The White House website boldly claims: “President Obama has led the way on structuring the government to live within its means.” This is not even remotely true. By any measure, the US continues to spend way above its income and, as a result, its debt position is deteriorating apace.
These are the facts. George W Bush left behind a set of books that were not so much unbalanced as vertiginous. At the end of 2008, US debt was $9.9 trillion, or 69.7 per cent of GDP, and the ballooning deficit was $683 billion. Since then, all the key indicators have worsened markedly. By the end of this year, gross debt is forecast to reach $16.3 trillion ... more than 100 per cent of GDP, or a rise of two thirds under Obama. The annual deficit is close to $1.5 trillion, 10 per cent of GDP. Worse still, according to official forecasts, US debt is on course to hit $20 trillion by 2016. If this is a country living within its means, one dreads to think what would happen if Washington decided to throw a party.
Of course, $16.3 trillion is just the official figure. As here in the UK, and in every other developed nation, far greater liabilities hide 'off balance sheet'.
In an article for Mises.org, Gary North explains:
The expert here is Professor Lawrence Kotlikoff of Boston University. His most recent report says that total unfunded liabilities went from $211 trillion a year ago to $222 trillion this year.
The biggest source of future red ink will be Medicare. In second place is Social Security.
How can the government pay off these obligations? It can't. The possibility does not exist. The government needs a spare $222 trillion to invest in private companies. This investment must make a return of at least 5 percent to provide the money needed to pay meet the government's obligations. There is no $222 trillion available, and no capital markets large enough to absorb $222 trillion.
Conclusion: the US government will default.
In this context, 'default' doesn't just mean that 'investors' in government debt lose their money. It means that the government will renege on a wide range of welfare IOUs.
These IOUs were unsustainable long before Obamacare. As with our own National Insurance scheme, they made the mistake of paying out immediately - out of current contributions rather than past savings. There's a term for this sort of scheme:
The welfare state's Ponzi scheme economics will catch up with the politicians. It will catch up with everyone who is dependent on the welfare state. All over the Western world, this is statistically inevitable.
We wonder why people begin Ponzi schemes. The schemes always blow up. They cannot survive. The numbers tell us that. Why don't the initiators see what must inevitably hit them?
The financial world was amazed at Bernie Madoff. How did he fool smart rich people for so long, and for so much money?
Simple. He copied Congress.