We're not in Kansas anymore: US National Debt and the Fiscal Cliff

I saw this in my inbox this morning. Combined with Jeff Opdyke's commentary about the difference between a real social safety net and the Social Security system the United States (and virtually every other western country) has today, and Laurence Kotlikoff and Scott Burns's The Clash of Generations, and I think my own views concerning the current so-called "debate" between Democrats and Republicans are coming into sharp focus.

I see so many of my Democratic friends touting the "compassion" and "love" being shown by their favorite politicians, and I think: "Really?"

It's all well and good to speak of compassion. But who can pay for this so-called compassion--much less who is willing to pay for it (with their own money)? Please don't talk to me about your great compassion when you are willing to saddle future (not-yet-able-to-vote and/or not-yet-aware-enough-to-vote) generations with massive debt that they will never be able to repay [that's the message I get from Kotlikoff and Burns; good summary of their book here]. And please don't talk about compassion when the supposed social safety net is being used, today (and for the foreseeable future--unless Congress decides to change the system) as a primary vehicle of retirement funding [the message I get from Jeff Opdyke's article].

The following, by Alexander Green of InvestmentU in last Friday's Investment U Plus newsletter, provides further perspective, I think:

Imagine that your 18-year-old son goes off to college for the first term of his freshman year. You are happy to pay for his education costs - room, board, tuition, books, etc. - but you also give him a credit card "in case of emergencies."

When he comes home for Christmas, you discover that he has run up $70,000 on his MasterCard. You hit the roof and demand an explanation.

"Now hold on, Dad," he says. "Before we start talking about how much less I might spend, let's talk about how much more money you [really ought to be giving] me."

Consider your response - and whether it would be printable in a family paper. Yet Congress makes our hypothetical spendthrift look like a piker.

Most reasonably well-informed Americans know that our $16.1-trillion federal budget deficit is now larger than the nation's GDP. But what most don't realize is this figure doesn't include the unfunded liabilities for Medicare, Medicaid, Social Security and the Prescription Drug Benefit. That's another $121.6 trillion. [According to Kotlikoff and Burns, it's actually more than $200 trillion. But what is $80, $90, or $100 trillion between friends? --JAH] Combine the federal budget deficit with the unfunded liabilities for current entitlement programs (excluding ObamaCare) and it comes to a mindboggling $1.2 million per taxpayer.

Some will argue that this is exactly why we need to stick it to the ultra-rich, an approach that has clear populist appeal. But here's a bit of perspective. Less than a hundred years ago, the nation's richest man, John D. Rockefeller, could have written a personal check and paid off the entire national debt, every penny accumulated since 1776. Today the government could confiscate the entire net worth of the nation's wealthiest man, Bill Gates, and it wouldn't pay six weeks' interest [NOTE: That's interest! --JAH] on the national debt. . . .

Writing in The Wall Street Journal this week, former Congressional Committee Chairmen Chris Cox and Bill Archer note that even if the government confiscated the entire adjusted gross income of every individual and corporation in America, it still wouldn't cover U.S. entitlement obligations. Yet the first order of business according to President Obama, Senator Reid and Mr. Buffett is not to reform entitlements or rein in spending but to raise tax rates? You might as well try bailing out the Pacific Ocean with a teaspoon.

Congress has a world-class spending addiction, but then so do most other Western democracies, including Canada, Britain, Western Europe and Japan. In every case, politicians on both sides of the aisle have learned that promising lush government benefits paid for by "someone else" is a big winner at the polls.

As for the current fiscal cliff negotiations, the Congressional Budget Office estimates that raising the top marginal tax rate to 39.6% - as Obama proposes - would generate approximately $70 billion a year. That's not an inconsequential sum. But it won't come close to fixing this year's $1.1-trillion federal budget deficit. Where would we get the other $1.03 trillion?

And why did I title this post "We're not in Kansas anymore"? 

