Federal election 2012 in America: both political parties are incompetent to solve the financial problems of the U.S.

A  YouTube presentation [link below] shows that all the taxes the U.S. federal state will collect in the year 2012 are used up by mandatory entitlement programs (Medicare, Social Security, etc.) and interest on the national debt. So Congress has no recourse but running a $1.3 trillion deficit to pay for everything else the federal state does.

Both major political parties are responsible for laws and policies put in place since the end of the 19th century that have caused the financial predicament of the U.S. federal state, and similar but lesser predicaments at the level of the fifty states, and of counties and cities.

Comedian Jackie Mason once said of President Ronald Reagan: “People criticize President Reagan for the budget deficits. That’s not fair. It’s not his field.” The same could be said of every President of the U.S. since the 1920s.

Neither party is really interested in solving the financial problems of the state. That is not their business. Their business is to get elected and re-elected by making promises.

Neither party is willing to tell the truth to the American people about the state of the finances of the political state. Not stressing this information over and over again is virtually the same as withholding it; and withholding this information is virtually the same as lying to the American people.

Each political party offers supposed solutions that are not solutions, but rather are political posturing and campaigning.

The YouTube presentation takes only about five minutes to listen to and watch. It is well worth the time of every thinking American. Here is the link:  Why Congress Does Not Pass a Budget; http://www.youtube-nocookie.com/embed/EW5IdwltaAc?rel=0

Toward the end of this post there are some suggestions concerning what individuals can do to protect themselves from the financial problems stated or implied in the YouTube presentation.

This YouTube presentation is correct in its facts and mostly correct in its conclusions. What the presentation left out is the possibility that the federal state will finance its deficit spending through creating dollars that will cause a big loss in purchasing power of the dollar and a big devaluation of the real value of the principal of U.S. Treasury obligations and all other fixed dollar obligations, federal, state, corporate and individual.

Creation of dollars by the U.S. Federal Reserve to purchase U.S. Treasury debt, when there is no corresponding increase in America’s productivity is called monetizing the debt. Monetizing the debt is monetary inflation that leads to price inflation in the economy. The Federal Reserve has been monetizing U.S. Treasury debt since 2008 through what is called “Quantitative Easing.”

Responsible people in the federal state know all this. They work, for example, in the Congressional Budget Office and in the agencies which are responsible for planning the financial operation of Social Security and Medicare. Immediately following is a quotation from this year’s “Message to the Public” in the annual report of the Trustees of Social Security and Medicare, at http://www.ssa.gov/OACT/TRSUM/index.html

“Both Medicare and Social Security cannot sustain projected long-run program costs under currently scheduled financing, and legislative modifications are necessary to avoid disruptive consequences for beneficiaries and taxpayers.

“Lawmakers should not delay addressing the long-run financial challenges facing Social Security and Medicare. If they take action sooner rather than later, more options and more time will be available to phase in changes so that the public has adequate time to prepare. Earlier action will also help elected officials minimize adverse impacts on vulnerable populations, including lower-income workers and people already dependent on program benefits.” 

NOTE: As of 2011 the “entitlement” programs discussed by the Trustees of Social Security and Medicare had unfunded future liabilities of around $53 trillion (5,300 billions of dollars). Each year the amount of such unfunded liabilities is calculated by actuaries for the federal state. Unfunded liabilities consist of the amount by which the estimated cost of future benefits exceeds expected tax collections for these programs. A private company with similar unfunded liabilities is required by federal law to amortize them over a period not greater than 25 years. “Amortizing” such liabilities is the equivalent of paying off a mortgage where principal and interest must be paid over the term of the mortgage. It would cost about $3 trillion a year for the federal state to amortize its unfunded entitlement liabilities. The $3 trillion annual cost of such amortization would would triple the deficit for the year 2012, were it to be recognized as an expense in the federal budget.  Failure of the federal state to include such unfunded liabilities and their amortization in its published statements federal finances is withholding vital information from the public, and to the world, since much of U.S. spending is financed by selling bonds to foreign investors.

