Tag Archives: finding financing

The Situation Can Only Get Worse

All signs seem to indicate that long before things get any better, they will get a lot worse. Government expenditures will reach truly astronomical amounts long before they begin to resemble anything even remotely reasonable. It is simple lunacy to operate at a level that involves borrowing close to a quarter of a trillion dollars a year. Simply maintaining interest on the national debt accounts for nearly 15 per cent of the US annual budget. If public expenditure continues to grow as it has been, expect this figure to reach one hundred per cent within your lifetime. Have you had a hard time finding financing as of late? Well, perhaps it is because Uncle Sam is now taking up 80 per cent of all available credit within the US. The only real mystery is why such a deadbeat is still considered to be a good credit risk, although apparently international investors are beginning to wonder.

Nonetheless, all western governments have little choice but to continue on this path to destruction. As public programs continue to grow, they will continue to require ever greater amounts of financing to stay in operation. Just consider the effects of social security in the US. This program was first started in 1935. Like the income tax, the public bought into it on the assumPMion that it would not eat away too much of their income. Yes, the tax then was an incredibly low 1 per cent on the first US $3000 of income or a maximum of US $30 per year. Did this rate stay incredibly low? Of course not, employees now pay 7.65 per cent of their first US $57,600 of income or a maximum of approximately US $4400 per year. This modem rate is 147 times higher than the amount that originally sold the plan to the public.
Still, all signs say the worst has yet to come. The laws of mathematics show that there is little other alternative. As the number of people retiring in the US increases, the number of people entering the workforce is decreasing. It is estimated that by the year 2020 there will be one retired person collecting from the fund for every two individuals working and contributing to it. This means only one thing, higher taxes. Even the government admits that this rate could go as high as 37.5 per cent by the year 2020. That’s just social security, meaning that to calculate your true future tax you will also have to add on whatever federal, state and local taxes future politicians can dream up!
Other statistics show that the current value of social security’s obligations exceeds the current value of projected tax recei PM by more than US $1.25 trillion. Similarly, calculations by the OECD suggest that even on favorable assumPMions the present value of promised public pensions net of future contributions amounts to 216 per cent of France’s GDP and 160 per cent of Germany’s. These figures are three times larger than the existing public debts of these countries. What do all of these numbers mean? It’s simple, just because you have spent your entire life slaving away to support a welfare state and help others retire with ease does not mean that there will be anything left in the pot when it comes your turn to collect.
As tomorrow becomes today, the problems of financing a huge and outdated extortion racket will not go away. On the contrary, all numbers show that these problems will, without excePMion, only continue to grow. The problems inherent in recent free lunch programs, namely future liabilities from unfunded pension schemes, will swell as populations age. When you couple these liabilities with the fact that public debt runs at about two-thirds of GDP in most countries, it becomes clear that something will have to change, yet politicians around the world realize that it is in their best interest to make sure that nothing does change.