Because I get the impression that the American empire has run its course. It can no longer maintain the illusion. Reality is beginning to set in. The U.S. cannot continue to inflate away its debt problems and expect its citizens not to feel the impact. We all--wealthy and poor--are going to experience the results of almost  three decades of spending beyond our ability to pay.

Entitlement States of America

There's plenty of blame to go around. We know the rich as well as the poor are leaching off the government . . . i.e., whoever is "stupid" enough actually to pay taxes.

I didn't realize it was quite this bad, however.

From the August 5 Sovereign Digest published by The Sovereign Society:

Maybe this is Just a Conspiracy Theory, But . . . Have you ever wondered whether the government – both Democrats and Republicans – secretly wants a nation addicted to welfare? Sure would make for a more-compliant bunch of voters when the bulk of Americans are dependent on Uncle Sam for their bread and tuna.

I tucked away a report earlier this year that tracks a dependency index, and among the latest findings it showed that those who take from the government (let’s call them Thy Brothers) received benefits of about $32,700 from the government in 2010. Those who earn money and pay taxes in America (let’s call them Thy Brothers’ Keepers) earned on average about $32,400.

Is it just me, or is there a terminal flaw in the system when Thy Brothers are living larger than Thy Brothers’ Keepers?

If you want to see the true impact of this addiction to dependency, look no further than the $1 trillion Farm Bill the House passed last month. A huge chunk of the spending has nothing to do with farms or farmers. It’s earmarked for food stamps.

We, Thy Brothers’ Keepers, now spend about $80 billion a year on food stamps.

In the 1970s, one in 50 Americans received food assistance from the government. Today, it’s a stunning one in 7. But to see just how broken the system really is, dig a bit deeper. Half of all the folks receiving food assistance have been on the program for more than eight years. That, dear reader, is a sign of dependency.

In all, more than 67 million Americans – about 22% of the country – depend on the government for their livelihood. That number will only grow as more Boomers fall into Social Security, as Obamacare lassos more Americans into a government health network, and as failed economic policies create more Americans who are (wink wink) permanently disabled.

Sooner or later, we reach a point where the Entitlement States of America runs out of other people’s money. Then what?

Some more from the "extreme" presidential candidate . . .

Clips from Ron Paul speeches and presentations since the early 80s. He's been consistent and his predictions and statements appear more obviously reasonable today than they did even a few years ago. . . . Or not? And if not, why not?

Cutting $1.5 trillion from the federal budget

Tongue-in-cheek . . . or maybe not.

Check out Popular Gameshow Host Tells How Government Can Cut $1.5 Trillion.

Thanks to Becky Tabor Binuya for the link.

I wrote to Becky: "I would have changed a few details. Or, if we kept his recommendation about the EPA, then I would want far DEEPER cuts in the USDA and FDA. Eliminate them completely."

Brilliant suggestion to balance the budget . . .

Received this from my dad's wife. I tracked it down to ICanHasCheezburger.com's PunditKitchen.

Apparently, Warren Buffett was on CNBC back on July 8th when he said he could end the federal government deficit in five minutes. I'm afraid even he didn't quite get it right, but he definitely suggested the way. His brilliant idea:

You just pass a law that says that anytime there is a deficit of more than 3% of GDP all sitting members of congress are ineligible for reelection.

Good luck getting Congresspeople to agree to such a law! But, hey!

But how did he go wrong? you ask.

Three percent of GDP is still a deficit. Indeed, it is a rather severe deficit. In a $15 trillion economy, that's a $450 billion deficit. And, as one of my previous posts noted, it's not even touching the larger problem of debt. The size of the debt itself--on which interest must be paid--is continuing to rise.

Still, as I say, I think Buffett has pointed the way: There must be significant negative (painful) consequences for those "public servants" who are unwilling to do their duty to ensure fiscal responsibility.