The Congressional Budget Office, in the Summary of a report dated July 27, 2010, warned of the adverse consequences if the current trend of increasing federal budget deficit spending is not reversed, stating:

“Unless policymakers restrain the growth of spending, increase revenues significantly as a share of GDP, or adopt some combination of those two approaches, growing budget deficits will cause debt to rise to unsupportable levels . . .

“[P]ersistent deficits and continually mounting debt would have several negative economic consequences for the United States,” including “. . . lower output and incomes than would otherwise occur [and] higher marginal tax rates [that] would discourage work and saving and further reduce output [and an increased] probability of a sudden fiscal crisis, during which investors would lose confidence in the government’s ability to manage its budget, and the government would thereby lose its ability to borrow at affordable rates.

            “. . . If the United States encountered a fiscal crisis, the abrupt rise in interest rates would reflect investors’ fears that the government would renege on the terms of its existing debt or that it would increase the supply of money to finance its activities or pay creditors and thereby boost inflation.” [Emphasis supplied.] Quoted from “Federal Debt and the Risk of a Fiscal Crisis,” Congressional Budget Office, July 27, 2010, http://www.cbo.gov/doc.cfm?index=11659

Q:        SINCE RESPONSIBLE PEOPLE IN THE FEDERAL STATE KNOW ALL THIS, HOW COME THIS IS GOING ON?

A:        POLITICS. Huge and growing debts and deficits at the level of both the federal and local states are the consequences of

  1. A century of incompetence in the legislative and executive branches of the state, in the sense that “incompetence” means not knowing what you are doing
  2. Making promises to current voters which can only be kept in the long run by burdening taxpayers of coming generations with higher and higher taxes beyond the ability of Americans to pay, or the state to collect.
  3. Federal policies going back over 100 years that commit the U.S. to a global military presence and result in U.S. participation in wars that are expensive in blood and treasure, and that would have been largely unnecessary with greater foresight, wisdom and prudence

The first point is one of the basic subjects of this entire website, that politics in America, or anywhere else, is the cause of, not the solution to, societal problems.

The second point is discussed in detail in the book portion of this website, at chapter 9, entitled Political Democracy in America, http://www.capitalismtheliberalrevolution.com/chapter/political-democracy-in-america/

The third point is discussed in detail in chapter 10, Wars of the United States of America, http://www.capitalismtheliberalrevolution.com/chapter/wars-of-the-united-states-of-america-2/

However, a temporary political solution to the problem of making Medicare sustainable is suggested in the chapter entitled “Replacements for the Political State,” at http://www.capitalismtheliberalrevolution.com/chapter/replacements-for-the-political-state/  under the caption Caring for the Needy and Helpless in the Transition to a Totally Stateless Society

WHAT INDIVIDUALS CAN DO TO PROTECT THEMSELVES

  1. In one’s investments, as a protection against devaluation of the U.S. dollar and other national currencies, emphasize precious metals securities (shares of individual companies, mutual funds and Exchange Traded Funds [ETFs]) engaged in gold and silver mining or that hold gold and silver bullion.
  2. To avoid loss of real value of principal through high inflation don’t invest much in any bonds, other than those of short maturity.
  3. If one has a residence securely owned free and clear of debt, it will hold its real value by rising in market price as the dollar goes down
  4. If one must have a mortgage because of inability to pay it off, since 2009 it has been, and continues to be, an ideal time to refinance with two benefits: the interest rate on a fixed rate loan will become cheaper and cheaper in “real,” inflation-adjusted, terms as interest rates rise to offset price inflation; the real cost of the principal of the obligation will be diminished by high inflation, relieving the debtor of much of the real cost of repayment
  5. Income producing real estate should hold its value provided it is not subject to rent control
  6. In the hyperinflations of countries like Germany (1921-1923) and Argentina (sporadic and recurring but in the millions of percent since the early 1970s) what held its value was real estate, precious metals, and shares of companies that were solid financially, as well as currencies of other countries not going through hyperinflation. For citizens of such countries it was the U.S. dollar, Swiss franc, British pound, etc. that held real value through the high inflation. In the second decade of the 21st century other leading foreign countries are in just about as bad shape financially as the U.S. China and some of the rest of Asia are exceptions, but those are not places for most people to invest with safety

 

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