Speeding to Economic Armageddon
President Bush’s proposed federal budget could be described many different ways. “Lean” isn’t one of them. The $2.57 trillion spending plan submitted to Congress in February is America’s biggest yet—even if “only” $89 billion fatter than last year’s. The 3.6 percent increase might seem modest to proponents of the new budget, but only when compared to the ghastly increase in government spending since the president took office in 2001—an unfathomable 33 percent hike.
To cut spending to the level it was at just four years ago, the president would have to lop off one fourth of his February proposal! “Well, but we’re at war,” you might be thinking. “We had to increase defense spending.” Perhaps. But how do you explain the fact that non-defense spending has increased just as fast over the same period?
America’s drug-like addiction to spending money—money we don’t have—is so recklessly out of control that a 3.6 percent increase to an already bloated budget is seen in Washington as “tightening our belts.”
A Proposal Is Just That
While much has been made of Mr. Bush’s plan to either scrap or slash the budget for 150 federal programs, those cuts have yet to move through Congress. In last year’s budget proposal, for example, the president proposed cutting 65 programs in hopes of saving $5 billion. In the end, only five were actually laid to rest.
Regarding this year’s proposed cuts, according to the Washington Post, “[N]early every program targeted for elimination has a patron on Capitol Hill, and the administration has assembled a list that may prove particularly dicey” (February 7). The Wall Street Journal said the proposed cuts would be a hard sell even in the president’s own party. “[M]any Republicans found something not to like on Mr. Bush’s long list of proposed cuts” (February 9). According to columnist Veronique de Rugy, “House and Senate leaders have already told the White House that no more than two dozen of the 150 cuts are likely to be accepted” (National Review, February 7).
Congress isn’t exactly known for its penny-pinching. It is known for adding wasteful “pork” projects on top of spending bills because of members trying to satisfy their constituents back home. Entire books have been written about this. In fiscal year 2004, for example, Congress tacked on an additional $67 billion in pork to the government’s spending, according to de Rugy. “Congress,” she wrote, “is addicted to pork and to spending increases …” (ibid.).
One way to curb this addiction is for the president to veto its spending bills—something he has not yet done. During his first term, when overall spending increased by 33 percent, President Bush never rejected a congressional spending bill with his power of veto. Not once!
Critics of the president’s new budget have also noted that it doesn’t account for additional spending in Iraq and Afghanistan, which some estimate will run upward of $80 billion. Also, nothing is set aside in the budget for Social Security reform, which has become one of the president’s high priorities for his second term.
So we’re left with this: a supposedly “leaner” budget that actually plans for a 3.6 percent overall increase in spending—and that’s assuming all 150 suggested cuts are made. On top of that, additional costs in Iraq and Afghanistan are inevitable. Social Security reform could cost additional tens of billions. Add to that, congressional pork.
“It is essential that those who spend the money in Washington adhere to this principle,” the president said in a speech the day after he submitted his budget to Congress. “A taxpayer dollar ought to be spent wisely or not spent at all.”
Words of wisdom for sure—but words only.
Shrinking the Deficit
The deficit you hear so much about is simply the term used to describe how much government spending exceeds its yearly revenues. Last year, for example, the government had about $2.06 trillion to work with. It spent a little more than $2.47 trillion—$412 billion too much—amounting to the highest deficit ever. Yet, many in the Bush administration were encouraged by this figure because it was significantly lower than the White House’s projected deficit for 2004—$521 billion—a “savings” of more than $100 billion!
That’s the sort of reasoning that pretty much sums up “fiscal responsibility” these days. If we don’t overspend as much as we thought we would, we are being frugal. Or, if we can reduce the deficit by such and such, we are on the right track.
Actually balancing the budget (spending only what you take in—nothing more) is out of the question. And setting aside some of our revenues in a savings account is utterly unthinkable and naive! (More on this later when we discuss Social Security.)
President Bush’s economic goal for his second term is to cut the deficit in half. (John Kerry’s plan, had he been elected, was essentially the same, by the way.) Now, whether or not that actually happens (it probably won’t), think about that goal. He wants to reduce the deficit from the figure used for last year’s projection ($521 billion) to $260 billion by 2009. Thus, the benchmark for fiscal responsibility and success in Washington is this: Overspend? Yes!—but just not as much as we did in the past.
