The Real Economic Disaster Is Yet To Come…

1 11 2008

Fortune says – “Call this a crisis? Just wait. Actually, don’t wait, because we’ve got to stop a bigger economic disaster in the making: 78 million baby-boomers eligible for Social Security and Medicare.”

At the dawn of the 21st century the U.S. had $5.7 trillion in total debt. As we approach the end of George W. Bush’s presidency only eight years later, that sum has nearly doubled, thanks to war costs, tax cuts, spending increases, expanded entitlement programs, and now a welter of government bailouts and rescues.

This year was particularly bad. The federal budget deficit for fiscal 2008 hit $455 billion, up from $162 billion last year. That figure does not include the cost of the Emergency Economic Stabilization Act of 2008, which has an initial pricetag in the hundreds of billions of dollars. In fairness, some of that money presumably will come back to the Treasury, since the new rescue-related sums will be used to acquire preferred stock, mortgages, and other assets that someday could be sold at a profit.

Yet any such calculations are penny ante compared with the fiscal disaster that is bearing down on America. It’s no longer an event in the misty future. It officially began earlier this year when teacher Kathleen Casey-Kirschling of Maryland became the first baby-boom retiree to collect Social Security benefits. She will be followed by about 78 million more boomers over the next 17 years.

The entitlements due from Social Security and Medicare present us with that frightening abyss. The costs of these current programs, along with other health-care costs, could bankrupt our country.

…the deteriorating financial condition of our federal government in the face of skyrocketing health-care costs and the baby-boom retirement could fairly be described as a super-subprime crisis. It would certainly dwarf what we’re seeing now.

The U.S. Government Accountability Office (GAO), noting that the federal balance sheet does not reflect the government’s huge unfunded promises in our nation’s social-insurance programs, estimated last year that the unfunded obligations for Medicare and Social Security alone totaled almost $41 trillion. That sum, equivalent to $352,000 per U.S. household, is the present-value shortfall between the growing cost of entitlements and the dedicated revenues intended to pay for them over the next 75 years.

Its much worse than the picture painted in the article, really. We’re facing not a nuclear winter, but a demographic one. Not only will the boomer generation start drawing all these entitlements like Social Security and Medicare, and trying to cash out their stocks and bonds, but their income has already peaked and they won’t have anything to spend except what the government prints to give them their monthly checks or prop up their foolish investments. That means that the younger generation, smaller in number and burdened with supporting this, won’t be able to make as much in wages because overall spending will be in decline (adjusted for inflation). They’ll make less, be taxed more, and all bets for normalcy are off. Enjoy the calm before the storm that God is giving us, and make your preparations while you can!

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