Unsustainable Spending (Must Read)

RealClearPolitics ^ | 2/21/2010 | David Warren

[mojito]

A spectre is haunting Europe, and America -- the spectre of Keynesianism finally gone nuts.

What began, not very innocently, as a suggestion that governments should run deficits in bad times, and surpluses in good times, gradually "evolved." In the next phase, governments tried to balance at least the operating account during the best of times. In phase three, governments ran deficits by habit during the good times, but much bigger "stimulus" deficits during the bad times. We are now entering phase four.

[....]

The U.S. national debt now exceeds $12.3 trillion in a $14.2 trillion economy, and the U.S. government is now piling it on with unprecedented new deficits....

Little things, such as the heart of the U.S. space program, are being gutted to make way for metastasizing social security entitlements and debt service payments that will soon swamp the entire federal budget -- thus requiring the elimination of more little things such as the army, navy and air force. At some point the entitlements simply can't be paid, without hyperinflation.

[....]

While an optimist would say that we are witnessing the final demise of the welfare state, and good riddance, a pessimist would observe that everything must go down with it....

For our governments have created vast bureaucracies, employing immense numbers whose livelihoods depend entirely (whether they realize it or not) upon the capacity of profit-earning people to pay constantly increasing taxes.

It should have been grasped, decades ago, that the constant transfer of resources from the productive to the unproductive must eventually tip the ship. And when it does, real people go over the side, who get angry when they are thrown in the water. There are consequences to that anger.

[misterrob]

You make $50K a year. You live okay but not in luxury.

If you borrow $10,000 (5 years 8% int) and spend it all are you prosperous? It might feel that way at the time but all you have done is created a liability and future drag on yourself when you have to pay it back. Suddenly that $50K a year is not as enjoyable because with debt and interest payments you now have $47,500 available to spend and in addition that extra $10K you had available to spend is gone.

Or you can borrow another $10K on the same terms and live almost as well as you did the year before less the $2.5K in debt and interest. But in year 3 your debt vs earnings is now 19%. You have $45K a year to spend vs the $50K you earn

or you can borrow another $10k and keep doing it every year until your debt service crowds out everything else.

At some point the laws of math catch up to you and your ability to pay off debt fails when you don’t make enough $$ to even eat and provide shelter for yourself.

You conned yourself into thinking that you were prosperous when in fact all you did was debt yourself into a black hole. In the first few years life was good. At the end you borrowed from one credit card to pay another.

[expat_panama]

Everything you're saying about personal earning/borrowing is absolutely true and I agree completely, so let's add up the grand total of all that America's actually earning and borrowing because that really is what the the GDP and the national debt are. 

The GDP is the $11,000 billion that all of us private individuals are buying and selling this year added to the $3,000 billion that federal, state, and local governments are buying and selling.  The total national debt that the feds owe everyone (mostly us) is $8,000 billion .  Back in 1945 when WWII ended, our total buying and selling was just $223 billion (mostly government) and the feds owed $270 billion.   Back then we owed more than we made.   Right now we make more than we owe.  Now is better. 

[misterrob]

uh huh....