Third World America - Arianna Huffington [12]
By 2020, interest alone on the total U.S. debt will reach $900 billion per year.66
That same year, five segments of government spending—Medicare, Medicaid, Social Security, net interest, and defense spending—will account for an estimated 77 percent of all government expenditures.67 All other federal spending will have to come out of the remaining 23 percent.
A recent report by the Bank for International Settlements (BIS) shows that this is a worldwide phenomenon.68 Financial adviser John Mauldin distills the report’s bottom line: “Everyone and their brother intuitively knows that the current government fiscal deficits in the developed world are unsustainable.”
The numbers in the BIS study make this clear. For instance, in Greece, the problem child of the moment that everyone is looking at with horror, government debt could reach 130 percent of gross domestic product in 2011.69 But Greece is far from alone. In the United Kingdom, it is expected to hit 94 percent, jumping more than 10 percentage points in one year. And in the United States, we could approach nearly 100 percent. As a Greek American, I’m enthusiastic about all the shared traits of my two countries, but I’d prefer not to add crippling debt to the list.
“While fiscal problems need to be tackled soon,” says the BIS report, “how to do that without seriously jeopardizing the incipient economic recovery is the current key challenge for fiscal authorities.”70
Exactly. And those fiscal authorities need to remember that there is more to tackling the deficit crisis than just cutting spending. We need to think bigger—we need to reorient our economy so that it’s once more an engine for production and productivity, not a vehicle for gambling and speculation. As Mauldin says of the old—and still dominant—order on Wall Street: “Let’s be very clear.71 This was purely gambling. No money was invested in mortgages or any productive enterprise. This was one group betting against another, and a lot of these deals were done all over New York and London.”
Mauldin goes on to question why large institutional investors were even gambling on such things as synthetic collateralized debt obligations in the first place: “This is an investment that had no productive capital at work and no remotely socially redeeming value.72 It did not go to fund mortgages or buy capital equipment or build malls or office buildings.”
Commenting on our looming debt crisis, Princeton economist Alan Blinder noted that “in 1980 [policymakers] knew about the year 2010 but that was really far away.”73 Well, it’s not anymore, and given that much of our deficit problem is about huge numbers of workers born decades ago now hitting retirement age, Blinder quipped, “The long run is now the short run and they’re combining.”
The needs of the past and the demands of the present exert a powerful pull on our attention, while the future doesn’t have many advocates—it’s always something we can get to later. There once was a time when we could get away with pushing our problems down the road, secure that our reserves would always bail us out. There was a strong safety net to catch those who fell through the cracks. Well, those reserves are gone now and the safety net is frayed and full of holes.
PERVERTED PRIORITIES
Another warning sign that we are on the way to becoming a Third World nation is the trillions of dollars we continue to spend fighting unnecessary wars and building ever more powerful weaponry while our people here at home do without.
You want Third World thinking? How about North Korea joining the nuclear club while its people starve? Since the fall of the Roman Empire, one of the hallmarks of nations in decline has been increased military spending at the expense of other essential priorities. Think of the Soviets trying to match