While I'm at it, I thought I would offer an update on my July 30 post about The difference between debt and deficit. At the time I said that Senator Mark Udall of Colorado either didn't understand the difference between a deficit and a debt, or he was cynically playing upon the lazy thinking of his constituents when he suggested that "The President's National Commission on Fiscal Responsibility and Reform, chaired by Erskine Bowles and Alan Simpson, came up with a set of recommendations that would reduce the debt by over $4 trillion over the next decade."

Well, he wants credit for coming back with a proposal for a balanced budget constitutional amendment, "the first Democratic senator in many years to introduce [a] balanced budget amendment."

Key components:

• Requires that the federal budget be balanced each year unless 3/5ths of each House (60 votes in the Senate) vote to waive.
   
• Requires the President to submit a budget each year that is balanced.
   
• The provision would be waived when the U.S. is in a declared time of war.
   
• It would create a Social Security lockbox that protects the revenue and outlays of Social Security from any balanced budget requirement.
   
• It would prohibit Congress from providing income tax breaks for people earning over $1,000,000 a year, unless we are running surpluses (those surpluses must also not be eliminated if such a tax break were enacted).
  

My comments:

The first three points make eminently good sense.

The last one, too, seems reasonable. I'm not sure how it can possibly go into effect without massive court battles. For instance, what is an "income tax break"? If Congress at some point decides to raise taxes on those earning over $1,000,000 a year so that they must pay, say, 70% of their marginal dollars in income tax (while persons whose income is $999,999 must pay, say, "only" 50% of their marginal dollars in income tax), if someone subsequently suggests the top marginal rate should be reduced to 60%, is that an income tax break?

What if someone who makes more than $1 million wants to take advantage of a tax write-off, say, available to those who invest in green energy. Will such a write-off be disallowed because it would "provide an income tax break" to that wealthy individual?

But the one proposal that really bothers me is the fourth one: to "create a Social Security lockbox that protects the revenue and outlays of Social Security from any balanced budget requirement."

What is that supposed to mean?

It is the case, already, that Social Security is "off-budget" and treated separately in certain ways from other Federal spending, and other trust funds of the Federal Government.

EXCLUSION OF SOCIAL SECURITY FROM ALL BUDGETS
Pub. L. 101-508, title XIII, Sec. 13301(a), Nov. 5, 1990, 104
Stat. 1388-623, provided that: "Notwithstanding any other provision
of law, the receipts and disbursements of the Federal Old-Age and
Survivors Insurance Trust Fund and the Federal Disability Insurance
Trust Fund shall not be counted as new budget authority, outlays,
receipts, or deficit or surplus for purposes of -
"(1) the budget of the United States Government as submitted by
the President,
"(2) the congressional budget, or
"(3) the Balanced Budget and Emergency Deficit Control Act of
1985 [see Short Title note set out under section 900 of this
title]."

Congress has been raiding Social Security for just about "forever"--using all funds brought into the Social Security system to fund current government expenses. I.e., the approximately $2.6 trillion Social Security trust fund consists solely of federal government IOUs--sorry: debt.

So the only way any Social Security obligations will be paid is by taxing current and future taxpayers to cover the outstanding obligations. Same kind of thing with Medicaid and Medicare. They are not pre-funded. There are no assets sitting around waiting to be utilized to cover future expenses. Same thing with all the mandatory spending programs of the federal government (expenditures in the U.S. budget that are mandated by programs outside of the budgetary process, including Social Security, Medicare, Medicaid as well as Food Stamps, Unemployment Compensation, Child Nutrition and Tax Credits, Supplemental Security for the Disabled, Student Loans, and Veterans Retirement programs.)

According to Kimberly Amadeo of About.com, mandatory spending is slated to total $2.109 trillion in FY 2012--in other words, very nearly 100% of real income of the federal government.

