Friday, May 4, 2007

The State of the American Economy I

Being the Finance guy that I am, I take a keen interest in the Capital Markets.

It is my opinion that social movements such as feminism and Cultural Marxism were made possible by the sheer wealth and prosperity of the United States economy.

Leftists, Globalists, and Neo-Cons alike have raided the cookie jar once too often. Our free-spending ways will soon come to a screeching halt, and Heaven help us when that day arrives.

Indeed, the United States government is insolvent as I write this. We have written a check that is rapidly becoming too big to cash.

Even our human capital will not be sufficient to prevent our future economic meltdown, if we as a people sit around and do nothing.

It it were not for the strength, and the unshakable faith of the hard-working American consumer, our government would have fallen into to economic chaos long before now.

However, I believe that things are moving to a point where we as a nation will have to either accept monetary and fiscal moves that will hurt a whole heck of a lot, or perish.

Let's start with this report from the Heritage Foundation:

April 24, 2007
2007 Social Security Trustees Report Shows the Urgency of Reform
by David C. John
WebMemo #1429

"There are risks and costs to action. But they are far less than the long range risks of comfortable inaction."

—John F. Kennedy

"We are increasingly concerned about inaction on the financial challenges facing the Social Security and Medicare programs. The longer we wait to address these challenges, the more limited will be the options available, the greater will be the required adjustments, and the more severe the potential detrimental economic impact on our nation."

...Has the size of the Social Security problem changed over the last year?

* In net present value terms, Social Security owes $6.8 trillion dollars more in benefits than it will receive in taxes. That number includes $2.0 trillion, in net present value terms, to repay the bonds in Social Security's trust fund. This $300 billion increase is almost 4.5 percent higher than last year's $6.5 trillion number. The 2007 number consists of $2.0 trillion to repay the special issue bonds in the trust fund and $4.8 trillion to pay benefits after the trust fund is exhausted in 2041...

What does it all mean?

* Good news for seniors. The benefits of current retirees and those close to retirement remain completely safe. The 2007 report shows that the program will have enough resources to pay full benefits until 2017. Despite political scare tactics, seniors can rest assured that their benefits are safe and that they will receive every cent that they are due, including an annual cost-of-living increase.

* Bad news for younger workers. Unfortunately, younger workers have a great deal to worry about. Even though their parents' and grandparents' benefits are safe, theirs are not. Any worker born after 1974 will reach full retirement age after the trust fund is exhausted. Unless Congress acts soon, younger workers can look forward to paying full Social Security taxes throughout their careers but only receiving 75 percent or less of the benefits that have been promised to them. In addition, they will have to repay the Social Security trust fund, an expense that will total almost $6 trillion by the time the trust fund is exhausted in 2041.

* Social Security must be reformed. Today's Social Security cannot last. The report shows that there is a 95 percent chance that Social Security will run multi-billion-dollar annual deficits starting in about 2017. The system has promised trillions of dollars (in 2007 dollars) more in benefits than it will have the ability to pay. Just repaying Social Security's trust fund will cost about $6 trillion by the time the trust fund is exhausted in 2041.

* Delay makes it even harder to reform Social Security. Every year, there is one less year of surplus and one more year of deficit. Once those deficits start in 2017, the Trustees Report shows that they will never end. Each year, with the disappearance of another year of surplus, reforming Social Security gets more expensive.

* Delay will make it harder to run the rest of the government. If Social Security is not reformed, by 2041 it will require about 13 percent of all income taxes collected that year, in addition to what the program would receive from its payroll taxes, to pay all promised benefits, and its draw on the general budget will continue to grow. This will make it much harder for our children and grandchildren to pay for government programs dealing with national security, health, education, and the environment.

* Delay makes massive tax increases much more likely. The 2007 report shows that Social Security will begin to run cash flow deficits in about 10 years. However, of the three general ways to fix Social Security, two, changing benefits and establishing Social Security accounts, will take years to have a real effect. Accounts of any size need to grow for about 20 to 25 years before they are large enough to pay much in the way of retirement benefits. Benefit changes are politically feasible only if current retirees and those close to retirement are not affected, which means that it would be at least 10 years or more before changes start to take effect. On the other hand, some prefer tax increases because they would immediately pump money into Social Security. But that band-aid would just delay the start of real long-term reform and make it much more likely that Congress would keep taking the easy way out by raising taxes...

Read the rest for yourself.

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