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Bigger than Health Care: National Debt is Strangling All Americans
Sunday, January 24, 2010  Rochester, NY -   There is an all important, yet depressing calculation on which economists focus, called the debt to Gross Domestic Product (GDP) ratio.*  Today, the ratio is 70.4% (national debt to GDP).  The last time the ratio was this high was in 1946, as America emerged from the victorious ashes of World War II.  But our nation had two significant advantages in those days that we do not possess in the year 2010.

First, in relative terms, World War II was very expensive, compared to our two present wars (Afghanistan & Iraq).  That's important because unlike the end of World War II, when a victorious U.S. saved enormous amounts of money by virtue of ceasing massive allied air raids and the dropping of two atomic bombs (and the inherent cost savings), completely pulling out of the Middle East now won't save America much money.  Secondly, the American economy grew so fast and steadily from 1946-1981, that we literally 'grew ourselves out' of, and past a worrisome debt to GDP ratio.  In fact, by 1974, one year after the first OPEC oil embargo, our debt to GDP ratio hit an all time low of 33.6% ! 

These days, American economic recoveries are not dramatic, nor are they quick and sustained.  One reason is that the idea of capitalism and "free market" economies is so appealing, even dictatorships like China have more than caught on.  This year, Japan will be bumped from second place, and China will take over the number two spot as the second largest economy in the world (the U.S. is still double the size of the Chinese economy, by the way).

What does all this mean to you and me?  It means that there is absolutely no quick fix for our crippling debt, and no way to, at least anytime soon, reduce our national debt to GDP ratio.  And this is important, why?


America is not the Good Bet it once was

For so many decades after World War II, investing in American Treasuries, municipal bonds, and equities (stocks) was always the best bet, when building a personal portfolio.  That's because American productivity continued to rise throughout the 1950's and 1960's; our standard of living was so wildly out of proportion (positive) relative to all other nations of the world; and, American's, as individuals and households, were net savers (before easy credit and cheap money ruined the country).  At the same time, not only was our debt to GDP ratio falling (a good thing), but our annual federal deficits were under control; under control, that is, until Ronald Reagan's 'Reign of Error'.

Reagan and the Democratic Congress of the 1980's nearly bankrupted the country.  Massive deficit spending was the order of the day.  The mood 25-30 years ago was to stimulate growth through deficit spending as economic stimulus (remind you of any recent and current Presidents?), as well as spend federal tax money like a drunken sailor, to win the Cold War through sheer economic attrition, and a large scale military build up, to intimidate the Soviets.  Both goals were achieved, especially the end of the Cold War (and down fall of the former Soviet Union), yet deficit spending began to effect federal outlays, and added to the nation's debt.  Also, because Republicans were mostly in charge (at least at 1600 Pennsylvania Avenue), taxes in the 1980's were slashed, putting additional strain on federal coffers, and rapidly accumulating federal debt.

Fast forward a quarter century, and take a look at our unenviable predicament:  The federal government was a far smaller and leaner enterprise in 1945-46, than it is now.  "Government spending went down a dramatic amount after World War II, " said Steven Hess, lead U.S. debt analyst for Moody's.  "And government was far more limited:  In 1945, there was no Education Department, no Environmental Protection Agency, and no National Security Agency, for that matter."

David Wyss of Standard & Poors (the S&P) had this to say about our present fiscal situation:  "Once the debt to GDP ratio gets above 100%, it gets hard to grow out of it."  Again, while the nation's debt to GDP ratio is still 70.4% momentarily, the way Washington spends money it doesn't have, that ratio could easily move higher, and it likely will.

For instance, because of the current recession-depression we as a nation labor under, the IRS collected $2.5 trillion in taxes in Fiscal Year (FY) 2008, yet only collected $2.1 trillion in 2009.  That's a $400 billion decline, exactly at the moment when President Obama is trying to overhaul national health care (sure to be a federal budget buster), and deficits and debt continue to pile up at unprecedented levels.


What Now?

