Period of Consequences

The era of procrastination, of half-measures, of soothing and baffling expedients, of delays is coming to its close. In its place we are entering a period of consequences.” -Winston Churchill

While this quotes context pertained to the days shadowing WWII, it still applies to the U.S.’s unsupportable spending and racking debt. A period of consequences is awaiting us.

Stephen Spruiell with National Review in their July 19th issue describes what he calls Stimulus I, II, III, IV, and V. Stimulus V being the proposal of extended unemployment benefits that has yet to be read and voted upon in Congress. Stimulus IV or Hiring Incentives to Restore Employment (HIRE) which gives temporary tax exemptions provided that businesses hire new workers. Spruiell points out, “[I]t’s likely that many of those who did take advantage of the credit simply hired workers they would have hired eventually anyway — something akin to what happened with Cash for Clunkers and the Homebuyers Tax Credit.”

Stimulus III was unemployment benefits for 5.6 million Americans who had been unemployed for 27 weeks or more. Stimulus II was what most refer to as “the Stimulus.” Stimulus II was the 787 billion dollar adventure which was promised to hold the unemployment rate at 8% and boost economic productivity. When Stimulus II spending was nearing its peak, unemployment was at 10.2 percent, and the economy was still shaky. Spruiell describes the the Keynesian ideology behind Stimulus I as well as the others: “Deficit spending, whatever form it takes, increases ‘aggregate demand,’ boosting economic activity.”

Unfortunately, as I have pointed out before, Stimulus spending only takes the money out of the hands of the consumers hands through taxpayer dollars, and spends it for them at the cost of inefficiency and greater debt. Spruiell writes, “Most Democrats…have tried to bring down the bill’s price tag by shortening the duration of the unemployment-benefit extensions. Our recent history demonstrates that this is a limitation without meaning: It will only reduce the time that passes between Stimulus V and Stimulus VI.”

Kevin Williamson with National Review in their June 21st issue wrote, “The Other National Debt: 14 trillion in the red? We should be so lucky.” 14 trillion dollars is a big number, but ends up being peanuts when compared the the real national debt.

Beyond the Federal debt there is 2.5 trillion dollars in state and local debt due to “extraordinarily stupid and wasteful, even by government standards.” Special-interest involving municipal bonds causes misallocated of funds, and politically connected law firms enjoy practically free money from legal fees that are charged when the municipal bonds are issued. Thus, those law firms have an incentive to push for more and more indebtedness. Adding the costs from that, the debt is now around 16.5 trillion dollars.

One of the largest debts is that of pensions owed to government workers. States acting as “laboratories of democracy” have been running “mad scientists” pensions plans making large promises and then skipping the part where you save the money to fulfill those promises. For example, in 2009 New Jersey only put away 6% of the estimated funds needed. Professor Joshua D. Rauh at the Kellogg School of Management of Northwestern University observes, “They say, ‘Maybe we don’t want to give you a pay raise, but we’ll give you a really generous pension in 40 years.’ It’s a way to borrow off the books.”

According to Rauh’s projections one of the first cities to go in the red will be Springfield, Ill., in 2018. He also estimates that 31 states will run out of money by 2025. This problem adds $3 trillion to the national debt, making it $19.5 trillion.

But all of these are a stroll in the park when you compare it with the biggest monsters: Social Security and Medicare. The collective liabilities of these two programs comes to about 106 trillion dollars. Go ahead, sit down and ask someone for a glass of water. Then go ahead and throw in the $1 trillion from health care and other benefits, and about a half a trillion dollars in liabilities from Freddie Mae, Fannie Mac and securities supported under the bailouts. It all ends up at roughly 130 trillion dollars (technically around $127 trillion), just under ten times the supposed national debt.

CNBC’s Rick Santelli spoke for all of us in June:

After years of procrastination, half-measures and delays, welcome to the period of consequences, Churchill said more than he thought he did.

-Ben

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