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<< News >>

National News

Saturday, 25 October, 2008 0:55 AM

A $17 Trillion National Debt by 2009: What this mess Really Means for You.

One best-selling author explains why Washington is hoping you won't notice...and what it means to your future...

Photo credit: www.deficitsdomatter.org

I.O.U.S.A. book cover

 

Hoboken, NJ — Panic on Wall Street! Confusion in Washington!Recession? Depression? Inflation? Deflation? Turn on any news show, read your favorite blog or pick up the morning paper and you will be crushed by an avalanche of information on the nation's economy. But who knows what's really happening? Economic expert Addison Wiggin says you owe it to your country and your future to find out the truth about this disaster—and don't expect the government to be much help.

"It's amazing how poorly the bailout plan and our economic situation in general have been explained to the public," says Addison Wiggin, coauthor along with Kate Incontrera of I.O.U.S.A.: One Nation. Under Stress. In Debt. (Wiley, September 2008, ISBN: 978-0-470-22277-5, $19.95). "In the government's haste to pass the plan and the turmoil surrounding stock market plummets that followed, the long-term implications of our economic turmoil have been ignored, or at least glossed over."

In I.O.U.S.A. Wiggin consults "The Mount Rushmore Crowd" of the American economic scene—luminaries like Warren Buffett, Alan Greenspan, Paul Volcker, Robert Rubin, Paul O'Neill, Ron Paul, Arthur Laffer, Steve Forbes, William Bonner, and more—to shed light on the economic challenges facing the nation.

"We are entering an economic cycle that happens only once every few generations," says Wiggin. "And while our politicians seem to have just recently discovered what a challenge it's going to be, the truth is the economy has been on a precarious path for some time, including, but not limited to, the out-of-control spending habits of the federal government and a complicit, credit-addicted American people."

I.O.U.S.A. illuminates today's financial crisis in a unique and easy-to-grasp way by examining four serious "deficits" the nation faces—the budget deficit, the personal savings deficit, the trade deficit, and most importantly, the leadership deficit. The book serves as a companion to the critically acclaimed documentary of the same name—a national debt documentary that was nominated for the Grand Jury Prize at the 2008 Sundance Film Festival.


What America's Economic Mess Means For...

...The National Debt. A couple of weeks ago when America's debt surpassed the $10 trillion mark, the National Debt Clock in Times Square ran out of digits. There may not be a better indicator that the U.S. is drowning in debt. The passing of the $700 billion bailout only increased our debt woes, because in order to approve the bailout plan, Congress had to raise the debt ceiling for a second time this year to a whopping $11.3 trillion dollars. If we actually do hit the $11.3 trillion dollar mark, our debt will then make up over 70 percent of our GDP.

But that's only the beginning. During the first 16 days of this fiscal year, the debt increased by another $300 billion. That's an annual growth rate of 75 percent. At this pace, we're going to owe $17 trillion by this time next year. That would be over 120 percent of our GDP—roughly equivalent to the nation's debt after World War II.

"The bailout only increases the problems we will have trying to pay down the federal debt," says Wiggin. "Aside from its gargantuan size, the biggest problem with our debt today is how it is funded. During another historic pay-down period following World War II, the federal debt was funded using savings bonds bought by Americans. So though our debt level was high, at least our government was mostly in debt only to its own citizens. That's no longer the case. Today, half of our debt is gobbled up by foreign central banks and investors, most notably China, Japan, and the oil exporting countries.

"Foreign debt, in and of itself, is not a bad thing," he adds. "But it does put future financial decisions in the hands of people who may or may not have the United States' interests in mind when they go to make them. It will be better for America and future Americans if we make tough decisions now and bring our debt and dependence on foreign lending under control."

...The Next Generations of Americans. In the documentary I.O.U.S.A. William Bonner, founder of Agora, Inc., says, "That one generation can spend the money of the next is not just immoral...it's fundamentally wrong and mean." Unfortunately, our government and the current generations have no choice but to be wrong and mean.

"Years of reckless spending in government and even in our own households have finally caught up with us," says Wiggin. "And we've dug such a hole that it is unlikely we can have these economic troubles tidied up any time soon. What's scary is that with those troubles come other problems. The nation's security will be at risk, and it's likely that the levels of crime and poverty in future generations will increase. Because we are a wealthy nation, we can spend more than we take in for a very long time. But if we do it for too long and our debt service becomes a problem, there's a big chance that, in the words of Warren Buffett, 'demagogues will come along and do some very foolish things.'"

