Free Markets, Free People

Mark Steyn is brilliant—and grim

Mark Steyn, writing in Investors Business Daily, isn’t pulling any punches about what the near future holds for us if the Federal government keeps spending like there is no tomorrow. There won’t be.

[B]y 2020 just the interest payments on the debt will be larger than the U.S. military budget. That’s not paying down the debt, but merely staying current on the servicing — like when you get your MasterCard statement and you can’t afford to pay off any of what you borrowed but you can just about cover the monthly interest charge.

Except in this case the interest charge for U.S. taxpayers will be greater than the military budgets of China, Britain, France, Russia, Japan, Germany, Saudi Arabia, India, Italy, South Korea, Brazil, Canada, Australia, Spain, Turkey and Israel combined.

When interest payments consume about 20% of federal revenues, that means a fifth of your taxes are entirely wasted. Pious celebrities often simper that they’d be willing to pay more in taxes for better government services.

But a fifth of what you pay won’t be going to government services at all, unless by "government services" you mean the People’s Liberation Army of China, which will be entirely funded by U.S. taxpayers by about 2015…

And even those numbers presuppose interest rates will remain at their present historic low. Last week, the firm of Macroeconomic Advisors, one of the Obama administration’s favorite economic analysts, predicted that interest rates on 10-year U.S. Treasury notes would be just shy of 9% by 2021. If that number is right, there are two possibilities:

The Chinese will be able to quintuple the size of their armed forces and stick us with the tab. Or we’ll be living in a Mad Max theme park. I’d bet on the latter myself.

And we all know who’ll be running Bartertown.

Look, there’s no way to sugar-coat this. What’s coming isn’t gonna be pretty. Too many politically powerful groups have their fingers stuck too deeply into the DC pie to let it all just slip away without fighting tooth and nail. There are too many people who believe the gravy train of benefits coming out of DC should be endless to kiss that goodbye without a fight.

Look at what has been happening in Greece.  They’ve built up two generations of people who cannot and will not accept that they’re simply out of money.  Despite the fact that system has been thoroughly looted, they are adamant that the looting should continue.

If we don’t cut spending—and I mean real cuts, not cuts to some imaginary baseline that has $9 trillion is spending increases baked in—and some sort of serious tax reform that widens the tax base to raise more revenue, we’re done.

And don’t come back at me with some lame "Our GDP:Debt ratio was 120% at the end of WWII" silliness.  Yes it was. And you know how we fixed it? We cut Federal spending from $92 billion in 1945 to $38 billion in 1949. For 2011, 40% of the federal budget was financed with borrowed money: We’ll spend  $3.818 trillion, of which  $1.645 trillion is borrowed. If we funded only defense, Medicare/Medicaid, and Social Security, and interest on the debt, we’d still have a deficit of $673 billion. Just to balance the budget this year—forget paying off any debt—we’d have to cut an additional ~25% from Health, Defense, and Pensions. Follow the link and download the CSV file, open it up in Excel, and run the numbers yourself. The magic number to balance the budget this year is the revenue of $2.174 trillion.

There’s no big mystery as to why we got a downgrade from S&P. The mystery is why Fitch and Moody’s haven’t downgraded US debt yet.

To begin paying down the debt will require massive cuts in government spending, substantially widening the tax base, and some healthy economic growth—and good luck with that as we add another couple hundred k government workers to the unemployment roles, lay off 1/3 of government contractors to boot, and start asking the bottom 50% of taxpayers to actually, you know, pay taxes, along with everyone else.

If you’re under 50, and reach retirement age with any modicum of personal wealth, you can forget seeing a dime in Social Security or Medicare benefits when you retire. You’ll be means-tested right out of all that.

You think the debt ceiling battle was disruptive? Well, hold on to your hats, folks.

~
Dale Franks
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19 Responses to Mark Steyn is brilliant—and grim

  • It sure looks like S&P is playing for blood.
    We have had Harry Reid saying that he and Nancy Pelosi should just walk away from the super committee.

    One day after lowering the nation’s platinum triple-A credit rating, Standard & Poor’s analysts warned Saturday that the U.S. government could face a second downgrade if the economy continues to struggle and the government fails to make the cuts outlined in the debt ceiling agreement.

    And those interest rates, Rick Santelli brought up the name of W.D.Gann after the close of the market on Thursday.  Apparently, “Gann Theory” predicts that interest rates will start going up by mid month.

    Simply stated, if this measure were truly predictive, it could mean the end of a bull cycle and the beginning of a bear cycle in Treasury prices. This may not mean that once the cycle’s low yield is reached, the market will immediately reverse. Yet, if you were to look back , over time it could show up as an important turning point in the market.

  • You have to sit through an Obama/Times lap dance to get to this gem

    A second possibility is that he is simply not up to the task by virtue of his lack of experience and a character defect that might not have been so debilitating at some other time in history. Those of us who were bewitched by his eloquence on the campaign trail chose to ignore some disquieting aspects of his biography: that he had accomplished very little before he ran for president, having never run a business or a state; that he had a singularly unremarkable career as a law professor, publishing nothing in 12 years at the University of Chicago other than an autobiography; and that, before joining the United States Senate, he had voted “present” (instead of “yea” or “nay”) 130 times, sometimes dodging difficult issues.

