I have oft reflected, in this place, on the fiscal fires advancing toward us.
The United States is running massive deficits, even as it creates massive new entitlement programs (e.g., Obamacare). Our national debt is about to hit $14.3 trillion. Our three main existing entitlement programs (Social Security, Medicare, and Medicaid) are underfunded by more than $100 trillion. And consider such under-the-radar unfunded liabilities as the Pension Benefit Guaranty Corporation, which "guarantees" the pensions of millions of private industry workers and is underfunded in the tens of billions. That's now. Later, as more workers retire . . . you can guess what will happen. Meanwhile, the deficits of those Twin Towers of moral hazard, Freddie Mac and Fannie Mae, continue rising.
All these are at the federal level. The states are another matter.
The states are currently running a deficit of around $125 billion, which may not sound like much in this context. But at their level there is also more than $3 trillion in outstanding bond debt (counting municipal as well as state bonds), and what we can only estimate at about $3 trillion in unfunded liabilities.
The alarming rise in this ocean of red ink has caused Standard & Poor’s to cut its outlook on the US credit rating from “stable” to “negative,” meaning that in the credit agency’s view, we have about a one-third chance of having our AAA credit rating lowered during the next two years. Should that happen, the cost of our staggering amount of borrowing will explode.
The agency’s decision reflects more than its worries about our current deficit of $1.6 trillion (about 10.8% of current GDP) and our total debt of $14.3 trillion (over 91% of our GDP). It also registers the agency's skepticism about whether the wise solons in Washington will be able to staunch the flow of red ink anytime soon.
A number of predictable events have quickly followed. First, the Obama regime immediately pooh-poohed the embarrassing announcement. Spokesman Jay Carney said, “The political process will outperform S&P’s expectations. . . . The fact is where the issues are important, history shows that both sides can come together and get things done.” Obama’s unserious budget proposals belie these words.
Also predictable was the immediate drop in the stock markets. The Dow fell by 1.1% (140 points) that day, and London’s FTSE 100 fell by 2% (126). Equally predictable was the immediate weakening of the dollar, and gold's breaking the important psychological barrier of $1,500 an ounce. (It wasn't very long ago that it broke the psychological barriers of $500, then $1,000.)
The continuing housing bust masks our increasing inflation. While the official American inflation rate remains about 3%, prices have been rising rapidly in food and energy. Commodity prices are at or near their historic highs.
The public is now receiving a small whiff of smoke from the myriad fires that endanger us. People haven’t yet seen the flames, but when they do, the reaction will be severe. This is only the first year in which baby boomers are starting to retire. When all 78 million of them are on Social Security, Medicare, SSDI, Obamacare, and so on, you can expect a fiscal firestorm — probably hyperinflation or bond defaults.
The good news is that in those fiscal flames the hubristic and vicious (in the sense of vice producing) progressive-liberal state will likely be consumed. One hopes that will mitigate the pain.