EDITORIAL: Wild spending puts US at risk, demand a plan
April 5, 2010
After the recent glut of federal spending, two noteworthy events took place.
Historically, U.S. Treasury Bonds have commanded an AAA credit rating — the mark that represents the safest investments. This rock-solid rating has allowed the U.S. government to sell debt with lower interest rates than would otherwise be possible. On March 15, though, Moody’s Investors Services, one of the credit reporting agencies that evaluate the risk of investing in companies and governments, released a report stating that the governments of the United States and several European countries have moved significantly closer to having their ratings downgraded.
Meanwhile, Bloomberg News reported that Berkshire Hathaway, the company owned by Omaha billionaire Warren Buffet, sold two-year bonds in February that had a lower interest rate than U.S. bonds. In essence, the bond market was acting as if the 79-year-old’s holding company was a better credit risk than bonds with the backing of the U.S. federal government.
It’s a crazy world we live in. And it’s going to get even crazier. According to the Government Accountability Office, the amount of money going out of the Medicare Hospital Insurance program began to exceed the amount of money going in during 2008.
The same will happen to Social Security in 2017. Without massive reform of these entitlements, their share of the government budget pie will continue to balloon. See the graph above for a curve that should make your wallet shrink deeper into your pocket like a frightened weasel diving for cover. By 2080, if current trends aren’t halted dead in their tracks, the national debt will exceed 600 percent of our gross domestic product.
It’s likely, though, that we won’t make it that far. According to the Washington Post, the Moody’s report stated, in part, that “preserving debt affordability at levels consistent with AAA ratings will invariably require fiscal adjustments of a magnitude that, in some cases, will test social cohesion.”
Read that again. “Fiscal adjustments of a magnitude that … will test social cohesion.” That’s finance-whiz-speak for, “OMG, it’s going to be an all-out brawl. Will the elderly continue to get the benefits they’ve been promised? Will young taxpayers rebel at the idea of paying multiple times the current tax rate in order to support the falling system? Find out on pay-per-view!”
At fault are politicians, on both sides of the aisle, who can’t resist the urge to spend. It’s like they just got their first paycheck — albeit, a check with 12 zeros — and it’s burning a hole in their pockets. Simple demographics exacerbate the problem. People live longer, draw more years of benefits and have fewer children to support the system.
We don’t have all the answers. But it’s time to demand them — from President Obama, as well as our senators and representatives. Don’t spend another cent without telling us how you plan to pay for it.