Forget defense. Forget Health, Education and Welfare. Forget EPA, OSHA, FAA, FDA, USDA, and so on and so forth. You could cut out 100% of all the "optional" programs of the federal government, and you still couldn't balance the budget . . . unless you make massive changes in the enabling laws--the basic rules--surrounding all of these social programs.

It can't be done.

Well, finally, this.

My sister sent me a summary of something Dave Ramsey said:

If the US Government was a family, they would be making $58,000 a year, they spend $75,000 a year, and are $327,000 in credit card debt. They are currently proposing big spending cuts to reduce their spending to $72,000 a year. These are the actual proportions of the federal budget and debt, reduced to a level that we can understand.

I replied:

That was interesting, Miriam. I really appreciate your sharing that. It puts things into a more manageable perspective.

But something didn't seem right about the numbers. The spending seemed too low. So I did a little checking.

Based on what I can find—from the 2010 federal budget (see charts on the right hand side of the page; data from the Congressional Budget Office Historical Tables) . . .

If we start with a family income of $58,000 and multiply by the proportion of spending as compared to income of the federal government (divide by 2,162, then multiply by 3,456): you've got a proportional annual spend of $92,714!

Oh. And when it comes to “cuts”? Supposing Congress actually follows up on them all, we're looking at a reduction in annual spend from approximately $93,000 to $82,000 ($93,000 * (3,056/3,456)). So that’s nice. The family is proposing “only” to go into further debt at a rate of $24,000 a year instead of its former $35,000 a year!

Finally. It’s probably unfair to call it “credit card debt,” since credit cards are generally considered short-term debt and are charged at a much higher rate than the federal government. But that’s a relatively minor quibble. With an acknowledged debt of about $15 trillion and an income of $2.2 trillion (approximately), we find ourselves with a debt multiple of 6.8 [15/2.2]). Multiply $58,000 by 6.8 and you come up with the proportional total debt of this family: about $395,000.

Families with annual incomes of $58,000 generally aren't permitted to purchase $395,000 homes . . . or to wrack up $395,000 debts. Not normally, anyway! They can't pay their debts back. Especially not when their standard and expected annual expenditure--for years and years--is and has been significantly more than their income. (Even--to use Buffett's example--a "modest" 3% deficit for a family with annual income of $58,000 is $1,740. But when the family is borrowing--and seems intent on continuing to borrow $24,000 more every year for the next 10 years, at least?)

And Steve Forbes, Larry Summers and others see the S&P downgrade of American credit worthiness as an "outrage"?!? Would you want to lend to a family with this kind of credit profile?

The difference between debt and deficit

I have been observing with ongoing horror at what our nation's political "leaders" are doing with respect to the onrushing fiscal crisis.

I finally decided, on Thursday, to take the time to write them. Not that I expect they really care that much what I have to say!

I wrote first to my congressman, who is a Republican, then to my two senators, who are both Democrats. I wrote much the same to each one. Except for the last one. Senator Mark Udall has the beginning of a statement on his homepage that directly addresses the situation: "Letter to Congress on the Debt." He offers only the first few sentences, before hitting a link to Continue Reading. I realized I needed to Continue Reading if I was to write him. So I clicked the link.

And the first thing I saw on the new page, was a statement he makes on the side of the page: "Add your name to my letter to Congress and send the message: we need a sensible, bipartisan debt plan -- now."

And, of course, my first thought was--and still is--"Oh, yes! We do!" And, boy! If his plan is sensible, I absolutely do want to sign it.

So what was (or is) Senator Udall's sensible, bipartisan debt plan?

Here's what he wrote:

Letter to Congress on the Debt

Dear Members of Congress,

Today, I delivered remarks on the Senate floor about our government's inability to come together to address our looming national debt and its fast-approaching limit. The clock is running out, and Americans are calling for a comprehensive, bipartisan solution. Yet once again negotiations are at an impasse. Our escalating national debt stands at over $46,000 per citizen - that's an outrageous number that is weighing down our economic recovery, jeopardizing our status as the world's economic leader and threatening our national security.

