A recent report went virtually unnoticed, given the uprisings of oppressed peoples from Libya and Egypt to Wisconsin and Indiana. (In the last two cases I refer to the uprisings of the taxpayers against the tax eaters.) It turns out that the government debt of this fabulously progressive nation now exceeds its GDP.
Yes, if you add what the federal, state, and local governments owe to creditors, the sum exceeds what the country produces in a year, which is about $15.1 trillion. This includes the $2.4 trillion in debt owed by states and municipalities, and the debt owned by the fraudulently named Social Security Trust Fund, not to mention the now $14.17 trillion owed by the federal government.
We are approaching the all-time high mark in US debt to GDP ratio, which hit 122% in 1946, just after World War II. We were able to pay down that debt fairly rapidly, but prospects for rapidly paying down our current debt are dim.
In the years after WWII, we had a young labor force, high personal savings rates, and a population that had deferred buying consumer goods during the war. Also, defense budgets were cut dramatically in the face of peace.
But now we have the most rapidly aging population in our history, a low personal savings rate, and consumers who are pretty well tapped out. Under Obama’s policies, we face high unemployment and tepid growth for the indefinite future, along with the specter of unleashed inflation.
From the late ’40s through the ’60s, entitlement programs were much more limited than they are now. They expanded dramatically under Lyndon Johnson, then exploded with Obamacare, which has the potential of giving “free” healthcare to as many as forty million more people (if illegal aliens get covered).
Social Security is now in the red and likely to stay there. And the first of the 78 million Boomers became eligible for Medicare this year. Moreover, we are only now learning about the trillions of dollars in unfunded pension and healthcare entitlements of government employees.
Until recent times, the US was the preferred place of worldwide investment, because of our relatively free economy. But now, with massive new regulations here — from Sarbanes-Oxley (the law that was passed after the Enron debacle to regulate corporate accounting) to the Dodds-Frank finreg monster (the Wall Street Reform and Consumer Protection Act) — and ever freer economies in Asia and elsewhere, more investment money is flowing abroad.
After WWII, there was broad bipartisan support for free trade; people had seen the role that protectionism played in extending the Depression and helping to bring about a cataclysmic world war. But over the past few years, we have turned our back on that consensus.
Finally, we have at the helm the most radically leftist and the most economically illiterate president ever elected – and also the most profoundly incompetent president, managerially.
It will take a long time to dig out of this mess.