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Fiscal Straitjacket Pushes U.S. Toward Implosion

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When U.S. government officials and media apologists attempt to justify the government's policy of excluding (and ignoring) “unfunded liabilities” in their calculations of budgets and deficits, the excuse always used is that the government “could change the rules tomorrow” - and thus eliminate some/all of those unpayable obligations.


In fact, such an excuse has no validity. The U.S. political system (unique in the world) is in such a state of hopeless gridlock that it has extreme difficulty passing even minor changes to existing policy – let alone making huge budget cuts to cherished social programs. While there are an infinite number of examples to choose from, the Obama regime's new health-care reform legislation is a perfect example.


With the Democrats having large enough majorities in both Congress and the Senate to (in theory) pass their initiatives with no support from Republicans, the reality is drastically different. Since several of his own Democrats have been bought-off by U.S. private health insurers, Obama is unable to “fast-track” this legislation through both branches of government without Republican support (the only way in which significant, new legislation is ever enacted).


Consequently, the Republicans made their own, ideological dogma a condition for any support: no government-run health insurance. As a result (and in typical U.S. fashion), this watered-down compromise does nothing to “fix” the world's most-inefficient healthcare system – but does manage to greatly add to government spending.


There is a very good reason why these pieces of “compromise” legislation never solve problems and always add to government spending: partisan politics. When the U.S. political system was created, its system of “checks and balances” was supposed to result in only the best ideas of both parties being incorporated into law. Sadly, the Founding Fathers who created the U.S. political system had obviously never met a politician before creating this framework for government.


In reality, with the U.S.'s two-party political system, the party not in the White House knows that all it has to do to regain control of the government (and most of the best seats at the public “trough”) is to discredit the party that is in control. Thus, one paramount “rule” governs the actions of the party lusting for more power: never allow the party in charge to pass any useful legislation.


This has been the pattern in U.S. politics for decades. Prevent the party in power from doing anything good for America, and you're ensured of getting your own turn at the top. What this means is that instead of the U.S.'s “checks and balances” resulting in only best ideas of the two parties becoming legislation, in actual fact only the worst ideas of the two parties ever become law.


This alone guarantees there is a 0% chance of the U.S. government making the gigantic budget cuts necessary to slash the $2 trillion per year in “unfunded liabilities” which the U.S. government will have to cover every year for the next 30 years. And that only covers the $60 trillion or so in “unfunded liabilities” for the baby-boomer generation. Furthermore, these obligations only form part of the U.S. government's massive, structural deficits. As a whole, the U.S. structural deficit will require $3 trillion/year in budget slashing as the minimum amount of government spending that will have to be cut each year (if the U.S. economy is to be solvent).


However, partisan politics is only one of the factors which has resulted in the U.S. having the most dysfunctional democracy on the planet. Legions of “lobbyists” (i.e. “bag-men” to deliver bribes) have bought-off the members of the U.S. government to a degree that the party affiliation of U.S. politicians is less important than pleasing their “sponsors”.


This is why even with “super majorities” in both branches of the U.S. government, the Obama regime still can't enact any meaningful reforms to government policy. There are enough bought-and-paid-for U.S. politicians to totally prevent meaningful reform in health-care, energy policy, the financial sector, etc., etc., etc.


Obviously, when you put together all those “untouchable” sectors in the U.S. economy, the U.S. government has shown itself as being totally incapable of reducing overall spending by $3,000/year, let alone $3,000,000,000,000/year. More importantly, the American Association of Retired People (the AARP) is acknowledged as the most powerful lobby group in the U.S.


In truth, their influence is far less than that of the financial sector lobby. However, since all of Wall Street's influence is gained through bribing U.S. politicians with huge campaign contributions (Obama himself is the biggest bribe-receiver), the AARP is the purported dominant lobby-group – because it's the one major lobby-group which does not obtain its influence through bribery, but rather through voting (what an arcane concept!).


U.S. senior-citizens are religious voters, thus in terms of participation alone, seniors have been the dominant U.S. demographic. Now, with the U.S. (and many societies) rapidly aging, the influence of the AARP grows every year. Given this fact, what are the chances of slashing $2 trillion per year of their medical and Social Security benefits? Zero.


To date, spineless U.S. politicians haven't been able to cut one penny of spending from these entitlements (and that was when the AARP was much weaker). Much worse, these deceitful cowards have (in less than 20 years) pillaged $4 trillion from the government “trust funds” which are supposed to cover some of those “unfunded liabilities”.


