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January 9, 2006

Future Beyond Bleak

-- by Thomas Leavitt

It is hard to figure out which is more alarming...

this: Diabetes and Its Awful Toll Quietly Emerge as a Crisis

One in three children born in the United States five years ago are expected to become diabetic in their lifetimes, according to a projection by the Centers for Disease Control and Prevention. The forecast is even bleaker for Latinos: one in every two. [Emphasis mine, TL]

or this: FEDERAL DEFICIT REALITY: AN UPDATE

When the U.S. Treasury reported the official 2004 federal budget deficit at a record $413 billion last October, the hisses and boos in the financial media were unrelenting. Two months later, the Treasury reported the actual 2004 deficit -- using generally accepted accounting principles (GAAP) -- was really an incredible $11.1 trillion [1], up from $3.7 trillion in 2003, yet nary a word was heard in the financial media, from Wall Street or from any political denizen of that former malarial swamp on the Potomac. [Emphasis mine, TL]

or this: The utter and complete failure of our political class to come to grips with the cumulative long term crises facing our nation.

Now, it is fair to say that Republicans bear a large portion of the blame for the latest and greatest manifestations of these problems - but it is undeniable that Democrats and Republicans alike bear collective responsibility for the overall systemic crisis. This is beyond partisan bickering, and involves a total and systemic failure of will by our governing class. What kind of future are my children going to inherit (or I, myself)? A very very very bleak one, if I look at the situation objectively.

These are just two examples of completely and totally unsustainable social and economic situations. Here's another: Americans saving less than nothing: Spending could outstrip income in 2005, which hasn't happened since the Depression. I could easily point to a half-dozen others, environmental, economic and social, many of which I've raised in previous postings to Seeing The Forest.

Yet, serious discussion of these issues is absent from our political dialogue. Why is this, when, no matter how politically untenable to our current elected leaders, and no matter how discomforting it may be to the public, the pain involved in addressing these issues now would be only a fraction of what we, inevitably, will have to confront later on. Are we so blind and irresponsible as a people, as to leave our children with an inheritance this bleak... or, our let this be our own future, just twenty or thirty years down the line? I simply cannot accept that.

We have to demand more from our elected officials... ask them what they think the answers to these problems are in letters to the editor, in "town hall" meetings, in interviews with the media, in endorsement forums, in personal conversations. Hold them accountable, individually, and collectively. ... and we have to demand more of ourselves, be willing to sacrifice short term gain and benefit, for long term sustainability.

More on diabetes:

Within a generation or so, doctors fear, a huge wave of new cases could overwhelm the public health system and engulf growing numbers of the young, creating a city where hospitals are swamped by the disease's handiwork, schools scramble for resources as they accommodate diabetic children, and the work force abounds with the blind and the halt.
The prospect is frightening, but it has gone largely unnoticed outside public health circles. As epidemics go, diabetes has been a quiet one, provoking little of the fear or the prevention efforts inspired by AIDS or lung cancer

More on the deficit:

With less than one tenth of the actual deficit being reported each year, a cumulative negative net worth for the U.S. government has built up in stealth to a level that now tops $45 trillion, with total obligations of $47.3 trillion (more than four times annual GDP). The problem has moved beyond crisis to an uncontrollable disaster that threatens the existence of the U.S. dollar and global financial stability. [Note: see editorial footnote at bottom of this posting, TL.]

More on personal savings:

... in the 1980s the personal savings rate in the United States averaged 9 percent. Put another way, back then Americans spent 91 cents of every after-tax dollar they earned, which left a 9 cent surplus for savings or investment. During the 1990s, Americans spent about 95 cents per dollar earned and had a nickel left. The nation ended 2004 with an annual savings rate of 1.8 percent. The rate has continued down through 2005 ...
... the Federal Reserve's debt service ratio, which compares consumer debt payments to disposable income, hit records in each of the three quarters of 2005 for which data are available.

