If your retirement plan relied on government pensions or social security, and you thought Medicare and Medicaid would be there to support you, then you’re in for a rude awakening. Since FDR, the federal government has been making promises that it know it cannot fulfill or sustain, but soon the repercussions of our government’s fiscal irresponsibility will be come to fruition. The way the federal government is handling debt is an obvious indicator that these programs are on life support.
There are 3 aspects to the debt. There is the deficit, national debt, and unfunded liabilities. Each of these needs to be understood in its own before one can understand how they connect. Once you have the whole picture, it will be obvious that this is not a sustainable economic system.
The current deficit is $440 billion for FY2018. That means that the government is spending $440 billion dollars more than it receives in tax revenue this year, despite another record-breaking year of tax revenues. The “raising the debt ceiling” that Congress is so fond of is simply Congress giving itself permission to assume more debt.
How significant is this $440 billion in debt the government is taking on? Well, it is estimated that the federal government will receive $3.654 trillion in revenue but spend $4.094 trillion on whatever the hell they spend that money on. That means that Congress is spending an extra 12% on top of every single penny it takes in as revenue.
The total debt that America has accumulated in the 240 years since its founding is $20 trillion. This is a tremendous sum of money which has cost us $268 billion in interest this year, but at least Congress can raise the debt ceiling and take on more debt to pay on the interest we owe. A lot of the debt the U.S. owes is being paid in perpetuities, so we will just be making payments as long as we are a country on those debts and they will never be paid off.
The national debt is not just the problem. The issue here is that despite all this debt, Congress continues to spend recklessly and assume more debt. It’s like a normal person driving himself into debt, so he opens a new credit line to pay off the last and does this over and over again. Eventually someone will catch on and not want to assume the risk and he will go bankrupt.
The biggest issue with all this debt is the things that the government has promised its people, but it has no plan as to how it will pay it. This is the unfunded liabilities which total about $127 trillion (roughly $1.1 million per taxpayer). This is Social Security, Medicare, Medicaid, Pensions, and outstanding interest. Our government is spending every penny it receives and 12% more, yet it still expects to pay these future liabilities.
People will not accept these things being taken away from them because taxpayers have put in their fair share. However, there is no “Social Security Fund” like private pensions have to make that create returns which are paid out later. Rather it is a Ponzi Scheme being performed by the government and it will not hold.
How does this all fail? When Social Security was founded, there were 16 people paying in for every one collecting on it and the average life span was much shorter. Due to having fewer children and unemployment issues among younger people, the scheme is much less bottom heavy than it was and now only about 3 people are paying for each one collecting. Pairing that with the amount of promises being added each year the country is in a debt spiral.
So, is their impending doom and collapse of the U.S.? The answer: maybe. But, while this may not be fixable, there is a chance. Congress has to stop spending so much, and definitely must stop spending more than it receives. The U.S. must start paying down the debt and turning services over to the private sector. Lastly, it needs to find solutions for the entitlement programs and wean people off of relying on them. This will take educating the American people about financial responsibility and economics at length and ensuring that people have the tools necessary to make good fiscal decisions.
The whole thing really is simple, though: Spend less than you make and save and invest the rest.
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