...The Cheap and EZ American Way of Life. For too long the American way of life has been funded by credit cards and ill-advised loans and propped up by little to no savings. In fact, 2005 and 2006 saw negative national savings rates. The last time we saw back-to-back negative savings rates was in 1933-34 during the depths of the Great Depression.

"Following years of historically low interest rates, America is dependent on ready sources of cheap and easy credit," says Wiggin. "Unfortunately, too many people used cheap and easy credit to buy things they couldn't afford. That 'spend now, save never' mentality is what led to the subprime mortgage bubble and collapse. For the bailout to work, Americans must rediscover their sense of rugged individualism. We must be more realistic in terms of what we can and can't afford. We must start saving more. And we must demand that those leading the nation are heeding this advice as well."

...Entitlement Programs. Many Americans rely on entitlement programs such as Medicare, Medicaid, and Social Security. And while many baby boomers and the generations following them have long been told they won't be able to rely solely on Social Security in their retirement, is it possible the current financial crisis and the nation's mismanaged economy signal an end to these programs altogether? Wiggin says all signs point to yes.

 

Backing up his assessment is a study from the National Center for Policy Analysis (NCPA) that suggests that without increases in government revenues and reform of entitlement programs, the following could happen:

  • By 2010, the federal government will stop doing 1 in 10 things it's doing now.
  • By 2020, the federal government will stop doing 1 in 4.
  • By 2030, the federal government will stop performing half of the services it provides.
  • By 2050, Social Security, Medicare, and Medicaid will consume nearly the entire federal budget.
  • By 2082, Medicare spending alone will consume nearly the entire federal budget


"Entitlement programs are clearly in danger," says Wiggin. "Baby boomers are getting older and putting more of a burden on them. At the same time, healthcare costs are increasing, and the economy is obviously incredibly shaky. If we don't figure out how to better fund some of these programs, we are headed for major problems down the road."

...The Dollar. The post bailout world has been surprisingly kind to the dollar. In fact, the height of the Wall Street selling saw the dollar index rally from a historic low of 71 to over 82. "The dollar's reaction to this turmoil might be the only positive thing to come of this disaster," says Wiggin. "It's an indication that if we can get our act together, we can still be a strong global economic leader. But first we must get our spending under control both in government and as individual Americans. We are at a tipping point with the dollar. If we get our act together, we can preserve its importance in the global economy."

...The American Political Process. Without reforming the American political process, solving our financial crisis and reducing the debt load will be difficult. If the government mismanages the money allocated in the bailout, our economic problems will increase exponentially. The urgency with which the bailout plan was proposed and passed is, according to Wiggin, politically dangerous.

"The plan was first presented as a three-page request for an exorbitant amount of money to be given free of any oversight," he explains. "That didn't fly with Congress. So, what they put together was a 451-page legislative document that would still hand over an exorbitant amount of money, but which now included the pork spending that so many politicians revel in. So, the best thinking of those in our government seems to be that to fix our broken economy we need to spend money, mostly in the form of tax breaks, on industries that produce children's wooden arrows, NASCAR race tracks, rum producers in Puerto Rico and the Virgin Islands, and so forth.

"Fiscal conservatism is now an oxymoron in Washington, and without completely revamping the way our government handles money, there is little hope for us as a nation," adds Wiggin. "There is an enormous opportunity for the next president to make dramatic improvements in the finances of the government, which would be a 'legacy issue' of his administration."

"Most Americans feel like important decisions regarding the economy and fiscal policy happen in some far-away place, by 'experts' in Washington or on Wall Street," says Wiggin. "That's just not true. And it's dangerous to think that way. You're abdicating your responsibility to hold your government accountable. Congress needs to renew tough budget controls like the PAYGO rules that expired in 2002. And take additional steps to cut spending, finance the entitlement programs, balance the budget, and start paying down debt.

"For their part, individuals need to save more, invest wisely, expect less from the government, and be willing to pay for the services they do expect," adds Wiggin. "They also need to educate themselves about the tough economic challenges the country faces, so they can both hold public officials accountable and give officials the political permission they need to make the tough policy decisions that are inevitable and on our doorstep."

Source: DeHart & Company

Note: A free screening of I.O.U.S.A. will be held as part of the Detroit Docs International Film Festival on Wednesday, October 29, 2008. It begins at 7:00 p.m. at 1515 Broadway in Downtown Detroit.

 

 

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