You know what, since I'm not an economist, I don't know how to fix this problem.  And neither do economists. And that's what should scare you.  For instance, federal spending has jumped from $1.8 trillion in 2008, to an estimated $3.1 trillion in 2009 !  If these numbers are correct, that leaves a one-year deficit for 2009 of about $1 trillion !  This is fiscal madness.  Remember, our current national debt, not including state debt, or what we owe to our creditors, is a staggering $12.3 trillion.  The nation's whole damn economy isn't  worth much more than $14 trillion a year.  So, now what?  Here are a few suggestions:

1.)  All over the land; local, state, and the federal government must immediately fire 10-20% of all public employees.  The Good:  Billions of dollars will be saved, and deficits and debt can begin to be pared down.  The Bad:  Our national unemployment rate will rise significantly from its present 10.5%.

2.)  Scrap health care reform, for now.  Sticking it to the insurance companies is fine by me, but no matter what happens, it cannot and should not increase federal spending one nickel.

3.)  Cut back federal programs (Yes, I know, which ones? And so to prevent a revolution and panic that would ensue!), and let the free market (if it really exists) do its job.  Encourage small and medium size companies to grow by stabilizing tax rates, nationwide (including state's portions).  The key to recovery lies in the private sector.

4.)  To make America attractive again to not only domestic investment, but foreign investment, extremely tough choices will have to be made.  But Americans scream bloody murder at the mere thought of tax increases, so our approach to indebtedness must deal with the expenditure side of the economic equation.  If taxes don't go up, massive public service cuts will be in vogue.

I'm glad I'm not an economist.


-Christopher J. Wilmot,
Pittsford, NY

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Member Opinions:
By: Hillier on 2/8/10
For a person who admits "since I'm not an economist, I don't know how to fix this problem", you sure have a lot of unbalanced suggestions.
Typical of the conservative branch of philosophy, the assumption is that it was better "back then" and there is too much "free stuff" today.
The problem with this short-sighted view is that it does not comprehend the degree of detritus which has covered the social fabric.
In the late 40's and 50's - after WW II, The Federal government spent money building the US Interstate and the transportation infrastructure we take for granted today.
As a result of this unparalleled socialism, we have enjoyed a first-class economy - infrastructure generates people using the infrastructure generates demand for autos generates more money and new jobs generates capacity for building new locations for employment that utilize the infrastructure for commuting and movement of goods and services.
This is the danger of socialism: It generates a market economy!
Yes, the costs of gasoline and the debt of the major 3 US auto companies have spawned debt and unemployment and higher costs. But these are additional issues which need to be addressed, and NOT swept under the rug of the simplistic conservative "solution" of "painful cuts." (Painful for me! but not for thee!)
And this is the evil of President Obama's expensive recovery package!

You talk on about evils of taxes and subsidies to the poor, but say very little about the evils of massive federal subsidies to the Oil, Gas and Coal industries, or to Agribusiness. Or to the primary causal agent of the current economic collapse: the Banks and the Investment houses.
There are some significant cuts which can be made in these locations without impacting the quality of life for people other than upper management at Bear-Stearns and Bank of America.

Robin Rapport
Rush, NY

By: admin on 2/8/10
(from the Co-Owner & Publisher of the Smugtown Beacon, Christopher J. Wilmot)

Dear Robin Rapport:

After reading your heavy handed, self-righteous diatribe regarding the theme of 'us against them', or the real and true class warfare you seem to advocate; your support of the 'common man' against the private sector, rich oligarchy, I became confused as to which article you were referring.

If you read my article closely, I used terms and phrases like "sticking it to the insurance companies" (big business); I asked the reader to contemplate "if the free market really exists" (insinuating that perhaps without federal subsidy, it would not); and I never advocated pouncing on the poor or lower middle class as a solution to anything. Your knee jerk, ultra left wing reactionary politics is why I was only too happy to leave the local Democratic Party, with its fake and phony populism of which you seem so fond.

I put my money, and time, where my mouth and muscles are, like when I / we filed suit against the State of New York over segregated schools and their districts in Monroe County. We lost in the Appellate Court, but we tried.