And remember, even that goal won’t be reached unless all goes well—the economy grows, no unforeseen bills, etc. For example, next year’s budget of $2.57 trillion (which begins October 1) projects a $390 billion deficit. That projection is based on the assumption that our growing economy will boost revenues by more than 6 percent, giving the government $2.18 trillion to work with. And if the economy doesn’t grow that fast? Bigger deficit.
Apples and Oranges
One conservative radio commentator defended the president’s economic plan, saying the budget deficit was “no big deal.” Even at over $400 billion, he reasoned, the deficit still only amounts to about 3.5 percent of the nation’s gross domestic product. Compared to gdp, the deficit does seem like pocket change.
Problem is, it’s an unfair comparison. Last year, America’s gdp surpassed $11 trillion. Of that, the government’s “salary” (amount retrieved through the tax system) was a little more than $2 trillion. The deficit must be compared to the government’s salary (which usually hovers around 18 percent of the gdp)—not to the amount of money flowing through the U.S. economy—for it to be a fair comparison.
When I go to the bank to arrange for a loan, they don’t ask me how much money my company generates. They ask me how much money my company pays me! Now, it might be true that if my company does well in the years ahead, it may positively affect my salary. If the U.S. economy keeps growing, there will be more revenues for the federal government. But how will those increased revenues be used, assuming the economy does grow? Based on Washington’s atrocious track record, every dollar will be spent—and then some.
The federal deficit may only be 3.5 percent of the gdp, but it’s running at about 20 percent of the government’s salary. That’s the figure that ought to frighten every American—especially politicians. For every $100 they take in, they spend $120.
How do they do it? The same way you would, if you spent 20 percent more than you made every year: by increasing debt.
Credit Card Government
Trying to quantify a $7,800,000,000,000 national debt isn’t easy. Perhaps the best way is to divide up that figure per capita—meaning every man, woman and child in the United States would have to pay more than $25,000 for that debt to be paid off, which isn’t something most Americans have lying around.
What makes this astronomical sum all the more insane is the rate at which it continues to move up, as if politicians believe there are no consequences for carrying such a heavy load of debt. At the end of 1989, for example, the federal debt was a little more than $2.8 trillion. That doubled during the 1990s—injust 10 years. Consider this: It took more than six years for the national debt to climb from $5 trillion to $6 trillion. To go from $6 trillion to $7 trillion took less than two years. You can analyze all of these trends and figures on the Treasury Department’s own website (www.treas.gov). (Upon entering the site, run a search for “national debt.”)
How can the government get away with piling on more debt—and at such a head-spinning rate? Simple: Whenever it reaches its spending limit, it just bumps up its credit line.
Since 1950, Congress has raised the federal government’s debt ceiling more than 90 times! Must be nice. It not only uses the “credit card” with reckless abandon—it controls the spending “limit” as well.
The biggest spending hike Congress ever gave itself happened on May 23, 2003. It amounted to $984 billion, upping the ceiling to $7.38 trillion. We burned through that in 17 months—less than a year and a half.
As it happens, we hit the $7.38 trillion ceiling just three weeks before last year’s presidential elections. But the Republican-controlled Congress put off raising the debt ceiling, fearing voter backlash on November 2. (There actually are a few American citizens concerned about the government’s spending binge.) That forced the Treasury to make a series of tricky maneuvers to keep the government afloat.
Then, as if on cue, the day after President Bush won a second term, he immediately urged Congress to up the “limit.” It complied two weeks later by adding $800 billion to the limit, raising the borrowing threshold to $8.18 trillion.
If all goes well with the government’s new focus on a “leaner” budget, we should bump into the new ceiling by the end of this year.
Robbing Social Security
In looking at the Treasury’s debt as it is broken down on its website, you will notice that the $7.8 trillion is split into two categories: $4.6 trillion in “debt held by the public” and $3.2 trillion in “intragovernmental holdings.”
