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http://www.thebulletin.us/articles/2009/02/11/herb_denenberg/doc49926a5a5eea5922890557.txt

The Advocate
By Herb Denenberg, The Bulletin
Published: Wednesday, February 11, 2009
Here’s a quote that should be an obvious no-brainer, but it is one most will probably find shocking and astounding: “I would argue that the most serious threat to the United States is not someone hiding in a cave in Pakistan or Afghanistan, but our own fiscal irresponsibility.” So said David Walker, former comptroller general of the United States.

And that’s one of the main themes of an incredibly important and timely book just off the presses. It is titled I.O.U.S.A.: One Nation. Under Stress. In Debt. The authors are Addison Wiggin and Kate Incontrera with Dorianne Perrucci.

The book shows “The Real State of the Union.” It is endangered by the fiscal cancer of fiscal irresponsibility.

“In the end, what we learned and by extension, what you’ll read in this book, can be boiled down to one statement: No one agrees 100 percent on what the solutions are for the problems we face as a nation. But that we’ve lived beyond our means for too long is obvious to everyone.”
The aforementioned Mr. Walker, described by CBS’s “60 Minutes” as the nation’s top accountant, told that TV program, “We suffer from a fiscal cancer. It is growing within us and if we do not treat it, it could have catastrophic consequences for our country.”

He’s talking about the federal debt, which has been growing fast in recent years, but is now growing faster than a cancer. With the bailouts and the stimulus package, calling it a cancer underestimates the nature of its recent explosive growth. Even cancers don’t grow that fast.

Mr. Walker also said, “The facts aren’t Democrat or Republican, the facts aren’t liberal or conservative — the facts are the facts. And there is broad-based agreement among the Fiscal Wake-Up Tour participants that span the political spectrum: Our financial condition is worse than advertised and we need to act soon because time is running against us.”

First, an explanation of the “Fiscal Wake-Up Tour.” The book takes you on two journeys based on a documentary titled “I.O.U.S.A.” One journey is through time from 1789 forward so you understand our state of the union right now. The other journey is across the country where various participants in the project that led to the book talked to the experts and enlisted experts to explain the situation to the public.

The book contains interviews with these experts and they include a dozen of the nation’s foremost authorities on our economy: Steve Forbes, Warren Buffett, Alice Rivlin, Paul Volcker, Dr. Alan Greenspan and Peter Peterson.

Here are some facts and statistics that should convince you that the authors are not just using scare tactics and that the fiscal situation is as perilous as the authors suggest. Here are a few ways they translate our financial mess into terms everyone can understand:

What America’s Financial Mess Means For The Next Generation

Without reading the book, if you’ve followed the news recently, you know we’re in the process of loading trillions into our national debt that will have to be paid off by future generation. Here’s what William Bonner, founder of Agora, Inc., a financial and research firm, had to say about that: “That one generation can spend the money of the next is not just immoral ... It’s fundamentally wrong and mean.”

I’d add that what’s worse is that the Congress and president are doing this fundamentally immoral, wrong and mean act in undue haste, without proper study and consideration, and in a manner making it likely that the remedy will cause more harm than good.

The authors write, “Years of reckless spending in government and even in our own households have finally caught up with us. 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.’ ”

If that scenario isn’t scary enough, I’d add one more layer. If our economy gets into overwhelming trouble, we won’t be able to maintain our military superiority and we will be subject to escalating danger from Islamofascist jihadists and other enemies of America. Our very survival depends on a strong economy able to support a strong military. So we may be talking curtains not only for our economy but also for our nation and our civilization, if we don’t get our fiscal mess straightened out.



What America’s Financial Mess Means For Our Entitlement Programs

Most American now rely on, or plan to rely, on entitlement programs such as Medicare, Medicaid and Social Security (to mention only the Big Three). The authors raise the question whether our financial mess means these entitlement program are doomed to eventual extinction. There is growing evidence the answer is yes. A study from the National Center for Policy Analysis (NCPA) suggests that without increases in government revenue or reform of entitlements, 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 the entire federal budget.

