Debt Robs Our Children Of Their Future

[CrackSmokeRepublican]

Debt Robs Our Children Of Their Future
Posted on July 25, 2011 by Paladin

A while back, I had read stories of the real estate housing bubble in Japan that crashed in the mid-1990s. Prices were so high that, for a brief while some families were signing up for two- or three-generation mortgages. These were mortgages with 50 to 100 year terms that were signed by parents and their teenage or adult child.

Home prices have dropped by more than half – in some cases by two thirds – but these families are stuck. Japanese banks can foreclose and still go after the borrower for the money. Filing for bankruptcy is considered very shameful in Japan. Especially stuck is the now-adult child, who may have signed the loan documents while still a minor.

I tell this story because...

If you ask the average American, they will tell you that they would never want to saddle their young children with the financial burden of taking care of them both now and into their old age. They want the best for their children. For them to have a brighter future – not to be crippled with onerous debt placed on them by parents. For them, it would be a shameful deed to bind their children into a lifetime of debt slavery.

And yet that is what the previous generations have done to today's children and to future generations. Debt is a claim on future income, and our country citizens has laid a crippling claim to the productive efforts of future generations. All in order to fund all sorts of past,  present-day, and future enjoyments and priorities. I do not say this lightly, but it is true.

We borrowed trillions and spent it all already. Our nation officially owes so much money – at present almost $15 trillion – that it would take at least eight full years of ALL Federal government revenues spent on nothing else but debt service (both interest and principal) in order to extinguish the national debt. No money for defense, no government services, nothing.

That's assuming there is no more additional taking on of debt of any kind whatsoever. And I'm not even counting the unfunded portion of Social Security, Medicare, and other liabilities, which are even bigger and would more than quadruple the number of years.

We ALREADY spend $400 billion per year in interest payments alone on the National Debt. We owe so much and spend so much that, on top of our borrowings, we borrow to pay that $400 billion in interest just like an irresponsible person would use a credit card to pay interest on another credit card. (See also: "How To Explain The National Debt To Friends And Family".)

And we've been lucky! Yes we are, because right now we only play $400 billion of our estimated $2.1 trillion in annual Federal revenue on interest payments. As the National Debt grows in size over the years, adding at least a trillion or more per year over the next ten years, interest rates likely will rise from the current average 2.5% to the more typical long-term average of 5.5% (investors may want even more, due to the risks). So we may very well see interest payments alone double to $800 billion within 5 years!

The government will soon have to make drastic cuts in spending. It will happen whether we want it to or not. With interest payments that will soon suck up 40% of Federal income, major cuts in government spending and social services, a National Debt that will be impossible to pay off, and entitlement promises that are even more impossible... This is a terrible, terrible burden to place on our children.

It would be as if you or I had signed our little kids up to indentured servitude contracts, to have ripped away from them a large, significant, and substantial sum out of their income each year for their rest of their lives – all in order to pay for our current consumption lifestyle and our eventual retirement.

If you knew of such a person who did that to their children, I bet your reaction towards that person might range from pity to disgust to outright hatred. Wouldn't you, if you knew a neighbor who signed their children's future away like that?

That is how many younger Americans feel about the previous generations' politicians (on both sides) and the lies they sold to an American public that has always known, deep down, what the truth really was... But wanted the easy, money-greased, low-tax way out.

This is the shameful, impossible legacy of debt left to us, a diminished future that we Americans of today and our children are facing. We are fast approaching that point when our nation's debt problems can no longer be pushed into the future.
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The Insane Debt Ceiling Debate
Posted on July 23, 2011 by Paladin

Stupid Decisions
Suppose you had a friend who took a major voluntary 10% pay cut several years ago, AND also at the same time decided to start living it up, putting major purchases (everything from expensive wild game hunting vacations abroad to expensive prescription medicines, etc.) on his credit cards, you'd think he was a stupid idiot, right?

Yes, this is dysfunctional. Yes, this is insanity. What kind of family in America would take both a voluntary 10% pay cut AND start living it up, borrowing for major unnecessary expenses? But as we know, this is EXACTLY what our Federal government did, of course. That's our American family for ya.

Time To Face The Music
But now, hung over after years of wasteful spending, your friend is coming up against his credit card limit. The family knows it has to apply for another credit card. But it also has to do something to address the problem. Now, the prudent thing would be to take TWO sets of actions, right?

