Monday, October 06, 2014

The inevitable crisis

This article by WashPost's editorial page editor Fred Hiatt is almost too good to excerpt.  We have an entitlement crisis growing and this President, despite his stated promises, is determined to ignore them: "Obama's false victory over the deficit."
In other words, when it comes to entitlement reform, as far as this administration is concerned: mission accomplished.
Which is fair enough, if your horizon is Jan. 20, 2017.
Anyone looking beyond that date should be alarmed at the satisfaction Obama proclaims despite the prospect of ever-rising government debt. What’s most astounding about his flip-flop on entitlement reform is that the biggest victim will be the progressive causes he claims to cherish.
I've been saying this forever: the debt load will squeeze out all the things we call the "government":
Federal debt has reached 74 percent of the economy’s annual output (GDP), “a higher percentage than at any point in U.S. history except a brief period around World War II,” the CBO says, “and almost twice the percentage at the end of 2008.” With no change in policy, that percentage will hold steady or decline a bit for a couple of years and then start rising again, to a dangerous 78 percent by 2024 and an insupportable 106 percent by 2039.
As a result, by 2039 the government will be shelling out interest payments equal to 4.5 percent of GDP, more than twice the average share of the past 40 years.
Meanwhile, with the population aging and costs still rising, payments for Social Security and health programs including Medicare and Obamacare also will soar, the CBO estimates. By 2039 those programs will consume 14 percent of GDP, again double the average of the past 40 years. That’s taking into account the good news that Podesta heralded in his tweet.
Put those together and the government will be spending on entitlement programs and interest alone just about what it spends today on the entire budget. Everything else — schools, pre-K, Pell grants, national parks, mass transit, housing subsidies — will get squeezed, or taxes will soar, or both.
I fear that Americans are so enamored with the road to serfdom, they'll fail to see the danger of government that exists only to tax and send that money to retirees and banks.  At 100% debt-to-GDP, there's virtually no flexibility for a government to respond to major disruptions like the TARP bailout and we become a slave to our creditors.  This was how Eisenhower broke the will of the Brits in the Suez Crisis.  It's not so hard to see how a showdown over Hong Kong or Taiwan would take shape when China floats taking payment on $1 trillion in U.S. bonds.

But, hey, we'll have Obamacare.  Which is nice.


Ol' Reliable said...

This is wonderful news. When was the last time Fred Hiatt got anything right?

Ol' Faithful said...

When was the last time Fred Hiatt got anything right?

Thanks for the reassurance that this blather can be ignored. I was beginning to fear there might be a debt crisis, or something.