Thursday, February 21, 2008

The Real Danger

This is what I think about when I wake up in the morning.

A few weeks ago, an anonymous member of the White House staff wrote Greg Mankiw to defend the President on Democratic accusations of how much he has (or has not) increased the federal debt. He succeeded in making his point, and then gives us this graph to show the long-term fiscal danger. Economists everywhere are making noise about this danger, but so far few people appear to be listening. This graph represents federal debt held by the public as a percentage of GDP. Every subsequent federal deficit adds to the total:
Here's the analysis:

On our current long-term policy path, the federal debt would explode beginning in about 20 years. Note that while this chart purports to go out to 2080, we would never make it that far on the light blue line on our current long-term policy path. Financial market pressures would force a change long before our federal debt got to 200 or 250% of GDP.

The real threat is not the additional 2.8% of GDP of debt we have accumulated since the President took office, during a time of recession, war, terrorist attacks, high oil prices, and burst stock market bubbles.

The real threat is that steady and steep upslope in the blue line - the explosion of future debt over the next several decades, if we don't do something about it.

So, what will happen by 2027 if no one steps up to take steps to prevent it now? America and her dollars would become a pretty bad investment. A dollar collapse would likely accompany economic collapse.
Why the explosion of debt? Partly due to deficit spending due to the dramatic increase in Social Security and Medicare outlays as America ages. And military spending has something to do with it as well. Some of my former professors at Baylor believe there will eventually be pressure on the elderly to die. Maybe mass movements to euthanize any sick old person.

Hear any candidates talking about this? Fred Thompson talked about cutting entitlements, but was blasted for it (and also tried to say he wasn't for cutting entitlements). No one wants to be honest about it. They want to promise things for people and deliver on those promises. They don't want to look at the bill. I vote for McCain because I think he's the only one who could look Americans in the eye and say "this is a real problem."

I don't want my son to be burdened with this debt and to see such a collapse. Think about all this when you spend your federal stimulus money ("Bush Money" as a Wal-Mart employee tells me his customers call it). Remember that China will want its money back.

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