That first category is fairly straightforward. To finance its debt, the Treasury must sell off U.S. government securities. And since we are adding over $2 billion to our national debt every day, selling off securities and attracting investors—both at home and abroad—is critical for the U.S. to be able to continue living beyond its means. Approximately 40 percent of our publicly held debt is controlled by foreign investors. (More on the significance of this a little later.)
The other debt category, “intragovernmental holdings,” is money the government receives from taxpayers to be “held” for distribution later through federal programs like Social Security, Medicare, Civil Service Retirement and Disability, etc. Of these, Social Security makes up the biggest chunk—a little more than half of the $3.2 trillion.
When President Franklin D. Roosevelt established Social Security in 1935, an account for the program was set up in the Treasury. Any money not used for benefits would be “invested” in government bonds. “Running against fdr in 1936, Republican Alfred Landon likened this to a father taking money from his children’s wages to invest for their old age, but instead spending it and leaving the kids with his ious” (Wall Street Journal, February 10). Roosevelt won the election, but to help settle the debate over Social Security surplus, he helped establish a separate “trust fund” account for any unused monies. For the next several decades, most of the money coming in was paid out in benefits. So there never was much left over in the fund.
During the 1960s, Lyndon Johnson’s administration merged the account, along with several other trust funds, into the federal government’s overall budget.
Still, the impact of these changes on the federal budget wasn’t really felt until 1983, when President Reagan increased Social Security taxes while simultaneously reducing benefits for retirees. From that point forward, billions of dollars of Social Security surpluses flooded into the Treasury. And instead of saving the surplus, the government uses it to pay other bills.
There are now $1.6 trillion in government ious sitting in the trust fund. Right now, at least as far as paying out benefits, that debt is of little concern—because more is still being paid into the system than is being doled out in benefits to retirees. But once the baby boomers begin retiring in 2008, the tax-paying demographic will begin a dramatic shift—one where fewer workers will be paying into the system and more retirees will be claiming benefits. Some analysts point to 2016 as the crossroads: Not only will the yearly “surplus” be gone by then, but there won’t be enough coming in to pay out benefits. At that point, assuming the government doesn’t reduce benefits further or raise the retirement age, it will either raise taxes on the next generation or borrow more money to pay its promised benefits.
In either case, it works like a double-tax. Since the government is incapable of saving today’s Social Security surpluses for the future, it will have to charge Americans again to pay out benefits later.
Politicians in Washington are well aware of the tsunami-like magnitude of this soon-coming sea change, which is why there is much debate in political circles over how to “save” Social Security—or keep the program from going “bankrupt.” But the problem is not with Social Security—there’s plenty of money going into the system. The problem is with politicians who can’t keep their hands off that money. As former Georgia congressman Newt Gingrich said in a televised address on April 7, 1995, “Social Security would be fine if the federal government would stop borrowing the money.” He was right, although the term “borrowing” sugarcoats what is actually happening.
If executives at Enron, Tyco or Worldcom resort to such financial mismanagement, cheating shareholders out of their future retirement, they end up in jail.
When politicians do it, they get re-elected.
We are just now beginning to scratch below the surface to see how big our financial burden really is. It’s not just the yearly deficits and the mounting national debt that should concern us—even with such insane levels of debt, there will always be optimists who, because of how huge the U.S. economy is, consider the debts manageable. But when you combine those massive debts with the changing demographic and with the financial promises politicians have made to future generations, leaders in Washington should be quaking in their Bruno Maglis!
As Alan Greenspan told the House Budget Committee last year on September 8, “As a nation, we may have already made promises to coming generations of retirees that we will be unable to fulfill.” That’s how the Federal Reserve chairman sees it! Politicians have become quite good at parceling out promise after promise, but where are the leaders who are willing to tell it like it is—to take dramatic action to try to at least slow down this runaway train? Few are willing to do anything about it for fear of getting voted out of office.
But more than politicians, average Americans are the ones who should be worried. They are the ones scheduled to pay for all this. Too many Americans, when they hear the subjects of government spending or national debt, hit the snooze button. Most Americans, like their national government, live far beyond their means. Consumer debt in America (the amount Americans owe on cars, credit cards and other miscellaneous loans) has surpassed the $2 trillion mark. Mortgage debt (the amount owed on homes) is now more than $7 trillion. All totaled, the $9.5 trillion personal debt amounts to about $85,000 owed by each household.