There's a growing disconnect between what most Americans want - quality roads, a safety net for the sick and elderly, and strong investments in education and research that will develop the well-paying jobs of tomorrow - and our country's ability to pay for them. But I believe we have to be realistic and make tough decisions - on both sides. For example, spending cuts alone won't reduce our deficit. And if those cuts are too deep they will hurt the middle class and prevent us from creating the jobs we need for a full economic recovery. So I believe generating more revenue must at least be part of the solution. There are plenty of wasteful tax loopholes - not tax rate increases, but corporate giveaways through the tax code - that can be closed. Our economic future rests on the fulcrum of this balance: both sides have to come to the negotiating table with skin in the game and agree that nothing is off limits.

If we continue arguing over whether to use the right or left paddle, we'll just keep going in circles until we careen over the edge together. I'm willing to stay in Washington as long as it takes to achieve a sensible, bipartisan plan that puts our country back on track. We already have a template: The President's National Commission on Fiscal Responsibility and Reform, chaired by Erskine Bowles and Alan Simpson, came up with a set of recommendations that would reduce the debt by over $4 trillion over the next decade, including spending cuts, reasonable entitlement reform and revenues generated from closing special interest tax expenditures. Now let's start paddling in unison.

Respectfully,

Senator Mark Udall and co-signers

It was that penultimate sentence that put me over the top: "The President's National Commission on Fiscal Responsibility and Reform . . . came up with a set of recommendations that would reduce the debt by over $4 trillion over the next decade."

Though I should have been ready for it based on what he wrote in the middle of his second paragraph: "spending cuts alone won't reduce our deficit. . . . I believe generating more revenue must at least be part of the solution. There are plenty of wasteful tax loopholes - not tax rate increases, but corporate giveaways through the tax code - that can be closed."

In case the problems with Udall's letter aren't immediately obvious, please permit me to point them out.

1. The President's National Commission on Fiscal Responsibility and Reform came up with no suggestions on how to reduce the federal debt, as Udall claims. All they proposed was means by which, maybe (if Congress could possibly allow itself to do nothing to alter the situation over the course of 10 years! --Ha ha!), . . . --They proposed means by which maybe they would spend $400 billion less each year, for ten years, than they were otherwise planning to spend. They would continue to spend in deficit--$1.2 trillion more than they bring in in taxes. The debt would continue to increase at a pace of $1.2 trillion a year (again, assuming no one got any ideas over the course of 10 years concerning how to spend more money than they did in 2011--a far-fetched idea if I ever heard of one).

So Udall's comment about "reducing debt" is total hogwash.

But his first comment about "spending cuts alone [not being able to] reduce our deficit" is also hogwash.

2. Look, I'm all for closing wasteful tax loopholes. Or even non-wasteful tax loopholes. If the government would treat everyone with greater equality, that would be fine with me: The tax code that impacts one person should be the tax code that hits the next.

But if you're spending more than you can afford, then if you cut spending--any spending at all--you will reduce your deficit. You won't be spending quite as much beyond your means.

Clearly, either Udall doesn't understand the difference between a deficit and a debt, or he is cynically playing upon the lazy thinking of his constituents to try to woo them with his nonsense.

I decided to write him much the same letter I wrote to his colleagues--with just some minor modifications that directly address his letter:

******
--Oh! . . . And I was sure I had saved a copy. I planned to share it here. But it seems to have disappeared from my computer.

So summary: Basically: Hey, I'm one of the people whom you want to tax more. I am more than happy to pay more taxes . . . under one condition, and one condition only: That you-all come up with a reasonable plan actually to stop the bleeding, stop the deficit, balance the budget and, eventually, actually pay off the debt.

My problem: I have seen no one in Congress--or the White House--at any time during my adult years make any serious attempt to pay down the debt, even at the best of times. Even when the economy was screaming along, the government was wracking up more debt, more unfunded future obligations.

