Quite a sad statement - I only point this out because yesterday was the annual report which was promptly ignored. And we will continue to borrow ourselves into more debt as these entitlement programs suck up more and more of the annual budget. Politicians who appear to only care about their own term have a timeline of 4-6 years - any issue in this country that would create unpopular consequences (higher taxes, reduced benefits) will be ignored as long as it can be pushed out past their 4-6 year term. This seems to be our leadership situation. And why both parties are just a disaster; our presidential election system is based on who said what 9 years ago, or who has better stage presence, or who has more charm, or who has the correct religion, or who is "likable" instead of asking people the hard questions and potential solutions - solutions that will not be to the liking of their electorate.
Some articles of note ....
Washington Post: Spring Forecast? It's Always Gloomy
- The rites of spring have returned to the capital. The daffodils are blooming. The Easter eggs are rolling. The perch are running. And members of the Bush Cabinet are warning about entitlement calamity.
- "Rising costs will drive government spending to unprecedented levels, consume nearly all projected federal revenues and threaten America's future prosperity," a distressed Treasury Secretary Hank Paulson announced at a news conference yesterday afternoon.
- Still not alarmed? "This will trigger -- and I want to emphasize again, as Secretary Leavitt has said -- this will trigger a Medicare funding warning," contributed Labor Secretary Elaine Chao.
- The quartet made it a four-alarm fire, yet even the participants acknowledged that their agitation had become a bit ceremonial. One day each spring, administration officials release the latest annual reports on Social Security and Medicare and warn that the programs will go bust without urgent government intervention. The administration officials, along with their counterparts in Congress, then spend the rest of the year achieving nothing to fix the problem. (Now that is a perfect summary!)
- In spring 2007, they announced that the Medicare trust fund would run out in 2019 and Social Security in 2041. Yesterday, they announced that the Medicare trust fund would run out in 2019 and Social Security in 2041.
- It's a bit of an exaggeration to say nothing happens with Medicare. Actually, it gets worse. The projected solvency of Medicare has shrunk by six years during President Bush's tenure. Bush's prescription drug benefit has added another $915 billion in costs to the Medicare program -- although Leavitt cheerfully pointed out yesterday that the hole Bush created is "about $117 billion less than we felt it would be last summer."
- Though Democrats dispute the urgency and magnitude of Social Security's problems, there can be no doubt about Medicare's woes; its payouts are forecast to exceed tax revenue starting this year.
- The Bush administration issued a grim report on Tuesday on the financial outlook for Medicare and Social Security, but said the condition of the programs had not significantly deteriorated since last spring.
- The report may put pressure on the presidential candidates to say what they would do to rein in health costs and to shore up the programs, which serve more than 50 million people. The candidates have largely avoided these questions, but the next president will not be able to escape them.
- The Democratic presidential candidates have set forth proposals to provide health insurance for all Americans, but have said less about how they would finance the costs of Medicare, for people who are 65 and older or disabled. Efforts to squeeze even modest savings from that program typically provoke a frenzy of lobbying on Capitol Hill.
- But the report, prepared by government actuaries and economists, said these projections were unrealistic because they assumed that Medicare payments to doctors would be cut by more than 10 percent in July and by an additional 5 percent in January 2009 and in each of the next seven years, for a cumulative reduction of about 40 percent. (holy smoke, those are some laughable assumptions) In fact, Congress usually intervenes to block such cuts and, in recent years, has approved small increases for doctors, thus increasing the costs of Part B and beneficiaries’ premiums.
- While the U.S. Federal Reserve is rushing to bandage up the housing crisis, the trustees of Medicare and Social Security ponder a much bigger and perennially ignored problem: the looming deficits facing government entitlement programs.
- Without sweeping reform--an unlikely prospect in an election year--the next president will see similar numbers in 2009. But by then Medicare will be only one year away from cannibalizing its trust fund.
- Critics of the system suggest the situation is even more untenable. The trust funds for the entitlement programs consist of special-issue bonds from the U.S. Treasury. And when the Treasury has a financial obligation it’s the taxpayers that foot the bill.
- Today, Medicare, Medicaid and Social Security consume under 10% of the gross domestic product. But if these trend lines don’t change by 2030, the year that a child born today will finish college, then the cost of the entitlements and interest payments on debt would consume the entire federal budget. (think about that... it's only 20 years from now - in most of our lifetimes)
- 80 million people will soon be getting old enough to claim benefits. Either the cost of the entitlement shrinks, or the government--and therefore taxpayer--needs to foot the bill.
We'll check back in 365 days when I type the same message.