I suggest you re-read my article(s), and look more closely at my actual attempts at balance, which by the way helped us win an award from none other than City Newspaper in late 2008 as Rochester's "Most Balanced and Un-biased Media Website". Thank you.

Christopher J. Wilmot
Pittsford, NY

By: Hillier on 2/9/10
Esteemed Christopher Wilmot --
I am surprised at your characterization of my comment as "heavy-handed and self-righteous", I must have hit a balanced and fair reporting nerve...
But, sincerely now, and all joking aside:
1. "[Immediate firing of 10-20% government employees]". If this isn't knee-jerk conservatism, I don't know what is. First off, states are already suffering from a profound lack of resources. This means my local mail deliveries are now handled by one carrier instead of three; the sheriff patrols are further limited and their response time has increased; schools cannot hire newly competent college graduates, and must further reduce their existing teachers. This is not to justify the inefficiencies at the state and local levels, but the approach you suggest is akin to chopping off a leg because the shoe is tight. There are alternatives -- reduced work weeks and rotating schedules; ongoing evaluations for civil service and teachers; feedback from the community; etc.
2. "[Drop health care reform; sticking it to the insurance companies is OK]" I do not see how this in any way furthers the discussion or clarifies a fix. If healthcare reform is off the table, what is the contact with the insurance companies? Essentially, bullet 2 says do nothing. Not much of a solution. Plugging the holes in the ship of state when it is foundering is not enough; you must actively pump out the water.
3. This point proposes reducing Federal Spending (isn't this the Republican line?) and the key to recovery lies with the SMB. I agree whole-heartedly with the latter, but, as you put it so eloquently for the first part: which ones? This goes back to the philosophical divide between the wild west, free market, leave us alone and the dark and evil machinery of socialism. Granted John Huston and John Wayne made excellent movies depicting honest American Individualism, but the child-labor laws, and basic health organization begun by the Federal Government have helped far more people. There is nothing wrong with a central organization maintaining overall control of specific affairs - it is much more efficient to fund a central Centers for Disease control or NASA, than to have each state attempt to build a rocket to mars or find a cure for the flu. (Just no black helicopters!)
As for your last point -- foreign investment:
1. China (and the Netherlands!) already have very significant holdings in the US. Rockefeller Plaza is owned by Japan. I don't think that selling the presidency to the highest bidder is an acceptable form of growing capital. I think an immediate and retro-active end to ALL offshoring of American companies to get around TAXes due the Federal Government (ie, the American People) should be stopped. And Halliburton which grew fat in the previous administration will continue its unbridled growth by moving it headquarters to DUBAI!. I say: If they want to offshore, revoke their citizenship to the US!
I don't believe that these proposals would be denied by any fair and moderate Republican or Democrat.

Respectfully,
Robin Rapport
Rush, NY

By: macreferee on 2/26/10
The immediate firing of 10 to 20% of government employees may very well be understated. To give you a very simple example of this you only have to look at our own county. The Monroe County Legislature has over a 2Mil per year budget with 58 people. In our case we could stand for a 50% reduction.

The issue of our spending and our debt is more an issue of priority than it is affordability. When over 2 trillion of our debt can directly be attributed to 2 wars and our war machine it becomes very obvious that anyone who thinks we can't afford healthcare is extremely naive. I think to say that pulling out of our wars wouldn't make that much of a difference you also have to combine that thinking with the war machine budget of the DOD. And while were are at it throw in the spending that our own NY Senators are a part of : the waste of building airplanes that we don't want or need that is nothing more than Pork served with an extra dose of fat.

Keep in mind on this one that it was supported by over 40 Senators who demanded that this pass. Wow! And these are the birdbrains that are making our spending decisions. We need to vote 100% of them out of office. We should do the same thing at the state level. They are all a part of the problem.

Mac McGonigle
Rochester, New York

By: AlanForCongress on 3/8/10
I still have an inherent distrust of all things run by the government. Their compassionate emotionally driven appeal is shrouded as “Why we just want to help those who cannot help themselves “.