Until our supposed "leaders" in Washington actually lead and come up with a real plan to stop borrowing more and, at some point, actually pay off what they have already borrowed, I don't want to throw any more of my somewhat-good money after bad.

That, more or less, is what I wrote.

But there is more.

The government talks about the $14-point-some-odd trillion debt. But that's only what they are willing to acknowledge. Our federal government has obligated itself for far more. At this point, well over $100 trillion--most of it, obviously, "off book."

I mean, we're talking about Medicare and Medicaid and Social Security and all the retirement funds for all the federal retirees, not to mention the unlimited obligations they have signed up for with respect to Fannie Mae and Freddie Mac. They never reference those obligations. (Oh, yes, they reference them: that they contribute--or will, at some day in the future, contribute--to the federal deficit.) But they don't acknowledge that the funds supposedly set aside to pay off these obligations don't exist; that all the Social Security taxes you and your employer pay (or used to pay) go (or went) directly into paying the current expenses of the federal government. There is absolutely nothing there--or anywhere--to pay you what the government has promised to pay you . . . other than the "full faith and credit of the U.S. government"--which means the tax generating and paying ability of those Americans who will be paying taxes at the time you try to draw upon the program that the federal government has set up supposedly to meet your needs.

Put another way: The acknowledged debt of the federal government is "only" the debt upon which it is actually paying interest at the moment. It is not the future debt--the contracted obligation--for which any normal business would be investing in anticipation of having to pay.

All those tens or hundreds of thousands of dollars you hope to draw upon from Social Security? They don't exist. And the federal government has no plans for how they are supposed to come into existence . . . except somehow, miraculously, that taxpayers will show up in the future to give up the funds they need to live a modest (hopefully non-dismal) life so you can enjoy the benefits you believe you are entitled to (because the federal government made some promises to you: that if you paid in your Social Security taxes now--which would go to pay off those who had come before you--they would ensure that they fleeced future taxpayers to cover what they have been promising you).

[By the way, if you would like to read a very clear summary article about the on-going frauds involved in the Social Security system, read this from Merrill Matthews at Forbes.]

*********

When my family was all together a week ago, I got talking with my sister and brother-in-law from Germany. They are the ones who are being directly impacted by the Greek government's fiscal irresponsibility as they are being taxed to pay for their Euro-using cousins down in Greece. In Greece, I read, the average retirement age (and, therefore, the average age for receiving government funds), is 61! In Germany--where they are having to pay for the Greek government's largesse--the retirement age was recently increased from 65 to 67.

It strikes me: When Social Security was first created, the average lifespan of Americans who hit adulthood was significantly shorter than it is today. According to the Social Security administration, the numbers look like this:

Table 1: Life Expectancy for Social Security
Year Cohort Turned 65	Percentage of Population Surviving from Age 21 to Age 65		Average Remaining Life Expectancy for Those Surviving to Age 65
	Male	Female	Male	Female
1940 1950 1960 1970 1980 1990	53.9 56.2 60.1 63.7 67.8 72.3	60.6 65.5 71.3 76.9 80.9 83.6	12.7 13.1 13.2 13.8 14.6 15.3	14.7 16.2 17.4 18.6 19.1 19.6

"As Table 1 indicates," writes the author of the article in which I found the above table, "the average life expectancy at age 65 (i.e., the number of years a person could be expected to receive unreduced Social Security retirement benefits) has increased a modest 5 years (on average) since 1940."

Okay. But/and/so why hasn't the retirement age been raised to match? And considering the fact that our government has obviously over-promised on its ability to deliver, why isn't the retirement age raised a little bit more than a mere match to the obviously erroneous earliest assumptions? Put another way, why aren't we looking at full Social Security benefits beginning only for those who refuse to accept them until age 70? And significantly reduced benefits for those who take early retirement at 62 or 65 or any other age before that?