    Cut Expenses! Stop spending so much! Prioritize what's needed and what's wanted. There is a huge difference. Most wants are not needs. (This includes expensive expeditions abroad.)
    Increase Income! Put an end to the stupid voluntary 10% pay cut. Go out and get a second job to bring in more income.

Sounds like the smart thing to do! If you were somehow to find yourself in such a position, that's what you would do, right? Does anyone here believe the advice should be to ONLY cut expenses? It would be crazy to suggest ONLY cutting expenses, right?

And yet this is EXACTLY what the House Republicans in Congress are doing! They only want to cut spending. They don't want to raise taxes or even allow the tax cuts enacted back in 2001 and 2003 to expire. Now don't think I'm being partial here. I think the Democrats in Congress want to cut too little and the Republicans in Congress don't want to raise any taxes.

Moral Courage Needed
I'm sorry, but we can't afford to have what we want in this country anymore. We can only afford to have what we need. We need those people in Congress to have some moral courage to come together and make the tough decisions without regard for powerful corporate lobbying interests, while having some empathy for the poor. There are a lot of things this country doesn't need, that we are borrowing money to pay for.

Fat chance, right?

My Prediction On This Debt Ceiling Debate
I believe either of two things will happen: The more likely scenario is that the debt ceiling will be yet raised – as it has been 102 times in the past. The deal will be a compromise that doesn't solve the National Debt problem, likely will create more problems and misery (small increases in the military budget, major decreases in social spending). Like all other debt ceiling increases, it will just kick the can of worms a little further down the road. There will be a nice relief rally in stocks and precious metals will drop somewhat.

The less likely scenario is that our politicians won't meet the deadline. Parts of government shut down and some people won't be paid. World markets will dive while precious metals will soar. But then the politicians in Washington will come to their senses and do the above – i.e. a debt ceiling rise and compromise that doesn't solve the National Debt problem, likely will create more problems, and just kicks the can of worms a little further down the road.
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Six Ways Employers Abuse Workers In This Economy
Posted on July 15, 2011 by Paladin

Here are some ways that employers abuse the current economic situation when it comes to hiring or treating employees:

1. Interviewed Without Intent To Hire
Some companies with frozen headcounts may advertise open positions so they can always have freshly interviewed applicants at the ready. Just in case executive management approves an opening, they have someone to bring in immediately, rather than start a hiring process that may take months (during which time executives may close that headcount before it gets filled). So applicants get their hopes up, spend money on dry cleaning their suit, shell out gas money or even borrow money for a flight to another city... But all for nothing.

2. Unpaid "Internships"
Unscrupulous companies (especially in public relations, media, copy writing, etc.) advertise full-time unpaid internships and get people desperate to subsidize labor (paying their own rent, food, travel expenses, etc.) for the company because they don't want a gap in their résumé or because they want "experience".

By law, unpaid internships are supposed to be educational for the intern, and more importantly, paid employees must not be displaced by the unpaid intern. But a New York Times article quotes a spokesman for Oregon's labor department finding, "We've had cases where unpaid interns really were displacing workers and where they weren't being supervised in an educational capacity."

3. Kept "Hungry" For Work Hours
Some fast food outlets and retail stores offer only part-time shifts, keeping their low-paid workers starving for additional work hours in order to make ends meet. That way, someone is always available and willing to come in to work at a moment's notice if another worker can't make it in.

At the same time, they require workers to always be available by shifting their work schedules around every week, making it difficult for them to have another part-time job to earn money.

They also don't do lay-offs. Rather, they just reduce the hours available to someone until that person only works 4 hours a week, then eventually quits on their own and can't file for unemployment.

4. Discriminated Against For Being Older, Appearing Ill, Or Having Children
Those who appear older, or not as physically healthy, or have children may be rejected for a job, but never told it is because the hirer is concerned about increased health insurance premiums, or an employee with children who cannot put in 60-hour work weeks.

Or, a loyal employee may also be laid off or "fired" once their boss knows an employee has an expensive medical problem (currently, health insurance companies can still charge a small business significantly higher premiums just for having one sick worker) or cannot work additional unpaid hours.

5. Harassment, Violations, And Overwork
In tough economic times, some employers know that they can get away with abuse. So they do it or allow it to happen. Women get sexually harassed, minorities suffer a hostile work environment, employees may have to keep their mouths shut about safety violations or law-breaking.

