The Crisis: A House of Cards

The Crisis: A House of Cards Image

“That won’t happen here.”

Those words are almost comical when you hear or read them after someone begs the question of whether the United States can go bankrupt.  Ignorance of that magnitude is amazing.  It is as if on this side of the globe the laws of economics do not apply and we are somehow immune from the consequences of mistakes that brought down other countries.  Well, for the naysayers I hate to tell you that although America is a special country, we are bound by the same forces of nature that apply everywhere else in the world.  If we do not take immediate and drastic action, the house of cards that makes up our economy is going to fall. It is only a matter of WHEN.

Excessive debt is by far the greatest threat to our national security.  It hinders the economy and any nation with a weak economy cannot sustain a strong military.   In a letter to James Madison, Thomas Jefferson commented on this subject stating, “Then no generation can contract debts greater than may be paid during the course of its own existence.” Many years later in another letter Jefferson wrote, “We must not let our rulers load us with perpetual debt.”  That is just common sense, right?  After all, would you as a parent intentionally accumulate a massive amount of debt and pass it off to your children?  What would you think if your parents did that to you?

As a nation we have been doing exactly what Thomas Jefferson warned us against for well over 100 years.  Bernie Madoff is sitting in prison cell for running a Ponzi scheme near $65 billion, but the federal government is allowed to do same thing with an account in excess of $13,000,000,000,000That is $13 TRILLION (click here for a visual of a trillion).  That amount is over 94% of our GDP.  Forecasts show that based on the current path, the national debt is expected to surpass 100% GDP by 2012.  In other words, in less than two years if you totaled up all of the goods and services created within the United States in a year and put 100% of that money towards the national debt, you could not pay it off.

If you think $13 trillion is bad, I regretfully have more shocking news that’s not all we owe.  When you add unfunded liabilities (social programs) to the mix, the total debt of the United States is actually more than $109,000,000,000,000! Divide that out across the country and every single American citizen owes about $352,700. Yes, the government does take checks.

Common sense would tell you that when you personally see yourself racking up excessive amounts of debt, you would need to make a few changes.  If you follow the advice of personal finance gurus such as Dave Ramsey, you would first take a good, honest look at your total financial situation.  Then, you would review all of your expenses and prioritize them.  The expenses that are not absolutely necessary would be slashed or eliminated entirely in order to pay off your debt.  It would not be fun, but again common sense tells you that if you did not make changes necessary to keep your personal financial ship afloat, you would soon find yourself drowning in a sea of debt – maybe even bankrupt and homeless.

Unfortunately, the federal government does not understand financial common sense (or anything common sense really).  Looking back at the previous example, the federal government’s advice would be to take out a loan bigger than you ever had before.  Then they would recommend you spend it quickly to prevent from getting into a worse financial situation.  For the last two years our government has done just that by spending trillions of dollars on “emergency” bailout and stimulus programs, increased unemployment benefits, and scores of other spending projects to avert an economic collapse – as if fixing a debt problem with more spending and debt makes sense.

While the federal financial chaos continues to march towards eventual collapse, the private sector is struggling to survive.  Adding insult to injury, the swelling size of the federal government is siphoning off the remaining life of the private sector.  Although many new federal jobs added to the payrolls are temporary (and likely inflated due to misleading Census employment data), each job represents money that has been taken from the private sector and put in the government’s hands.  This combined with the fact that government employees now on average earn a higher salary than the private sector makes me wonder where the incentive is to get a job in the free market.  Better yet, what happens when the money in the private sector dries up and can no longer fund the government’s payroll?

There seems to be no end in sight to this madness.  It is almost like the federal government sees the road block sign saying “STOP – Bridge Out”, but instead of stopping and turning around it decides to charge full speed ahead by slamming on the accelerator and hoping for the best.

This simply cannot continue.  The way of life in America is at stake.  I have said it many times before, but it cannot be repeated enough.  Immediate and drastic action must be taken. Failure to do so will eventually lead to a collapse of the economy so great that it may be impossible to recover from while remaining a global superpower.

For a common sense video explaining how debt and spending works at the federal level, watch this video from the Heritage Foundation.

(In the time it took for me to write this article, over $2,160,000 was added to the national debt.)