That kind of change might actually be real "reasonable entitlement reform," to borrow a phrase from Senator Udall!

Let's stop offering false hope to Americans that they (we!) can continue to retire in our 60s and expect to receive the kinds of Social Security benefits our parents or grandparents did. It's not going to happen.

One way or another, our system is collapsing. Let's acknowledge the collapse and make solid plans to move forward.

How deep are we?

I was listening to the news yesterday when they mentioned the congressional debt commission had at least broached the subject of eliminating the mortgage deduction for home purchasers--an astonishing shift in political tides. I mean, that the topic was even mentioned as a possibility to bring government revenues slightly more in line with expenses.

After all, "It's a lot of money and we [i.e., the government] have an enormous deficit."

Yeah.

Except I was astonished at how much money the entire country's mortgage interest deductions equal. Something like $103 billion or $105 billion. Total.

That's over 7.7% (close to one thirteenth) of the current deficit--deficit! we're not talking debt, here! deficit. The government needs to find thirteen changes of this magnitude to puts its house in order.

But think of the impact on the U.S. economy that this one tiny change would make.

If the U.S. economy is in the tank right now while the federal government is "stimulating" it to the tune of $105 billion per year in income tax deductions on mortgage interest alone, where do you think it will be if and when they eliminate the deductions?

• If you are purchasing your home, would you be able to afford your mortgage if the income tax deduction were eliminated?
   
• If you could make your payments, do you think the price of your home would remain stable? Would it go up (so you could borrow equity) or would it go down (so if you are still "right side up" on your mortgage debt, you might find yourself "upside down"--owing more than your house is worth)?

I bring this up not to make a political statement either in favor of or against the proposal. Rather, I bring it up to point out that federal deficit spending is not without cost, it is not without pain.

I think, for many, the federal government's spending and tax collection has no impact on the economy. So what if they raise the debt ceiling? So what if they aren't collecting enough taxes to cover their expenses?

Well, the so what's are getting ready to come home to roost.

At some point, the debt really does have to be repaid. Somehow. Those who loan the money want it back. The Chinese will say, "No, no. You've borrowed enough. We're not sure you can pay back what you owe us already, so we're not going to loan you more. We're not going to buy any more of your bonds. You'll have to find someone else to loan you more money."

"But, but, but!!! There is no one else to lend us money!"

"Tough."

"Okay. Then we'll buy our own bonds, by creating more dollars. We'll engage in quantitative easing."

"Good luck!"

When we put it into these kinds of terms; when we see how only one thirteenth of the federal deficit (not debt!) is equal to the entire home mortgage interest deduction; when we realize how devastating it would be to eliminate the interest deduction: it should be obvious that federal deficits do have an impact on the economy.

Of course, that should have been clear, anyway.

So here's the question.

We see the riots occurring in France and Britain, in Greece and elsewhere around the world as people say, "No, no, no! You can't take my benefits, my expected retirement at 62 [or whatever]. You owe it to me." Do you think we will escape similar social dislocations here in the United States?

If we are afraid of the impact of reining in the deficit now, when our national debt is still officially less than $14 trillion (let us not speak of the unfunded liabilities!): do we seriously think there will be fewer or less significant social dislocations later on if we continue to dig ourselves further into the hole?

********

A few additional items of interest.

• According to USDebtClock.org, which keeps running tabs on all kinds of numbers like these I have been talking about, total interest per year per citizen of the U.S.--on all debts, both governmental and personal--is $10,541. That hit me. That's saying our economy faces a headwind of $10,541 in interest every year per person: before we can move forward one inch; before we can pay for anything new; before we can repair what we already own . . . we have to pay $10,541 per person in interest.
  
  That's quite a headwind!
  
  What could we do if we did not have that headwind working against us?
   