Combine personal debt with the tax burden politicians have obligated Americans to and it makes for a frightening scenario. And it’s real—not some Hollywood fantasy. With so many Americans already up to their eyeballs in personal debt, how in the world will its citizenry ever be able to pay off the debt piling up in Washington?
According to USA Today, “$53 trillion is what federal, state and local governments need immediately—stashed away, earning interest, beyond the $3 trillion in taxes collected last year—to repay debts and honor future benefits promised under Medicare, Social Security and government pensions. And like an unpaid credit card balance accumulating interest, the problem grows by more than $1 trillion every year that action to pay down the debt is delayed” (Oct. 4, 2004; emphasis mine throughout). Added to personal debt, the article estimates the hidden debt weighing on each household’s obligation as taxpayers to be about $473,000! That’s what each family owes right now to pay for what its government has obligated them to.
Furthermore, that $53 trillion figure is not unlike a mortgage on a home, the article explained. $53 trillion is what the U.S. would need to pay off the debt right now. But if it stretches out those payments over the course of decades, like a homeowner would to pay off a mortgage, the actual money paid for the house would be much higher because of interest. A $100,000 home, for example, would cost $193,000 over the course of a 30-year loan, assuming the interest was locked in at 5 percent.
One day, every American will wake up to the dire consequences of those empty promises, the wild spending, the irresponsible budgeting.
“If action isn’t taken soon—when baby boomers are still working and contributing payroll taxes—the consequences may be catastrophic,” the article continued. Look—it’s not like this warning is coming from some wild-eyed fanatic out in the blogosphere. It’s a USA Today article, quoting the likes of Alan Greenspan! According to its authors, the article’s conclusions are similar to ones made “by government watchdog agencies such as the Congressional Budget Office and the Government Accountability Office and respected think tanks such as the conservative American Enterprise Institute, the liberal Brookings Institution and the non-partisan Urban Institute.”
The article quotes Glenn Hubbard, who used to serve as chairman of the Council of Economic Advisors for President Bush. “Political leaders know this is a big problem. I know the president is keenly aware. But in an election year, it’s not easy to talk about. The solutions may be very painful. If he is re-elected, I think he will make this a top priority next year.” Since that time, of course, President Bush was re-elected. And in the first budget submitted during his second term, he increased spending—something the U.S. government has done every single year for the past half century!
Doomsayers in the Majority
In November, Morgan Stanley’s chief economist, Stephen Roach, made headlines with comments delivered at a private gathering in Boston. According to the Boston Herald, Roach suggested the United States has less than a 10 percent chance of avoiding economic Armageddon! “Roach sees a 30 percent chance of a slump soon and a 60 percent chance that ‘we’ll muddle through for awhile and delay the eventual Armageddon’” (Nov. 23, 2004).
To Roach, it’s not a matter of if—but when. “It struck me how extreme he was—much more, it seemed to me, than in public,” one source who attended the meeting was quoted as saying.
According to Roach, America has to import $2.6 billion in cash every working day to finance its spending addiction—an amount he rightly believes is unsustainable.
According to the Herald, “Roach’s analysis isn’t entirely new. But recent events give it extra force.” In other words, a majority of economists are predicting catastrophic economic events ahead for America unless something is done soon to address the problem. “Smart people downtown agree with much of the analysis. It is undeniable that America is living in a ‘debt bubble’ of record proportions,” the article concluded.
Here is the way author Gerald Swanson sees it: “That the United States of America can literally go broke is no longer a fantasy but a likelihood—unless we can stop the train now speeding us to Armageddon. If we do not get our financial house in order, and soon, I am convinced our great nation will collapse in a very short time under the weight of its financial obligations” (America the Broke).
President Clinton’s chief economic adviser from 1995 to 1997, Joseph Stiglitz, said it this way: “Economists agree this cannot go on. We can borrow and borrow, but eventually there will be a day of reckoning” (USA Today, op. cit.).