3 comments:
TALK BACK: It's Time To Cut The Trade DeficitLast update: 3/26/2008 12:51:46 PMThese are the personal views of Peter Morici, a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission: Americans need to knock down some false gods. Globalization is not an unalloyed good. We don't need 300-horsepower cars. And Wall Street is not a citadel of integrity. The 1990s were the golden age of free trade. The U.S. sealed the North American Free Trade Agreement, launched the World Trade Organization and escorted China into that temple of global commerce. The idea was simple: Americans would import more T-shirts and furniture and sell more industrial machinery and software to a world hungry for technology. Americans would move into higher-productivity export industries and earn higher incomes in the trade-off. In the 2000s, America's CEOs, bankers and management consultants learned how to outsource just about everyone's job but their own. Radiologists who read MRIs, journalists who wrote copy for local papers and computer engineers joined the ranks of workers displaced by imports. The average American worker's income stagnated, and, for many, inflation-adjusted wages fell. U.S. productivity gains were hogged by executives at Wall Street banks, technology companies and multinationals through big bonuses and peculiar, can't-lose stock options. The rest of us sunk into debt to fill our gas tanks, feed our children and, admittedly, buy too many cheap imports at Wal-Mart. Imports soared much more rapidly than exports, the annual trade deficit jumped to more than $700 billion and Americans borrowed more than $6 trillion from foreigners to pay for two decades of trade deficits. This math permitted Americans to consume much more than we produced and spend more than we earned. China is perhaps the biggest renegade in the mugging of the American middle class. The U.S. has slashed tariffs on Chinese products from auto parts to TVs, while China maintains much higher tariffs and notorious regulatory restrictions for U.S. exports in its market. Topping it all, China subsidizes foreign purchases of its currency, the yuan, to the tune of $460 billion a year, making its products cheap on U.S. store shelves. The U.S. annual trade deficit with China is about $250 billion. Chinese growth has pushed up global petroleum prices nearly five fold in six years, and the U.S. oil deficit is now $350 billion and rising. The banks came up with more creative and risky mortgage products that permitted Americans to live beyond their means. We went from 10% down to 5% down to nothing down, with banks lending home buyers closing costs through second trusts. Some loans that required no payback for five years even let folks dig deeper in their pockets on the premise that home prices would always go up. The banks sold these risky loans, bundled as bonds, to foreign investors like the Chinese government and foreign pension funds, as well as to U.S. insurance companies and corporations with cash to park. The bank executives paid themselves like royalty for the privilege of bilking trusting clients. When the worst of the bonds--those backed by risking adjustable rate mortgages-- collapsed, the banks got stuck with billions of unsold bonds. Most recently, Bear Stearns collapsed, and the U.S. Federal Reserve is lending the banks $600 billion against shaky bonds on a 90-day revolving basis. That essentially socializes the banks' losses on bad bonds. You have to love Ben Bernanke's free trade capitalism. If you are an autoworker put out of work by Korean imports, he, as a good economist, tells you to go to school and find other work. If you are a New York banker caught paying yourself too much and run short of foreign investors to fleece, Ben will make you a loan and keep rolling until the bank finds a new game. Now foreign investors are getting nervous about all the money they have loaned Americans and the integrity of U.S. banks. They are fleeing dollar investments for euro-denominated securities, gold, oil and just about anything more tangible than the shaky greenback. Americans are forced to cut back, not just on purchases of cheap Chinese coffee makers, but also on automobiles and other products made in the U.S. Falling demand is casting the U.S. economy into recession, and we won't be able to borrow enough to pull ourselves out. Getting out of this mess is going to require Americans to live within their means - a.k.a. cut the trade deficit - and throw out the rascals on Wall Street. Cutting the trade deficit requires burning less gasoline and balancing commerce with China. Americans must either let the price of gas double to force conservation or accept cars with tougher mileage standards. Fifty miles per gallon by 2020, instead of the 35 required by current law, is achievable, but that means more hybrids and lighter vehicles. The U.S. government should tax dollar-yuan conversions at a rate equal to China's subsidies on yuan purchases until China stops manipulating currency markets. That would reduce imports from China, move a lot of production back home, raise U.S. productivity and workers incomes, and reduce the federal budget deficit. Ben Bernanke has given the banks a lot and received little in return - except a lot of bad loans on the Fed's books. It is high time he condition the Fed's largesse on reforms at the big banks, even if that means lower salaries for the Brahmins on Wall Street. After all, what makes them so special? The author can be reached at pmorici@rhsmith.umd.edu TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at TalkbackAmericas@dowjones.com. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments.
Excellent summary in my view.
We enter a new Gilded Age - I especially love the comment about when an auto worker loses a job its the 'free market' tough luck - when bad things happen to the banks - we are here to rescue you.
But it did a good job connecting the dots. Outsized gains for the few in return for erosion for the masses. There is a reason corporate balance sheets have the highest cash balances ever... and profitability was at its highest rate ever. The system is built for corporations... and they now have a global work force in most cases. The expensive labor (us) won't be utilized in that system. I'll keep an eye out for his name... sounds like he has a good handle on things.
More relevant stuff on this topic ...
2008 Social Security Report Offers Dire WarningLast update: 3/27/2008 12:11:00 PMRESTON, Va., March 27, 2008 /PRNewswire-USNewswire via COMTEX/ -- RetireSafe Calls for Action NOW to Prevent Social Security Benefit Cuts In wake of the annual report issued this week by the Social Security and Medicare Trustees, RetireSafe predicts a shaky financial future for retiring Americans unless someone in our nation's capital takes action before it is too late. "The only shocking thing about the Social Security Trustees report is the glaring lack of congressional action to shore up America's retirement program before it collapses," said Michelle Plasari, President, RetireSafe. "Everyone knows Social Security and Medicare were never designed to withstand the weight of retiring baby boomers in the midst of a shrinking worker pool. Experts have warned year after year that Social Security cannot sustain itself in the face of this looming situation. Now in just 9 short years Social Security will pay out more than it receives in revenue. It's like a levee waiting to break and everyone is ignoring the warnings. This week, the Trustees sent a dire warning to older Americans - be prepared for benefit cuts of up to 20%. What's Congress waiting for to take action?" RetireSafe calls for a champion to take the lead in preventing the collapse of Social Security and Medicare. "In a time where our seniors are struggling to make ends meet, Presidential candidates or members of Congress should step up and do the right thing - guarantee the benefits of today's seniors and explore the options for giving younger workers more choices and control over their retirement future. RetireSafe and its 400,000 supporters nationwide are looking for leaders that will heed the warnings and act NOW," said Plasari. To learn more about RetireSafe's Keys to Social Security reform visit . RetireSafe is a grassroots advocacy organization made up of almost 400,000 senior citizens promoting dynamic solutions to America's retirement security challenges. RetireSafe is dedicated to preserving and enhancing the options, benefits and lives of older Americans. To learn more visit . SOURCE RetireSafe
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