George Rebane

The politicians are betting their jobs and benefits-for-life that you won’t give a big rat’s asset about the information in this post.  To let you do the arithmetic yourself, I’ve put together a little spreadsheet that lets you play with the national numbers.  The whole thing is supposed to scare the you-know-what out of you, but I’m not sure that it will work.  It seems that up until now, we Americans have been made of sterner stuff.  Our usual response to this information is to get back to ‘American Idol’.  And when the spray comes off the fan, we claim that we weren’t told, and demand federal bailouts.  The politicians know our ability to process this stuff and our attention span – that’s how they survive.

The downloadable spreadsheet ‘Fiscal Disaster Calculator’ is super simple, and about the easiest way for anyone interested to see what the effects of GDP growth rates, aggregate tax rates, and (get this, “risk free”) interest rates are on the approaching economic whirlwind.  If you decide this stuff is too dense for you, at least go stock up on your emergency food, meds, batteries, disaster radios, guns, and grenades.  And then again, you may just put in numbers that paint a future of sweetness and light.

The blue numbers in the spreadsheet are yours to play with – change their values to whatever you consider a better reality.  I’ve just started things off with some very hopeful and upbeat numbers based on White House projections.  And even with those, the light at the end of the tunnel is still a freight train heading for us.  Here are some things to keep in mind as you’re noodling on this stuff –

• First brace yourself with a calmative – mine’s bourbon and water (standard drink for Napolitano’s “right wing extremists”);
• There is no explicit callout for the so called “off-budget” items like Social Security and Postal Service funding.  These are in the $500B range and are accounted for in a manner that would land a civilian CPA in the slammer.  Besides, what’s a half a trillion between friends;
• And keep in mind that Social Security and its so called “trust fund” fits the formal definition of a Ponzi scheme.  Our baby-boomer kids will get screwed, we oldsters just hope that they keep their heads where the sun don’t shine for a mite longer;
• Also, none of this considers the federal unfunded liabilities that are now pushing $80,000,000,000,000 – that’s eighty trillion in case you lost count of the zeros;
• The IMF and World Bank agree that a fiscally failed state is one with a deficit to GDP ratio of about 12%;
• When debt service to GDP ratio increases, the country’s credit rating decreases, and the interest rate on the national debt increases – capiche?;
• When high taxes are raised higher, GDP falls, and government revenues fall;
• Keeping everything else constant while messing with any one type of input is called statism, and the main reason why liberals are correctly called statists;
• Here’s the White House URL – http://www.whitehouse.gov/omb/budget/ – from where to get Obama’s view of the future on all this stuff;
• And here’s ‘The Federal Budget: A Primer’ and federalbudget.com for those who really want to get into it in a readable way.  Don’t try to get this info from a government document – no, no, nooh!

In all of this, it’s not the level of national debt or its ratio to GDP that’s important, only the ratio of national debt service to GDP.  Most financial pundits (including the otherwise celebrated John Mauldin) miss this point.  Even if the national debt is a gazillion dollars, it’s a no-never-mind if you have to pay only $100 a year to service it and keep the lenders happy.  At this point you may ask, ‘Well, what’s the way out of this?’.  To the extent that there is one, it is only through high and unbridled GDP growth – play with the numbers.