• The Dagong Global Credit Rating agency, what I understand is the official Chinese government credit rating agency, has downgraded U.S. debt. I.e., it has said it believes that purchasing U.S. bonds is more risky now than it was in the past. Moreover, it has also said the outlook for the future is "negative"--meaning that, unless something changes, the risks are only going to get worse . . . which means, in turn, that we can expect further downgrades in the future.
  
  And all of this means? Expect the U.S. government will have to pay higher interest rates on its debts. It will have to pay higher rates. It is the supplicant. It is the beggar. Beggars can't be choosers.
  
  See World Currency Watch for more.

Income inequality, taxes, and tax breaks

I keep hearing about how the gap between rich and poor keeps growing in the United States . . . and how the size of so many top executives' salaries in the United States have ballooned in recent years . . . even while average workers' wages have failed to keep up with inflation.

Typical information along these lines includes statements like these:

• From the New York Times, March 2007:
  

  The [latest] data . . . shows that the top 300,000 Americans collectively enjoyed almost as much income as the bottom 150 million Americans. Per person, the top group received 440 times as much as the average person in the bottom half earned, nearly doubling the gap from 1980.

• Or this, from an excellent article by Professor G. William Domhoff of the University of California at Santa Cruz:
  

  The ratio of CEO pay to factory worker pay rose from 42:1 in 1960 to as high as 531:1 in 2000, at the height of the stock market bubble, when CEOs were cashing in big stock options. It was at 411:1 in 2005 and 344:1 in 2007, according to research by United for a Fair Economy. By way of comparison, the same ratio is about 25:1 in Europe.

  And,
  

  The rising concentration of income can be seen in a special New York Times analysis of an Internal Revenue Service report on income in 2004. Although overall income had grown by 27% since 1979, 33% of the gains went to the top 1%. Meanwhile, the bottom 60% were making less: about 95 cents for each dollar they made in 1979. The next 20% - those between the 60th and 80th rungs of the income ladder -- made $1.02 for each dollar they earned in 1979. Furthermore, the Times author concludes that only the top 5% made significant gains ($1.53 for each 1979 dollar). Most amazing of all, the top 0.1% -- that's one-tenth of one percent -- had more combined pre-tax income than the poorest 120 million people.

Clearly, we are looking at some rather astonishing inequality, here! And it would be wonderful if the people receiving the highest incomes would be willing to share some of their wealth with--i.e., give . . . or, shall we say, be charitable toward--those less fortunate than they.

Of course, our government is not particularly inclined to think in terms of charity. It prefers to speak in terms of rights and fairness and equality. And so we hear talk of the need to raise taxes on the wealthy. And we hear discussions about what to do with the Bush-era tax cuts.

What we don't hear is any kind of acknowledgment like this (from an editorial by Joel Belz in the latest World magazine):

In all the discussion about tax breaks for the rich, two fairly simple facts are really all you need to know.

Fact No. 1 is that only 3 percent of all the taxpayers in the United States pay more in income taxes than the other 97 percent combined. [That shouldn't be so surprising, when one considers the income disparities. --JAH] Fact No. 2 is that even if you taxed that 3 percent of our population at a rate of 100 percent of their income [not quite three times the current top rate--JAH], you wouldn't produce enough additional revenue to cover the deficits our federal government is now incurring each year.

Notice: We're talking about current deficits, here! We're not talking the federal budget. We're talking solely about the federal budget deficit. The federal government can't squeeze a whole lot more out of American citizens. And even if it could, it couldn't pay its debts.

Let's see. What is that called?

Oh, yes!

Bankruptcy.

And when national governments go bankrupt, what usually occurs?

Oh, yes!

Social upheaval . . . on a grand scale.

And what are our politicians talking about? Means for restructuring our nation's financial circumstances along the lines of Chapter 11 bankruptcies?

No.

Apparently, they would rather dig us further into a hole, so we can enjoy the kind of social upheaval Europe is enduring right now as people protest austerity measures . . . or, possibly, worse (all-out warfare with those to whom we owe money and are unable to pay)?