Throughout history the emotional heart tugging has always hidden the broader socialist and fascist struggle for control of the population. Every government that has tried this approach has failed. Emotionally driven liberals believe in their hearts they can reduce pain and suffering. Their social projects have the best intentions. All they need to do is a little legislation, a little fairness.

As one of those right wing nuts All I can say: "So this is how liberty dies... with thunderous applause." Government runs our education system I have to pay $5000.00 per year in School taxes as land rent. Yet, We have the most ignorant youth on the planet. Every school district is bankrupt.

Government runs the mortgage industry, I read the legislation it stated “this is to force banks to loan money to people to buy houses who cannot afford them”. The housing market collapsed, go figure? Fannie and Freddie are bankrupt. Government mandates condom use in the public and private school curriculum and teenage pregnancy and STD’s are epidemic. Government initiates the Great society and the quality of life for the downtrodden is still deplorable and getting worse.

Every federal, state, and local government program, agency and bureaucracy is bankrupt. Except for Alaska, Oops I forgot the lap dog media mantra: Sarah Palin baaaaaaad, Baaarack Obamaaa goooooood!

All Americans are equal but some Americans are more equal than others. We are currently printing money faster than we can spend it. Please study a little history this does not end well. Oh, but I should trust the Chicago Street Thug in the $12,000.00 suit and his Fascist Mistress Pelosi to run my health care system. Don’t give me the crap about other countries having better health care than the USA. They didn’t check the World Health Organization survey .

The Canadian and British systems are on the verge of bankruptcy. Of course there is always the socialist utopia’s of Sweden and Denmark as examples to follow. To afford their system they tax at 80% drill for oil and gas everywhere and have more nuclear power plants than we do. Once again what my friends on the left fail to do is accept responsibility for their naiveté and ignorance. I’m compassionate for my liberal friends for they know not what they are doing.

I forgive and offer assistance to the helpless however I have no tolerance for the clueless. Those who do not study history are destined to repeat it. Please tell me how I can be wrong with this scenario for I see no alternative. Obama has made it imperatively clear. His vision: marginalize America and relegate us from Super power to global nation state. His goal I believe is radically changing our government from a free market democracy to an autocratic social welfare state run by the political elite. To further the seizure of the free market and private property like the 401K wealth he needs to create and economic crisis orders of magnitude above what got him elected. Currently we have a façade economy propped up by unbridled printing of money while floating trillions in loans to the Chinese. We have managed to tax a generation that is not even born.

Continued weakening of the military, while dismantling intelligence gathering and going soft on missile defense will embolden those who want to destroy America. The embolden are not the perceived enemies that the Main Stream media ginned up to foster support for Obama. This was an embellishment of world jealousy for our way of life packaged and sold to the unsuspecting American as perceived hatred. The world will earn that respected position when there are scores of their dead countrymen buried in pristine cemeteries where men and women freely gave their lives for the freedom of the people in the country where they now by the grace of God rest in peace. Any sane and rational individual realizes if the American Economy is destroyed the world will burn. You cannot appease nor negotiate with a rogue states.

Barack chooses to ignore threats and focus on achieving his vision. To do so he will need a catastrophe of unimaginable circumstances. Iran will gladly slaughter millions in Israel coinciding with a catastrophic al-Qaida attack on one of Americas Cities. Chicago would be the choice giving Obama ultimate moral authority. With the midterm elections looking to change the balance of power the timing is critical.

Once the attack is executed, the economy will collapse, China will call its loans , the dependency class will riot, Obama can get a formal act of war declared from the congress. Suspend the elections, and shut down the news media and the internet as a national security priority. Have the congress vote him special powers to seize the retirement assets of all Americans to pay for the war effort. To appease China he will “lease” them Alaska to stabilize the economy. The puppet Congress will then re write the constitution making America an autocratic social democracy with Obama as the unopposed President freely elected for the rest of his life.

Alan Aszkler
Fairport, New York


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