    .. of course, it was only conjecture.

    • He’s the first and last black president we’ll have in our lifetimes.  Electing an unqualified guy simply to assauge guilt is not a good idea.I think we have one last crack at this in 2012 – we have to give the GOP full reigns and hope the Tea Party faction forces the issue.  And that’s a rather longshot.  If (when?) that fails, just sit back and watch the catastrophe unfold.The tantrums in Wisconsin will be nothing compared to what the left will throw once they see their statist dreams burn. And they’re going to burn one way or the other – that’s a stone lock.

      • There will be Democrats who will be willing to cut spending and make reform.
        See Jerry Brown and Cuomo types. They will appear once it becomes clear that spending must be cut by the majority of the voters.
         
         

    • And clearly raaaaacist conjecture to boot.

  • There’s no big mystery as to why we got a downgrade from S&P. The mystery is why Fitch and Moody’s haven’t downgraded US debt yet.

    Oh, Dale, not so much.  Can you imagine the heat and pressure from the Beltway and Wall Street?  It could make a diamond, I’d bet…!!!

  • In my brilliant…and ALMOST completely unread…novel, Joe Shrugged, I predicted about two decades ago that there would be “entitlement riots”.
    I really hope they don’t come to realization in America.

  • Dale FranksLook, there’s no way to sugar-coat this. What’s coming isn’t gonna be pretty. Too many politically powerful groups have their fingers stuck too deeply into the DC pie to let it all just slip away without fighting tooth and nail. There are too many people who believe the gravy train of benefits coming out of DC should be endless to kiss that goodbye without a fight.

    It’s not just the corporations, unions, associations, etc. who are doing this; that would make it easier to fix the problem.  The root problem is that there is a significant fraction – perhaps a solid majority – of our people who (A) have no clue just how bad the situation is and hence (B) think that there’s an easy fix.  “We just need to make the rich pay their fair share!” or “We just have to cut foreign aid!” or “We’ll be fine one we end Bush’s illegal wars!” or “Our problem is due to giving too much money away to illegal aliens!”

    MiniTru, of course, does little to inform people of the real facts, which are both simple and bleak.  As you write:

    We’ll spend  $3.818 trillion, of which  $1.645 is borrowed.

    Nobody, not even Uncle Sam, can afford to borrow nearly half of the money he spends for very long*.  But I suspect that too many people have no idea that this is happening, is nearly certain to continue, and will probably get worse.

    The other frightening thing is that the politicians (well, most of them… I hope!) know how bad the situation is and that it is likely irremidiable, so they won’t even try, but rather will use the issue solely to bludgeon the other side.  “It’s his fault!  Vote for me! Even though I helped cause the problem and won’t even try to fix it…”

    We’re soooooo boned.

    • I’m especially fond of the candid statements of magical “thinking” coming from the more out-in-the-open end of the Collective.

      “This is a rich country. We have plenty of money, and if you don’t believe me, ask Haliburton.  The only question is how to spend it.”–Van Jones
      “America isn’t broke; there is plenty of money”–Little Dick Trumka
      “However, she appears to believe that the European crisis is only apparent, being the result of the Man hiding the Stash. Find that stash and things become sustainable again.”–Richard Fernandez on Piven

      • First they came for the millionaires and I said nothing, because they were all greedy, parasitical meanies. Then they came for the…

    • I would also add that there is a significant fraction in congress who think the debt problem can be hid like it has been for the past 60 – 70 years.

      • The ugly truth is that the Bush tax cuts will end at the beginning of 2013 for everybody, not just the “rich.”  And that still won’t be enough.

      • I would also add that there is a significant fraction in congress who think the debt problem can be hid like it has been for the past 60 – 70 years>>>>  Actually, it should read that they think the debt problem should be hidden just until they retire from Congress and it’s no longer their problem, the dear profiles in courage

    • Patterico has had up this great video to explain the “entitlement mentality” .. it’s good for a sad laugh.

  • Which of these is the most important question to ask in the present economic crisis: how can we promote growth? Should we pay off government debt more or less quickly? Is the US in worse trouble than Europe? Answer: none of the above.
    The truly fundamental question that is at the heart of the disaster toward which we are racing is being debated only in America: is it possible for a free market economy to support a democratic socialist society?

    From a REALLY excellent and timely article today.

  • The seemingly unmentioned variable in all of this is that the Chinese economy is a total freaking fraud.  One would think that plays into this in some way.  Particularly since if our consumer economy goes down, the very small portion of their economy that is not a sham goes down too.  But this likely ends in war one way or another, doesn’t it?

    • I’ve been reading how there is a huge number of empty real estate properties in China, something like 1 in 5 are empty.
      If anything, they have been running on Paul Krugman’s extra huge stimulus plan and may crash and burn if the world economy doesn’t pick up soon.