020 but that is total nonsense. Their figures assume a growth rate in the future like what we had in the past but reality says that there is no way that there will be that kind of growth during the next decade. The policies of Obama have insured and will insure that there will be little real growth for the next decade. Just look at the real world today; Every time there is good economic news oil prices go up and so does investor speculation creating new bubbles. Obama’s millions of green jobs are just not going to happen and every green job that is created will be at the expense of two jobs eliminated through higher energy prices and higher product costs. If the government would have allowed drilling when people were saying “drill here drill now” we would have much new oil and new gas coming to market in a few years. The liberals environmentalists are not allowing that to happen so any real growth will just be stymied by rising oil prices and more imbalances in foreign trade. If they pass CO2 laws that certainly will raise prices and slow growth for decades.
The government is also not telling you that by taking over Fannie and Freddie Mae and corporations like GM that they have put the taxpayers on the hook for what could be a trillion dollar loss. Banks also will not be required to write off there toxic real estate loans until 2012. Guess who will then bail out the banks?
Right now we are having a little growth due to a natural economic cycle, increased productivity, and the unprecedented huge government stimulus. With all this we should now be in a roaring economy by now but the recovery is so weak that many are predicting another recession next year. The stimulus nevertheless must end or the CBO deficit numbers are totally meaningless. But if the stimulus ends and If they allow the Bush tax cuts to expire it will certainly put us back into recession. Besides that, housing has a long way to go before any recovery, commercial real estate is now crashing and many more banks will fail that hold these loans. There will be huge future bail outs that were not budgeted. The federal government has even passed a bill that put a few trillion dollar contingency fund on the books for the next bailout of financial institutions that are now too big to fail. Unemployment is going to stay high throughout the decade and government is going to continue paying 10 billion a month for unemployment benefits or see destructive riots. Federal tax revenues are also going to be far less than what they are projecting. Many states will have to be bailed out or else the states and local governments will have to raise their taxes. That would also make the economy weaker. The CBO figures do not reflect all this, so government deficits are going to be much higher than projected.
So the actual national debt will be closer to 35 trillion by 2020 not the 22 trillion that is being advertised by CBO. Even my figures assume no new major wars and that Republicans gain control of government in 2012.
Having said that, I will still assume that there will be some growth in funds over the decade but I think any growth will be less than the actual inflation. I think growth in revenues will be less than 25 percent for the entire decade because of recessions. Assuming there will only be 2.5 percent inflation in the decade due to recessions and surplus labor, the 35 trillion debt figure in 2020 is really 26.25 trillion in today’s dollars and that is the figure we should work with when doing the math. Higher inflation than what I project will allow our debts to be paid with dollars not worth as much but it will also raise the national debt that much more.
In 2020 the United States will owe 35 trillion dollars (26.25 trillion in today’s dollars). With a debt that large you would have to think that anyone taking such a risk to finance it would want more than just the inflation rate. Let’s use a very conservative figure and say investors will want a 6 percent return on U.S. treasuries in 2020 with the massive debt risk we will be by then. That will mean our interest payment will come to .06 * 26,250,000,000,000 or 1.575 trillion in the year 2020 (in today’s dollars). Total federal tax revenue is 2.1 trillion dollars today. So just to pay the interest on the national debt in 2020 will take 75 percent of all federal income (compared to less than 10 percent today). With 75 percent of incoming going to pay interest on the national debt in 2020 the federal government would have to borrow about $2 trillion a year in today’s dollars just to continue government for another year. By 2025 we will have to borrow the entire budget for 2026. Lest you think that inflation will help these figures, they will not. If inflation goes above the 2.5 percent figure I used for the decade the interest rate and national debt will also go up accordingly.
Who will even lend this money to us in 2020 when they know by 2025 we would not even be able to make the interest payments on our national debt? It is clear that within ten years America will have to default or hyper-inflate making the dollar worthless but don’t expect the crises to come in 2020 either. It really could occur some years before that date. It will actually occur when it sinks in to those purchasing our debt that we are a huge credit risk. As soon as that reality hits the world we will be forced to default or hyper-inflate. Some think this could occur as soon as this year. Others think it will happen by 2012. It certainly will happen within the next ten years no matter who is elected to office.
By the way, We cannot change government and grow our way out of this debt crunch by cutting taxes because that would increase the national debt even more before we could even start to grow the economy. It took Reagan several years and trillions of dollars of increased debt to get us out of the Nixon Carter economic disaster. This time the creditors will raise interest rates and cause the debt crunch long before lower taxes could grow the economy and reduce the debt percentage on our GDP.
Here is more food for thought on the dire economic situation.
Don Koenig founded www.thepropheticyears.com website in 1999 after almost thirty years of independent study on the Bible and learning from many astute teachers within Christendom. Don created his website to write about Bible prophecy, biblical discernment and his Christian worldviews. Don wrote a free Revelation commentary ebook in 2004 named "The Revelation of Jesus Christ Through The Ages". The World and Church and Bible Prophecy section of this website was started in 2007.