The authors point out the crunch is coming as the baby boomers are getting older and as health care costs are increasing. On top of that, the economy is generally shaky. And I’d another factor that could make the picture twice as frightening. We may be on the brink of one of a new and perhaps the most expensive entitlement programs in our history — the much-heralded universal health care program.

In costs and problems that could dwarf the financial nightmare that we already have in Medicare and Medicaid. We haven’t even figured out to handle the escalating costs of Medicare and Medicaid and now we’re about to jump into an even more expensive and extensive health care program. So right after blindly passing a trillion dollar bailout, without adequate consideration, we’re being set up for the most expensive entitlement in history. And behind those two killer ill-considered trillion-dollar- plus plunges, I just heard the new Obama bailout of financial institutions would cost another trillion. I’ve written the trillion dollar bailout is the greatest fraud in history and it seems that’s only the beginning of trillion-dollar boondoggles.

What America’s Financial Mess Means For The National Debt

In September 2008, our national debt surpassed $10 trillion for the first time. The authors report the National Debt Clock ran out of digits. That was before the $700 billion bailout, which required Congress to raise the debt ceiling to $11.3 trillion (which is 70 percent of the gross domestic product, the value of all goods and services we produce in a year).

The authors say that’s only the warm up. During the first 16 days of 2009, the debt increased another $300 billion, an annual growth rate of 75 percent. At that rate, we’ll owe $17 trillion by this time next year. That’s 120 percent of our GDP — about our debt at the end of World War II.

Then along comes the stimulus package of over a trillion (including interest), and there’s more spending packages coming down the line.

The authors point out there’s another problem here. After World War II, the major debt was owed to our own citizens, as it was funded by savings bonds bought by Americans. Now half our debt is owed to Japan, China, and oil-exporting countries.

The authors write, “Foreign debt, in and of itself, is not a bad thing. 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.”

To say they “may” not have our best interests in mind is a gross understatement.

As gigantic and dangerous as the national debt is, it is still only a small part of the problem. The public debt or fiscal liabilities do not include the unfunded liability of Social Security, now about $7 trillion, or the unfunded liability of Medicare, now about $34 trillion. Add that to the national debt and we’re at about $53 trillion to meet all of our obligations. That means to deliver on all the government’s obligations and promises we’d need $175,000 per person right now to total up to $53 trillion.

What America’s Financial Mess Means For The Dollar

The authors say the post-bailout world has been surprisingly kind to the dollar. At the height of Wall Street selling, the dollar index rallied from an historic low of 71 to over 85.

The authors write, “The dollar’s reaction to this turmoil might be the only positive thing to come of this disaster. 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.”

What America’s Financial Mess Means For The American Political Process

The authors write that we better reform our political system if we want to get our financial crisis and debt load under control. They say the way the bailout plan was proposed and passed is 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.

“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.”

The way Congress and the President have handled the bailout and the stimulus bill amounts to gross irresponsibility. Without adequate hearings, consideration, deliberation and debate they are blindly embarking on a trillion dollar fiasco, and they haven’t even bothered to communicate what they are doing to the public. All of Mr. Obama’s talk of transparency and openness is just one more piece of information proving that Mr. Obama is a fraud, a phony, a faker and a hypocrite.

In the style of a con man and rip-off artist, he is giving the standard pitch that you’ve go to do this immediately or the sky will fall. It is the typical con man scenario that I’ve reported on for decades as a consumer reporter.

This political process is the fourth of the four deficits discussed each in a separate chapter in the book: The budget deficit, the savings deficit, the trade deficit and the leadership deficit.

The leadership deficit may be the key to eliminating the other deficits. Paul O’Neil, former secretary of the Treasury under President George W. Bush, writes: “After the second World War we started running budget surpluses and did that through the 1950s and into 1960. Only in the past 40 years or so have we accepted that it is a bipartisan thing not to have fiscal discipline.”