Former Florida congressman Joe Scarborough wrote, “It is not unimaginable to foresee a day when interest rates are at 20 percent, Social Security and Medicare are slashed in half, children are left untreated to die in hospital parking lots because of Medicaid’s collapse, while taxes are raised by 100 percent” (Rome Wasn’t Burnt in a Day).
The government’s chief accountant, Comptroller General David Walker, says, “I am desperately trying to get people to understand the significance of this for our country, our children, our grandchildren. How this is resolved could affect not only our economic security but our national security” (USA Today, op. cit.).
A threat to our national security? Catastrophic consequences? Speeding to Armageddon? These are the not the predictions of extremists. It’s what honest commentators, economists, politicians and presidential advisers are saying.
Danger of Debt
But enough of what men say. What about God? What does He have to say about out-of-control spending and sky-high debt?
Men have come up with every possible explanation to excuse debt-laden living. But as far as God is concerned, the underlying cause of this curse—and it is a curse—is that we are living the way of get! As Joe Scarborough editorialized in the Wall Street Journal, “These days, if you want a tax cut you get it. If you want a trillion-dollar drug entitlement program, you get it. If corporate welfare and farm subsidies are your thing, you’re in luck. Want to push defense spending over $400 billion? Don’t worry, be happy. Want to push through the biggest expansion of federal education spending ever? Consider it done” (Sept. 23, 2004).
Everybody has to get something, right? Washington gets an unlimited supply of credit so it can spend, spend, spend! American citizens get generous handouts from entitlement programs. Politicians promise to increase benefits so they can get more votes. Lobbyists pay off politicians and finance their campaigns to get favorable legislation for their companies.
And all the while, we mortgage away our future by tacking on an extra trillion dollars in debt every single year! God says, “The wicked borrows, and cannot pay back, but the righteous is generous and gives” (Psalms 37:21, Revised Standard Version). We have dug ourselves into a pit that we will not get out of—and all because of selfishness and greed.
To presidential administrations and politicians; to federal, state and county governments; to large corporations, small businesses and entrepreneurs; to chief economists and financiers; to welfare recipients and retirees; to families and individuals; God thunders: “Consider your ways”! (Haggai 1:5).
God has blessed the United States of America like no other nation in the history of man. As Abraham Lincoln once said, “We find ourselves in the peaceful possession of the fairest portion of the Earth, as regards extent of territory, fertility of soil, and salubrity of climate. … We find ourselves … the legal inheritors of these fundamental blessings. We toiled not in the acquirement or establishment of them.”
But instead of being in awe of God and humbled by His unwavering devotion to the faith of one man, Abraham (Genesis 22:16-18), we have forgotten our great God. We’ve taken credit for these many blessings ourselves. We have become a self-indulgent and altogether ungrateful and unthankful people.
“Ye have sown much, and bring in little,” the Prophet Haggai continued, “ye eat, but ye have not enough; ye drink, but ye are not filled with drink; ye clothe you, but there is none warm; and he that earneth wages earneth wages to put it into a bag with holes. Thus saith the Lord of hosts; Consider your ways” (Haggai 1:6-7).
Seemingly never satisfied with what we have—with all God has given us—we continue mortgaging our future in order to satiate the lustful desires we have now.
The party might go on for a bit longer, but economic Armageddon is unavoidable. We make that conclusion, not because of the present economic course America is on, but because that is what the Bible prophesies.
The Sure Word of Prophecy
Like any family that has lots and lots of things—an eight-bedroom house, three suvs in the garage, exotic vacations every summer—the American economy still appears to be quite prosperous. But if those “things” are being financed by someone else, you don’t have to be a chief economist to figure out who is in the best position financially. God says, “The rich ruleth over the poor, and the borrower is servant to the lender” (Proverbs 22:7). In just one generation,the United States has gone from being the world’s greatest creditor to its biggest debtor.
To this point, foreign investors are willing to finance our debt because of how dependent their economies are on Americans consuming foreign goods. As long as there is something in it for them, they will continue financing our debt.
But what will happen when they no longer benefit from the trade-off? The Trumpet knows what will happen. We’ve been telling our readers about it for years. It’s just that now you can read about it in your local newspaper.