- Local leaders warn of budget deadlock’s impact
- SHUTDOWN: Illinois preps for the worst
- TRRT Online Edition | July 1-7
- Governor, AG differ on legality of payroll without budget
- Regular RHA meeting a quiet affair
- Funnel clouds possible through evening
- Smoking bans a breath of fresh air to some, infuriating to others
- Experts break down the SCOTUS gay marriage ruling
- Senators offer insight into population loss
- SCOTUS ruling legalizes gay marriage
Viewpoint: Economic cat out of the bag
Viewpoint: Economic cat out of the bag
By By Joe Baker, Senior Editor
Alarm bells are ringing all over the Internet, warning not only of imminent collapse of the U.S. economy but of the global economy as well. The situation is far more serious than we have been led to believe.
While the stock market is beginning to slide toward the bottom, we have Dubya, Greenspan and others mouthing the Hooverian mantra: Prosperity is just around the corner.
The U.S. government is able to generate about $1.2 trillion in taxes. The problem is it spends $1.4 trillion to $1.5 trillion each year. How can the government spend more than it takes in?
The answer is borrowing. It borrows what it needs to make up the difference. In 1992 that amounted to about a quarter of all the money it spent. The amount borrowed is called the deficit. Thats how Washington has operated since the 1960s. The annual deficits that pile up are what we call the national debt. That stood at more than $4 trillion in 1992.
Today it is somewhere around $6 trillion. Off -budget debt, including unfunded retirement liabilities, adds another $2.5 trillion to that amount. The government has given up on paying off the debt and is having a tough time just keeping up with the interest.
Interest on the national debt is one of the top three expenditures in the federal budget each year. Soon it will be the biggest expense. Back in 1980, we used about 30 percent of the income tax to pay the interest. Twelve years later, in 1992, it had doubled to 60 percent. Experts say within a few years it will take all the income tax collected to pay the interest, leaving no money to run the country.
You dont have to be a rocket scientist to understand that if we continue to spend more than we take in, the country is headed for bankruptcy.
Continental Heritage Security, a financial analysis and publishing company in Woodland, Calif., sketched the rise in national indebtedness. It said when JFK took over the White House in 1960, federal revenues and spending were less than $100 billion annually. The deficit was $3 billion per year. Lyndon Johnson made drastic changes in economic policy after he took office following Kennedys assassination.
By 1981, federal spending had jumped to $500 billion. When Ronald Reagan left office, the level of federal spending stood at about $1 trillion per year. Federal debt had escalated from $914 billion in 1981 to $2.8 trillion in 1989. When George Bush Sr. left office, the national debt stood at $4.2 trillion.
In 1990, consumer debt was $794 billion; business debt $700 billion. Only 2 percent of Americans owned their homes. Banks today hold almost $2 trillion in first mortgages and some $80 billion in home equity loans. Household debt, for the average American, is 84 percent of income.
Medicare costs $104 billion a year. Experts estimate federally-backed health care costs will hit more than $1.3 trillion in the near future.
The country must borrow $1 billion, 100 million each and every day just to maintain the facade of prosperity. We have no more capital left, and our borrowing power is being used up rapidly. When that is gone, the party is over.
Some of us remember the Grace Commission. That was a privately financed group of U.S. businessmen appointed by President Reagan to take the first hard look at trends in government spending. It was headed by businessman Jay P. Grace.
That commission found $500 billion of waste in federal spending and offered some 2,000 recommendations on how that amount could be cut from the budget without altering even one program. All the government needed to do was employ standard business practices and cut the waste. The commissions suggestions were largely ignored.
The Graham-Rudman Act of 1985 requires the government to live within its means. It was supposed to start doing that by 1991. Congress and the White House, however, have gone merrily on their free spending way, ignoring all warnings.
Fifteen years ago, we were the leading creditor nation. Today we are the leading debtor nation. Some 30 percent of our debt is foreign held, and creditors of that debt are having an increasing influence in dictating our economic policies. The dollar has become the worst investment on the market.
As American markets weaken, they tend to drag down foreign markets. Those in Europe and Asia have slumped as Wall Street has declined. If that isnt enough, a very real crisis is developing in South America.
It began with Argentina, which defaulted on its debt and is in its fifth straight year of recession. Its economy is expected to shrink another 15 percent this year, and bank accounts have been frozen for six months. Now Uruguay is being affected. Its peso has lost half its value since March. Bank deposits are in dollars, and a run on the banks is pulling down reserves by $500 million a month.
Another huge problem is Brazil, where at one point last month, the Brazilian Real was down 33 percent, causing an increase in the cost of servicing that countrys debt, which stands at 60 percent of its Gross Domestic Product.
In this country, there is a lot of sleight-of-hand going on in an effort to fool investors into supporting a collapsing market. Mike Ruppert, publisher of From The Wilderness website, said: There are unmistakable signs of market manipulation now with regards to both gold and stocks. Who is it that keeps the markets from correcting, only making the inevitable crash that much worse? It is called the Plunge Protection Team, or PPT. (That is the popular name, not the official one.) And now it has to have the liquidity to flood both the gold and the stock markets with enough cash to keep the bubbles from bursting.
This, at the same time that major banks like J.P. Morgan Chase and Citigroup sit atop huge derivatives bubbles that have been estimated at between $150 trillion and $300 trillion.
The Plunge Protection Team is composed of the chairman of the Federal Reserve; the chairman of the SEC; the chairman of the Commodities Futures Trading Commission, and the Secretary of the Treasury. Major banks may be included.
The SEC recently stated: …three current documents indicate that J.P. Morgan Chase has reported to the Office of the Comptroller of the Currency $45,234 billion in total gold derivatives as assets under the control and use of J.P. Morgan Chase. However, they have not accounted for these gold derivative assets in either of their SEC form 10Q filings or their 2001 annual report. This finding implies that JPM shareholders have far greater risk than previously disclosed by the company.
All of this portends very serious risk to the average American in terms of his employment, his housing, his pension and his investments. The rich are not worried; they are getting out of the country. About all the little guy can do is pray.