Men and women may also be coerced into work a lot more unpaid hours: those on salary, but also those who legally should be hourly employees but are paid a salary, and those hourly employees who are forced to work extra hours off the clock.

6. "Firing" Instead Of Laying Off
Of course some employees will lie, cheat, or steal. Or repeatedly fail to come into work on time. They may deserve to be fired.

However, some companies will fire people using trumped-up causes (theft, supposedly lying on a job application 5 years ago, behavioral problems, supposed tardiness or absenteeism, etc.) and/or dispute a former employee's unemployment insurance claims, appealing any judgments – all so that they can avoid increases in their unemployment insurance rates.

 
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Five Reasons The Job Situation is Getting Worse
Posted on July 15, 2011 by Paladin

I believe there are at least five very structural reasons with America's job market that will not be fixed anytime soon. If ever. The structural problems are: technology, outsourcing, credit busts, "insourcing", and labor oversupply/mismatch.

1. Technology
There is nothing wrong with technology by itself. It depends on how the technology is used. We all depend on technology for our everyday lives, and to save our lives.

However, with automation and production technology, more can be done with fewer people. Today there are fewer phone operators, typists, secretaries, and factory workers. Economists used to say that this would free up people for other jobs, but that's only if the other jobs are there and workers can be quickly trained to meet the supposed demand.

2. Outsourcing
Jobs go where the labor is cheaper. With developments in global communications technology and with other countries "up-skilling" their workers, this means not just cheap manufacturing, but also basic data entry, customer service (Philippines, Ireland, etc.), legal research (India, Philippines), accounting (India), engineering and high-end manufacturing (India, China), pharmaceutical R&D (Eastern Europe, Russia), etc.

3. Credit Busts
Easy credit, low interest rates, expectations of rising home prices or of a growing economy.... They all pull money from the future into the present, making demand look higher and times appear prosperous. But debt has to be repaid, so once all the money is spent and people can't borrow anymore, their future is poorer. Demand for goods and services dries up, as people have to pay off money that was lent to them. Businesses and workers that may have depended on a certain level of consumer demand will find that the other side of the hill is a cliff.

4. Insourcing
At the low end, illegal immigrants crowd into the unskilled and low-skilled labor pool. They do have an effect on wages and jobs availability and wages, because businesses get to pick and choose from amongst more workers, which means they can offer less pay and otherwise qualified workers are left out when all positions are filled.

Businesses  also sponsor skilled foreign workers on H1B visas, because they can pay these workers a lot less than similarly qualified Americans (but more than these foreign workers would make in their home country). The workers can't jump to another company, because their visa is tied to the employer sponsoring them.

Lastly, if a company location has to be located in the United States (say for example, the customer base is complaining about the inability of service staff to speak English), you'll be more likely see that location in Oklahoma or Nebraska, not California or New York. The situation is bleak enough even there, that those workers will willingly drive 1 to 2 hours from their homes to that full-time minimum wage job, between doing chores on their farms and homesteads.

5. Labor Oversupply And Mismatch
This is more of a result of all of the above, but in itself, it's also a factor. With fewer jobs available, high school graduates apply for jobs that those without high school degrees or those with prison records used to go for. High school graduates tend to get those jobs because they're more likely to be literate, educated, and deemed reliable, as compared to high school drop-outs, many of whom may be functionally illiterate. College graduate scramble for jobs that don't require a degree (waiter/waitress, flight attendant, etc.) – often because they have woefully inadequate expectations of what their choice of degree will help them earn!

With money stresses (stock market downturn affecting retirement accounts, the need to help adult children or care for elderly parents, dealing with medical bills or large mortgages, inadequate Social Security income), seniors who will try to stay on at their long-term jobs rather than retire. Or they may retire and find part-time seasonal jobs to help with expenses. A company that offers health insurance may preferentially hire them because they already have access to Medicare.

Things Are Not Improving
The above reasons illustrate why it is so important to hold onto whatever job you have, live frugally, save money, be out of debt, and be aware and prepared. These uncertain economic times are not improving, and you have to be able to weather the storms.
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A National Shame: Nearly One Third Of High School Students Drop Out
Posted on July 10, 2011 by Paladin

Studies show that anywhere from a quarter to a third of American high school students will drop out before receiving their diploma. While numbers have improved somewhat in the last several years, the drop-out rate is still unacceptably low.

