In this long continuing books summary of Glenn Beck’s Broke we have moved past the first section on history and move into the the present problem. The first part dealt with how we got into our current fiscal situation as a nation. The second part is titled the Crime of the Century.
Where We Are Now (143-144)
The financial legacy left behind not just about the next generation, this is about our current generations. Unless the United States is willing to take radical actions to change our fiscal course the nation is in real jeopardy. The people to blame for this mess though is ourselves; we did not hold our leaders accountable for all the reckless spending that has occurred in the last one hundred years.
Mandatory Bankruptcy (144-148)
The budget of the federal government contains two major spending categories: mandatory and discretionary. Mandatory spending is what it sounds like, it is mandatory. These program operate by determining who is eligible and what is the benefit they get. They operate on autopilot and increase as more people enroll in the programs under this umbrella. The only way to change this type of spending is by legislatively changing the programs. The programs that operate under mandatory spending include: Social Security, Medicare, Medicaid, and other welfare programs. It is these programs that make up the largest part of our annual federal budgets and they are getting larger each year.
Discretionary spending encompasses everything else in the budget from national defense to educational spending and the payments made to the national debt. These are passed by annual appropriations bills that must be voted upon by both houses of Congress and approved by the President.
Over time the mandatory spending has grown and has started to grow larger each year. And it only threatens to grow larger over time due to the large number of baby boomers retiring each day and year that will be drawing on Social Security, and Medicare. There is no control over this spending without legislating those changes. And even suggesting that the country change Social Security or Medicare is political suicide.
Pork: Not Just the Other White Meat (148-419)
Earmarked appropriations are little projects that senators and representatives allocate money to in their state or district for museums, studies or other projects. It is estimated that they cost the taxpayers over $16 billion in 2010. In the end though these projects are a distraction to the hundreds of billions and trillions of dollar we have had in deficit spending in the last few years and decades. While we focus on the small projects, which politicians should be held accountable for in elections, we take our eyes off the major structural problems in our country’s finances.
An Interesting Look at Interest (149-152)
The interest on our national debt is about 8.6% of our annual federal budget. Not a big deal if we weren’t still wracking up debt on the country’s credit card every year. The Congressional Budget Office predicts that this percentage will more than double in the next six years, but this assumes the interest rates will remain stable, but they probably will not. Include the problem of investors now looking for increased rates to compensate them for the increased risk of buying our nation’s securities and we have a disaster. As the amount of interest we pay increases the amounts of money we can spend on other programs the nation cares about decreases. This will lead to every budget being cut if not eliminated.
The Big Unknown (152-154)
Everyone has a credit score, even nations like the United States. In recent history the credit rating for many nations started to be lowered by Standard and Poor’s. The U.S. lost its precious triple A rating which means the interest we have to provide to investors who buy U.S. bonds and other securities has to be higher. Though a lower credit rating might be the wake up call that is needed to bring about the necessary fiscal changes needed in our nation.
I.M. Freaking Out (154-156)
The International MOnetary Fund (IMF) released a report that shows how much debt and its maturity rate would be needed to fund our budget deficits, its not good for the United States. According to the report we would need to raise 32.5% of our annual GDP ($15 trillion) to make sure everything is running smooth. This is worse than Greece, Portugal and Spain. The only nation worse than us, Japan with 64%. The difference here is between a 30-year fixed rate and a five year adjustable rate mortgage.
A Lot of Work to Do (156)
The IMF predicts that in order to bring about stability to our nation’s economic troubles, the U.S. would need to make an adjustment equal to 12% of our GDP or $1.7 trillion. The only real way to make these adjustments is through serious structural reforms to programs and agencies.
All Debt is Local (156-159)
The debt and financial problems of the U.S. government are not the only ones our nation faces. Many of the state and local governments are in fiscal trouble as well. Many of the state rely on monetary support from the federal government for their welfare programs and Medicare payments. Governors penciled in amounts into their state budgets they expected to get from the feds only to see those amount drop sharply and leave them with budget shortfalls. And the money that is given to them by the feds is not free, its all funded by the American tax payer (of which there are fewer every day).
Huge Returns, No Risk… Call Now! (159-161)
So the states are in trouble too, but so are local government, where there is an estimated $3 trillion in unfunded liabilities surrounding the pension systems put into place to provide retirement to government workers. This means that there is not enough money in the bank to fund all people who will eventually retire from local and state governments. The reason for this underfunded situation is because the state government predicted an 8% annual return on the investments and money deposited into the pensions. They rarely get an 8% return. The big problem is the american and state tax payer is legally obligated to pay these pensions, much like Social Security. And when these states run out of money to pay the pensions they will more than likely turn to the feds who will borrow more money to bail out the states.
A Chart is Worth a Thousand Books (164-169)
Glenn ends this chapter with a series of charts that outlines some of the major fiscal problems the nation is currently facing. Among them include how federal spending has increased by the median household income has not over the last forty years. Another shows how government transfers to people in benefits (subsidies, paychecks, etc.) is going up over government production (providing services). A great one shows the reductions that are needed in our fiscal system at various intervals. It shows we could make smaller cuts now 8.1% (in 2009) instead of larger cuts later, 15.5% in 2040.
The Real Bottom Line
The United States has a massive debt problem. We have over $17 trillion in our national debt. The states combined owe around $2.5 trillion. State and local pensions add another $3 trillion. The unfunded liabilities of Social Security and Medicare add $7.7 and $38 trillion to our possible debt. For a grand total of $64.2 trillion dollars in debt and unfunded liabilities. That is more than the GDP for the entire world. We have to act now and token cuts to programs, services are not going to cut it.
The next chapter of the book deals with why we have not been hearing about this crime, the cover-up if you will. I hope you will join me for that chapter. Thanks for reading and have a nice day.
Questions? Comments? Concerns? Class dismissed!