The new record breaking budget deficit of $1.8 trillion could have massive repercussions for the economies of this country and for the entire world. The future deficits are expected to rise. This deficit might be the straw that breaks the dollar’s back.
Image courtesy of The Heritage Foundation
There have been many factors that have been putting pressure on the dollar, going back nearly 100 years when the government started running a deficit. It’s been a free ride for the last century because the dollar was the default currency for the world. America was the most powerful economic superpower, and the only country that was a military threat was the USSR. It was like having an infinite line of credit; we could print as much money as we wanted.
What has changed?
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Great Books, Money, US Economy
debt, deficit, economy, government, hyperinflation, inflation, Medicare, social security
In the olden days (circa 1970), people expected the government and other institutions to take care of them. They depended on the government to educate them through the school system. The depended on Social Security and their company’s pension plan for retirement income. And they depended on Medicare and Medicaid to handle their medical expenses.
How times have changed. Since those good old days, the dollar was taken off the gold standard. That means that the government could print as much money as it wanted. It could pay its own deficit with the money that it printed. This means that there is no limit to the amount of money that the government can spend. And that’s why it is spending money faster and faster. It is spending money that it doesn’t even have.
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Internet, Investing, Money
401k, db, deficit, government, Internet, Investing, medicaid, Medicare, pensions, social security
Many people were horrified by Bernie’s Madoff theft of over $50 billion of investor money. They thought that the SEC and the government would protect them from such a massive and obvious scam. It’s true that he will probably spend the rest of his life in jail. However, that won’t help the people who lost all the money.
What many people don’t know (or choose to ignore) is that the Medicare and Medicaid liabilities are 1,000 times greater than the Madoff scam. These liabilities are currently estimated at $62 trillion. It’s gotten to the point that these sums are so big that we can’t even imagine them.
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Money, US Economy
debt, deficit, government, Madoff, medicaid, Medicare, politicians, ponzi scheme
As I wrote about in a previous post, Obama has taken massive action in the first few days of his administration. That is really outstanding. He has already distinguished himself as being different from most politicians, and is already starting to follow through on his hundreds of campaign promises in a big way.
All that is wonderful. The problem is that America is in financial trouble far deeper than most people imagine. So far, the government is spending about $800 billion to help the economy. Consider this: Social Security has $10 trillion in liabilities. That is over 10 times as much as the recent economic stimulus package. What radical changes is Obama going to make to solve this huge problem?
Besides Social Security, we have an even bigger problem: Medicare. Medicare has liabilities of $62 trillion! So, adding these two liabilities together, we need 100 times as much money as the government is spending already! How is Obama going to solve this unbelievably challenging problem?
Unfortunately, most Americans are not even aware of the problems of Social Security and Medicare. They blissfully assume that the government will take care of them in the future. But I suggest you, that ignorance is not bliss. There will come a day in the near future when these benefits will be significantly reduced or disappear altogether.
Most people don’t want to deal with the fact that our government has put the country hopelessly in debt. We are soon coming to the point where we will not be able to make payments on the national debt, and the entire structure of the American economy will change radically. I just hope that Obama can find some way to solve these daunting problems.
Money, US Economy
financial crisis, Medicare, national debt, Obama, social security
is one of my favorite financial books of all time. It's an allegory about a guy who has a terrible job, and how he overcomes challenges to achieve his dreams.