According to a report from Education Week released last month, using the latest available data from 2007 and 2008, the graduation rate improved to 71.7% in 2007, from 65.6% in 1997. That still leaves three in ten (or 1.2 million) high school students who fail to graduate! Every year!

Minorities Graduate At Lower Rates
The actual numbers show stark differences when broken down by race. The situation is especially bad for minorities. Except for Asians (where the Class of 2008 graduated at a rate of 82.7%), the numbers are starkly lower for Blacks (57%), Hispanics (57.6%), and American Indians (53.9%). Whites have a 78.4% graduation rate. If you want to know why minorities tend to hold low wage jobs or make less money, this is a good place to start looking.

High School Graduates Have Their Advantages
Now we know that a high school diploma is no guarantee that a young adult has a good education. As mentioned before, half of the adult population in Detroit are functionally illiterate and yet half of Detroit's illiterate adults have a high school diploma or GED! Rates of illiteracy amongst high school graduates may not be bad in other parts of the country – but in many places, the rates are just as bad.

Yet overall, graduating from high school is a major boost to a young person's chances in life. Compared to a high school drop-out, a high school graduate has several advantages. He or she tends to:

    Gain and keep steady jobs
    Earn several thousand dollars more per year
    Have more stable marriages
    Not be as depend on social welfare and other government assistance
    Pay taxes rather than use up taxes paid by others
    Not be incarcerated or on parole

All of the above are positive factors for the high school graduate. It stems from the fact that, if a business is going to hire someone, they will hire the high school graduate over the drop-out. Just putting in the effort in high school places a young man or woman above roughly 30% of the competition. Doing well in high school also opens up the door to college.

Every Year: 1.2 Million Drop-Outs
Well, what about the three in ten high school students (or roughly 1.2 million) who fail to graduate each year? They are at a huge disadvantage. While some high school drop-outs can find good jobs and become successful, overall most will not. Their failures in life place an undue burden on society.

It starts with the average $10,000 spent every year by school districts on delivering education to a student – everything from classroom facilities and teachers, to administrators and support staff. Countless hours of instruction spent in the classroom. If all that effort produces an illiterate adult, then the money – easily over $100,000 per student over time – was pretty much wasted.

Additionally, compared to high school graduates, drop-outs tend to work at unstable jobs that don't pay a living wage, tend to have unstable families, are dependent at a higher rate on social welfare and other forms of government assistance, and are more likely to be in jail or on parole. This is a vicious cycle that can perpetuate for generations.

Our Unskilled Workers Can't Compete
Politicians like to talk about how the American worker is globally competitive, but it makes you wonder about their outright lies. When almost a third of Americans don't even graduate high school – and even some of the ones who do graduate are illiterate – how would that make a corporation want to pay them a minimum wage that is ten times what a similarly unskilled worker in another country makes?

High school drop-outs as a whole place enormous costs on society. Even in good times, they have few resources to depend upon and live on the margins of society. But in these times of economic uncertainty, with jobs being shipped overseas, with massive debt burdens being faced by local, state, and federal governments... Our society will be increasingly less and less able to help them just as their demands on social welfare and government assistance reach record highs. Their quality of life will only continue to decline.

 

 
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Why Do You Buy Insurance?
Posted on June 28, 2011 by Paladin

Insurance Against Uncertainty
How much do you pay for auto insurance? How much do you pay for renter's or homeowner's insurance? How about life insurance?

In my family, we pay well over two thousand dollars per year for auto insurance, home insurance, and life insurance.

Have we had to use the auto insurance,  home insurance, or life insurance in the last few years? Thankfully, no. But having some insurance does provide a measure of peace of mind against uncertainty. I bet that's why most of you have insurance as well. Right?

Everyone agrees you should have emergency supplies on hand in case of earthquake, flood, hurricane, blizzard, nor'easter, tsunami, or other natural disasters. Events over the past several years in various countries around the world (including our own) should tell you that. Yet most people aren't prepared. I know I wasn't. My house went through four power outages in the past year, and it was only after the second one that I finally got off my butt to prepare. So yes, you are not alone in not being prepared.

You Pay For Insurance Already
The thing is, you pay far more money for insurance against things with with a lesser chance of happening. Most of you would think someone who driving around without insurance is crazy! And you'd think not having health insurance is definitely dangerous to your health.

