Shhh … don’t tell anyone: We can’t repay our debt! Also, the emperor has no clothes. It’s the same story: Everyone knows it, and no one is willing to say it. But the United States is awash in debt that can’t possibly be repaid.
Perhaps a spurt of economic growth could put a dent in our massive debt, but at this stage we are piling on new debt at rates far higher than reasonable expectations of growth. And the burden has grown, despite record low interest rates. As rates start rising, or as tax revenues fall during the next recession, the problem will overwhelm us and we will be forced to face the truth. We have made promises we cannot keep.
And we can’t just “print money” to pay the bills, as that will only result in devaluing our currency. Who would want dollars as they flood the market? The government would have to pay higher interest rates as a bribe to get the world to lend to us to finance our deficits.
And those higher rates would only add to our debt burden. The Congressional Budget Office estimates that a one percentage point increase in interest rates adds $1.6 trillion to our 10-year budget deficit. Higher rates just dig a deeper hole.
According to the ticking debt clock at www.TruthinAccounting.org, the United States’ national debt now stands at slightly over $21 trillion. And we are in the process of adding another half a trillion dollars to it through the budget deficit predicted for 2018.
But the real issue is all the promises we’ve made to pay future benefits like Social Security and military retirement benefits. According to TruthinAccounting,org, adding those promises over the coming 30 years bring the total U.S debt to over $104 trillion. The mind boggles at the thought.
That brings us to the Social Security trustees report just released. It hardly made a splash in the headlines. In fact, a press release from RetiredAmericans.org had this glowing headline: “Social Security’s Finances Remain Strong.” They even suggested raising benefits. And the emperor has no clothes!
Here’s a reality check: The Trustees report says the Social Security trust fund will be “exhausted” in 2034. That’s just 15 years away! It will happen at the height of the baby boomer longevity spurt. At that point, Social Security will be able to pay out only about 75 percent of promised benefits, based on incoming payroll taxes. That assumes a growing economy. And it also assumes that younger workers won’t rebel at paying into the system that is clearly failing.
The Center for Retirement Research at Boston College concludes: “This shortfall is manageable, but action should be taken soon to equitably share the burden among cohorts, restore public confidence and give people time to adjust.” That’s Washington shorthand for “we should start now to put some clothes on the emperor” by increasing payroll taxes or cutting benefits for the wealthy. Or something. But we can’t ignore the reality.
What about the Social Security trust fund — the growing billions of surpluses predicted when the government raised payroll takes back in 1983, in anticipation of today’s needs? Sorry, that shoebox is stuffed full of IOUs from the federal government — part of the $104 trillion of future government promises to pay!
This year, for the first time since 1982, Social Security trustees had to dip into the IOUs to pay promised benefits. Instead of lending money to the government, the trust fund is now starting to sell off those Treasury securities to pay current benefits.
And that doesn’t include Medicare, where the newly released trustees report says the funding will be “depleted” in 2026. That’s right around the corner!
The oncoming crisis will impact young and old. No wonder Americans are unwilling to face the naked facts of our federal finances. It’s just too scary. But the crisis will come anyway. And that’s The Savage Truth.