Government debt threatens to send U.S. economy into death spiral, CBO warns
Washington Times, June 16, 2015
Budget office: U.S. debt picture has “worsened dramatically”
Washington Examiner, June 16, 2015
The United States of America hit its debt limit of $18.113 trillion (the amount of borrowing authorized by Congress) on March 15, 2015. Since 1960, Congress has permanently raised, temporarily revised or extended the debt limit 78 times. However, this time, three months after the deadline, Congress has failed to act and approve a new debt limit.
The long-term outlook for the federal budget has worsened dramatically over the past several years, in the wake of the 2007–2009 recession and slow recovery. Between 2008 and 2012, financial turmoil and a severe drop in economic activity, combined with various policies implemented in response to those conditions, sharply reduced federal revenues and increased spending. As a result, budget deficits rose: They totaled $5.6 trillion in those five years, and in four of the five years, they were larger relative to the size of the economy than they had been in any year since 1946. Because of the large deficits, federal debt held by the public soared, nearly doubling during the period. It is now equivalent to about 74 percent of the economy’s annual output, or gross domestic product (GDP)—a higher percentage than at any point in U.S. history except a seven-year period around World War II (Congressional Budget Office report, June 16, 2015).
America’s financial condition is so dire that it led to Bill O’Reilly of Fox News to opine on his June 17 Talking Points that perhaps it was time for Americans to flee America.
The National Debt—which now stands at $18.271 trillion as of June 18 or 30% of the total $61 trillion in debt the world’s countries hold—as bad as it is, it is only the tip of the financial iceberg. Although the ND now exceeds America’s Gross Domestic Product (GDP) by 102.74%, it pales in comparison to the real total liability of America for what is referred to as “Unfunded Liabilities” such as Medicare, Social Security, Medicaid, Obamacare, et al. That debt liability is nearing $97 trillion.
The interest on the base National Debt of $18+ trillion in 2015 is estimated to be between $229 to $245 billion and skyrocket to about $808 billion by 2025. All this mountain of debt along with Obama’s regulation-happy administration is strangling the economy, which actually shrunk by 0.7% in the first quarter of this year. Prospects for growth in the second quarter are not that rosy either.
However, the “unfunded liability” debt may also be under-reported. In a recent study released by economics professor, Laurence Kotikoff of Boston University and Adam Michel of the Mercatus Center at George Mason University, they calculated that the true national debt of the United States is $210 trillion or 12 times America’s GDP. This is truly an insurmountable level of debt that will burden the U.S. economy for decades to come. With the unwillingness of Congress or the American people, in general, to tighten spending, reduce the standard of living or dramatically increase taxes, the American economy will continue to spiral downward.
Currency & Credit Derivatives. The United States’ stake in derivatives or “Credit Default Swaps” (CDS) is up 553% since 2000 to $592.57 trillion. Worldwide, the derivative mess has been reported to be about $1.5 quadrillion (that’s $1,500 trillion or 1.5 followed by 15 zeros) or 20 times the gross domestic product of the entire world. This is a financial powder keg waiting to explode.
What is a derivative?
They were at the center of the 2008 real estate and banking collapse. A derivative is a type of options contract—a gamble that some underlying investment will go up or down in the future. Derivatives are largely “imaginary” investments with little or no intrinsic value. In essence, rather than a true tangible investment, they represent more of a “crap-shoot”—a horrific gamble by men driven by an insatiable appetite for wealth and more of it. The future impact, when the derivative market unravels, will be catastrophic and unfathomable (Revelation 18 and the fate of America, p.240).
The World at a Glance. The reality is that there is not one country of significance that is not carrying a national debt. Even much ballyhooed Chinese are holding $5.25 trillion in debt, or 64% of their GDP. Russia’s debt is considerably smaller at $241.6 billion or only 11% of their GDP. Japan is in a real fix with $10.14 trillion in debt or 200% of GDP.
America and the world did not get here over night. It has been a decades’ long slide of financial miss-management of mammoth proportions. As far as America is concerned, the financial slippery slope has been so well and thoroughly greased that any upward climb will be impossible without draconian financial measures that no one even wants to think about, much less implement.
With much of America’s manufacturing gutted since the Clinton administration, and others that followed, by foolish trade agreements that sent thousands of businesses abroad, along with millions of American jobs, America’s economic recovery will be extremely difficult if not absolutely impossible.
While the generation that built the world’s greatest economy is on the way out, the users and abusers of it are growing.