As one expert put it, we’ve got a big-government- spending program and a small government-taxing program. That means deficits as far as the eye can see, and perhaps beyond that. And this disastrous picture is only getting worse.

The authors cite a “Hit List” of steps the Peterson Foundation says we should take now to get ourselves out of this mess and these potentially fatal deficits:

• Demand that Washington policymakers address these deficits and that candidates for office disclose their proposed solutions.

• Rethink our priorities. We should not expect the federal government to do what we’re not willing to pay for.

• Recognize that there are no easy answers. Economic growth is essential, but these problems are so big we’ll never be able to grow our way out of them.

• Reinstitute tough budget controls like the “pay-go” rules that expired in 2002. The government needs to stop digging the fiscal hole deeper.

The Peterson Foundation also recommends tough questions for elected officials:

• Do they support balancing the budget? Do they support creating a law requiring a balanced budget?

• If they’re proposing new programs, how is the government going to pay for them?

• If they’re proposing new tax cuts, how is the government going to pay for them?

• How do they propose to simplify the tax system?

The Peterson Foundation even includes what you can do on a personal level:

• Establish a personal budget and stick to it.

• Form a financial plan that considers the following questions: What are my short-term and long-term financial needs? What major milestones do I need to prepare for? Education? Family? Retirement? How much do I need to save and invest in order to retire at a comfortable level that can be maintained over time?

• Put that plan into immediate operation — don’t wait.

• Be responsible in your use of credit?

• Teach your children the importance of planning, saving, budgeting, investing and making responsible use of credit.

In connection with preparing this book and taking other steps to get the word out about our debt crisis, the authors talked to some leading financial lights. Here is a sampling of what the experts said:

• Alan Greenspan, former head of the Federal Reserve: “Without savings, there is no future.”

• Robert Rubin, former secretary of the Treasury: “It’s actually not that complicated. You know there’s this old saying, ‘There’s no free lunch.’ I think that almost captures the whole thing. Just as for an individual in the final analysis, there is no free lunch, there’s no free lunch for a national economy.”

• Rep. Ron Paul, an outspoken advocate of the free market and candidate for president: “We can’t afford to pay all these bills, and if we just pay for these bills by printing money, it will destroy the currency — and that will be a much, more painful reaction than us just tightening our belts and living within our means.”

• Peter G. Peterson, founder of the Peterson Foundation and co-founder of the Concord Coalition: “Has something fundamental happened to the character of our people or our societal structure, or has no one stepped up to provide the leadership? We’re not going to know that until we try.”

• Warren Buffett, one of America’s greatest investors: “I do think that piling up more and more and more external debt and having the rest of the world own more and more of the United States may create real instability down the line and increase the possibility that demagogues come along and do some very foolish things.”

The former comptroller general, Mr. Walker, strikes one optimistic note. Although the politicians don’t seem to get it when it comes to the fiscal crisis, the people do get it: “We found in our many Town Hall meetings that the American people were smarter than many politicians realized. Once you state the facts and speak the truth, people get the message. At the same time, the American people are distrustful of Washington. They’re starved for two things: truth and leadership.”

Right now they’re getting little of either, but if they want both they’ll have to create the public opinion pressure that demands it. That is the great essential of democracy that America is still to master — but must master if we are to avoid disaster. If you want to do what has to be done, you might start by reading this book, I.O.U.S.A.

Herb Denenberg is a former Pennsylvania Insurance Commissioner, Pennsylvania Public Utility Commissioner, and professor at the Wharton School. He is a longtime Philadelphia journalist and consumer advocate. He is also a member of the Institute of Medicine of the National Academy of the Sciences. His column appears daily in The Bulletin. You can reach him at [email protected] n.us.
 

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Some really good points here. I would only point out the hypocrisy of Rubin and Greenspan talking about fiscal responsibility, when they have major roles in the current debacle. If either of them had any honor, well, seppuku seems in order.

tk
 
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