Instead of that money sitting in trust funds, and appreciating through investment, most of what remains in these “trust funds” are just government IOU's. Just as the U.S.'s foreign creditors have no chance of seeing a penny of the money lent to the U.S., the U.S.'s depleted trust funds have no chance of recovering any of the trillions stolen from the American people.


As hopeless as the fiscal situation of the U.S. federal government has become, what I have only recently become aware of is that U.S. state governments are in much worse shape than the federal government.


Many of the problems are precisely the same. Political gridlock caused by partisan gamesmanship also ensures that no good idea ever becomes law. Rampant corruption means most state legislators have also been bought-off. And many U.S. states have copied the practice of the federal government in moving “unfunded liabilities” off of their “balance sheet” - and then pretending they don't exist.


Two gargantuan differences between the state and federal governments mean that many U.S. states are facing much worse economic catastrophes than the federal government. To begin with, U.S. states don't have their own, 'magic' printing presses – where infinite amounts of money can be 'conjured' out of thin air. This creates absolute ceilings on the total amounts of funds available to spend.


Meanwhile, U.S. state governments are equally if not more constrained in their spending. To my utter amazement, U.S. state governments in most U.S. states have entrenched much of their spending with mandatory fiscal “formulas” for setting spending levels in many categories of spending. A recent article on this topic hammers home this fiscal nightmare.


That piece points out how many states who received federal “stimulus” funds may end up much poorer than if they had refused to accept these hand-outs. The reason cited in the article was that state funding formulas were designed to maintain spending levels at whatever level to which they have risen. This means that states taking temporary hand-outs last year may now be required by law to spend the same amount this year – except without those federal dollars.


Indeed, the governors of Indiana and Texas refused government aid for precisely those reasons, and would make the same decision again, without hesitation.


Putting the pieces together, the U.S. government has debts which exceed all the rest of the world combined. It has the world's most inefficient social programs, with unfunded future costs which are certain to totally bankrupt the U.S. economy. Revenues for all three levels of government are collapsing at the fastest rate in history. And (with very rare exceptions) every government in the U.S. is only capable of increasing not decreasing their spending.


What this fiscal straitjacket means is that the U.S. economy is hurtling toward a point where no amount of hyperinflationary money-printing can pull it back from the abyss of a debt-implosion. Most spending in the U.S. is effectively carved in stone. Short of funneling vast amounts of Bernanke Monopoly-money straight into state coffers, dozens of U.S. states are heading toward inevitable bankruptcy (along with the federal government, itself).


This is why the Treasury Department has refused to release its once-a-year calculation of the real U.S. deficit (using GAAP accounting) – despite the fact this report is mandated by law. As I wrote previously, the real deficit for 2008 (as calculated by the Treasury Department) was $5.1 trillion.


John Williams, the eminent economist who operates the web-site shadowstats.com, estimates that the real deficit for 2009 will approach $9 trillion. In the fantasy-world of U.S. “official deficits” the Obama regime was predicting that the total amount of new U.S. debt all this decade will only total $9 trillion.


The U.S. federal government is hopelessly insolvent, with no possible way of averting national default. Most U.S. states are in even worse fiscal condition...and all the U.S. media can write about are “bubbles in China”, “debt problems in Europe” - and the “record profits” for Wall Street. As bad as the initial collapse of the U.S. economy has been, 2010 will likely be the year that this lemming-economy truly plunges off a cliff. And true to form, expect the U.S. media to call this a “surprise”.

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Comments (2)Add Comment
Jeff Nielson
...
written by Jeff Nielson, January 12, 2010
There are still a FEW (lonely) politicians who take their public duties seriously, and who can be relied upon not to simply jump at the latest vote-buying gimmick.

The problem for responsible state and local leaders in the U.S. is that they still might be pulled down through the COLLECTIVE stupidity/greed/short-sightedness of their fellow "leaders".

Best of luck weathering the storm in your "neck of the woods".
JsJ
...
written by JsJ, January 12, 2010
I'm grateful that my governor, Mitch Daniels of Indiana, refused the stimulus funds. I don't think that was his reason at the time, but the fact that his choice was vindicated makes me happy.

Of course that just means my state will be the last part of the turd to swirl the bowl and get sucked down, instead of the first.

Welcome to the U.S.A.!!! smilies/cheesy.gif

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