Generally, people in America seem to have a “Surely, this can’t happen in America” attitude about what is going on now in Europe — rather than realizing that what is happening there now is essentially a movie of America’s future absent a radical change in its modus operandi. An excellent and recent example is Greece. That country is teetering on the brink of bankruptcy, and will end up there if other European Union nations reach a point of deciding they are no longer willing to make debt concessions to one of their members just to keep that member from going bankrupt. America is increasingly being funded by China, India, et al — and that can continue to mask our financial instability until these debtors decide that the risk of continuing to loan money to a nation that is habitually spending beyond its means is getting so high that more interest [i.e., a higher interest rate] is needed. Once that starts, it will mark the beginning of a financial death spiral for America. Why? Because interest is already consuming a record-high percentage of all non-entitlement spending, and we have clearly demonstrated that we do not have the political will to reduce entitlement spending [see brief summary below for the math*].
In the final analysis, philosophical/idealogical arguments about the best future path for America become moot in this context — i.e., if we don’t get onto a sustainable fiscal path [very soon], nothing else is going to matter because we will have essentially become the pawns of our debtors and no longer able to determine our own destiny.
The bottom line is that the percentage that two components, entitlement programs and interest on our debt, is of our total expenditures is rising so rapidly that if we don’t get that trend under control [very soon], we will either go bankrupt or be forced to realize that the cuts to solve the problem later rather than now will be so draconian that there will be chaos.
* The Math
In 2008, the total expenditure budget of the United States was $3.02 trillion, and “net interest” on our $10.1 trillion debt was $256 billion. Estimated amounts for these numbers at the close of the 2016 fiscal year are $3.95 trillion, $17.4 trillion and $215 billion. On the surface, that doesn’t seem overly alarming, but two additional pieces of information for these two years make it very alarming: total revenue and TRUE interest. Total revenue [which unfortunately INcludes receipts from “Quantitative Easing” (explained in the next paragraph) and therefore masks the fact that our expenditures grew MUCH more than our revenue] in 2008 [before Quantitative Easing] was $2.55 trillion. In 2016, it was $3.34 trillion.
“Net interest” can be very misleading. Technically, it’s the difference between what we receive in interest [i.e., on loans made by us to others] and what we pay in interest [i.e., on money we have borrowed, such as through the issuance of bonds sold in public markets]. However, the so-called Quantitative Easing undertaken by the Federal Reserve since the 2008-2009 Great Recession, in effect, was simply printing money. No other country in the history of the planet has been able to solve its financial problems in this way — and that’s because printing money increases the money supply [which can have good short-term benefits], but always results in disaster in the long term because over time, it makes the money put into the supply worth less and less as time passes [look at Zimbabwe and Venezuela for recent-decades examples]. So relating this back to “net interest”, TRUE interest is much higher than “net interest” because the interest we are paying on long-term bonds we “sold” to ourselves [to the tune of about $3.5 trillion from 2008 to now] to meet short-term cash needs is being paid to ourselves. In effect, we have obtained a long-term “balloon note” from ourselves. Those in our leadership who don’t see this fundamental problem (or worse, if the case, who are hiding it) aren’t being held accountable by us [we are the ones who elected them**] (or are getting away with the deception) because generally, in the short term, people appear to be better off than they are.
** “The people are responsible for the character of their Congress. If that body be ignorant, reckless, and corrupt, it is because the people tolerate ignorance, recklessness, and corruption. If it be intelligent, brave, and pure, it is because the people demand these high qualities to represent them in the national legislature. … If the next centennial does not find us a great nation . . . it will be because those who represent the enterprise, the culture, and the morality of the nation do not aid in controlling the political forces.” President James Garfield