This is wrapped around a lot of blather about increasing net worth via stocks, bonds, and home equity, all of which are extremely volatile and subject to rapid and sudden devaluations if demand dries up or economic growth slackens. The fundamental economic truth is that the nation as a whole cannot expect to indefinitely substitute capital gains, especially in the housing market, for real world gains in income and productivity. Capital assets have zero value, when there is zero demand for them. That is a fundamental economic fact. All you have to do to verify that is walk through downtown Detroit.

These is not a case of Chicken Little chanting "the sky is falling", or the boy who cried "wolf!" - these are undeniable, factually verifiable and statistically defensible projections of what the future will bring. These problems make even the war in Iraq, and all the costs associated with it ($2 trillion?) look like chicken feed compared to the real problem ($47 trillion?!?).

We, as a society, collectively resemble Wile E. Coyote - we've gone flying off the cliff (or are about to, being optomistic), but have yet to realize it... the situation is flat out terrifying, if you let the full scope of it hit you. It is almost to the point where storming Congress with pitchforks and torches seems like a reasonable collective response.

Footnote: I always take anyone who portends financial doom, and advocates a return to the gold standard, with a grain of salt. That said, the figures cited, not the solution advocated, are what is of concern here. We, as a nation, can no more ignore our pension and health insurance / care liabilities than can GM and Ford... and, unlike them, we can't shed these liabilities and force someone else (aka the general public) to assume them.

Posted by Thomas Leavitt at January 9, 2006 8:51 AM

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Comments

Re reporting down under: while the financial media used to get stuck into the Labor Government in the early/mid-90's about their huge trade deficit, there is nary a word from them AD 2006 - after all, we now have a 'Liberal' government (i.e. pro-business, pro-lowering taxes for the rich, etc. etc.)

Posted by: Helga Fremlin at January 9, 2006 12:46 PM


That $11.9 trillion deficit number is silly.

Total government spending was less than $4 trillion. How could spending minus taxes be $11.9 trillion?

Simple: this "accrual" analysis treats future spending like current spending. There is no time value of money, no inflation, and no growth in the model.

Posted by: TV at January 9, 2006 2:42 PM

The figure is based on the same GAAP (Generally Accepted Accounting Principles) accounting method that corporate America is required to abide by... the same set of accrued "liabilities" from past and present contracts that old line corporate America is doing its best to shed as rapidly as possible. These numbers are as "real" (or more so) as your or my need to set aside funds to pay for our retirement.

If Paul promises Peter that he'll pay him $100,000 three years in the future, in return for services rendered today, and books a "profit" of $20,000 on a "cash" basis for the year, he's still effectively run in the red for the year... he can hope he'll do well enough over the next few years to pay that off... but he can't do that every year; eventually he has to come up with the cash.

Are you suggesting that the liabilities the government is incurring today, are mythical?

What about my local government, whose lavish pension plan promises have engendered comments to the effect from City Council members that the municipality they oversee faces bankruptcy? Is that unreal?

Posted by: Thomas Leavitt at January 9, 2006 4:12 PM

This is tin-foil hat territory but... we've been camped out there for a long time now...

As I understand one interpretation of the situation it goes like this: That the financial elites whose fortunes are safely banked off shore are deliberately bankrupting this country. They watch America, hell the entire world, crash and burn. Then it will be just them and the now impoverished rest of us. And those who do not escape the financial collapse of world markets will be wage slaves to the ultra rich.

Yeah, real tin-foil hat land that theory. Except it appears to make sense given the number posted here. Wasn't it Cheney who said there was 10 trillion missing?

Anyway.... pretty scary even if it isn't deliberate.

Posted by: Brenda at January 9, 2006 7:02 PM

It was predicted as soon as it became possible to control diabetes with insulin that eventually there would have to be an epidemic. Until then, diabetes was rare because those who got it usually died before having children. Since type 1 diabetes is genetic and inherited, and even type 2 has genetic factors, we've got to deal with this. The more time that passes, the larger the percentage of the population that will inherit the tendency to get diabetes. It's still better than letting people die horribly of the disease.

Posted by: MJ at January 10, 2006 6:43 AM

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