So am I "crazy" for pointing out that I think America will never be able to repay its debts, for pointing out that the value of our hard-earned money will decline over time for sure as it has, and may possibly decline drastically sometime between now and the end of this decade? Maybe you should get yourself some insurance by preparing!

What Are You Going To Do About It?
My question to you is: What kind of insurance do you have against economic uncertainty? Uncertainties like:

    Job Loss – Such as one of the 7 million net jobs lost in this country since 2007. We have 20 million more people living in America than 10 years ago, and yet there are 2 million fewer full time jobs today than in 2001. I bet a lot of families that experienced that sure wish they had saved more money and had more things on hand.
    Stagflation – Strong increases in the cost of living erode your stagnant or declining earnings and savings. You just can't keep up. We all know real inflation has been rising faster than official inflation despite wages failing to keep up. Just about everyone reading this right now has either lived through the stagflation of the 1970s or their parents lived through it.
    Hyperinflation – It has already affected numerous countries going back over the past 50 years – recent examples include Argentina in 2001, Israel in the 1980s, Mexico into the early '90s. Just back in May of 2011, the country of Belarus devalued it's currency due to debt problems, sending people into panic. They lined up at foreign exchanges trying to buy dollars and euros. They bought up cars and refrigerators and freezers (for both food storage and for resale value), and food (while their money still bought something).

So tell me. Am I really crazy? Do I have some good points? If so, what are you going to do about it? Do you still need convincing?
in some other country across the world
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Small Business Outsourcing With Technology
Posted on June 28, 2011 by Paladin

A Small Business Anecdote
During a talk with a customer at work the other day, they revealed an interesting situation that led me to think about how today's powerful, yet inexpensive global computer and communications technologies can enable even small businesses to outsource even ordinary white collar jobs.

The company we were discussing had a computer network typical of a lot of small- to medium-sized businesses: a main server and a few workstations. They also had a Virtual Private Network (VPN) for secure communication and a Terminal Server for hosting client/workstation programs.

This is a very simple setup that easily allows off-site workers to telecommute, with few interruptions or slowness issues. The workers can do all the basic data entry work required of a small business: accounts payables and receivables, order fulfillment, shipping, tracking, etc.

Well, this is just a small company in an East Coast state that makes things and ships things from a factory in China. But a large part of their accounting and order fulfillment is also done from China.

So somewhere in America, yet another small business owner has realized that, they could hire a data entry worker in the U.S. with a high school diploma for, let's say $1,500 per month. That worker could be in the same office, in the same town, in the same state, or even in another part of the country – but at least they'd be living in the United States, earning wages and and spending it the American economy.

But instead the small business owner chose to hire someone in some other country across the world, let's say a college graduate who maybe took some English classes, and pay them somewhere under $400 or $500 per month. And you can bet that worker probably would find it normal to work 10 to 12 hours per day, 6 days per week. There are companies in India and China, for example, that facilitate this kind of back office outsourcing.

So the question is... What's to keep any small business owner in the U.S. from outsourcing some or all of their white collar workers, including the accounting and data entry folks? What, you think it was just the factory jobs that were leaving America?
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It's Just Business: Minimizing Costs
Posted on June 27, 2011 by Paladin

It's What Business Does
There used to be something called the Industrial North. It was an wide swath stretching from Albany, New York down through Pennsylvania to Ohio and Illinois, filled with town after town of factories.

It started with the Industrial Revolution in the 18th century with factories taking advantage of available cheap labor – first rural youngsters in winter, later immigrants who arrived via Ellis Island – and mechanized energy (water power, then coal and steam, later oil and electricity) to drive first textile factories and later other manufacturing concerns working with iron and steel and numerous other products.

Eventually, by the early 20th century, the Industrial North reached it's apex with automobile manufacturing providing solidly middle class wages for its workers.

Now It's The Rust Belt
Today it's called the Rust Belt. There is still some manufacturing going on, but a pale shadow of what went on before. Some towns have managed to reinvent themselves, but others have seen decades of hard times and massive losses of population.

Just in the past decade alone, Detroit, Michigan has lost 25% of its population, down to 713,000. But back in the 1950s, there were over 2 million residents.  Where did all the manufacturing jobs go?

Moving On, Seeking Ever Lower Costs
The companies moved on. These trends are general, and span decades, but for our purposes, you can pretty much simplify it as follows:

    It the 1960s, American manufacturing companies started dismantling the factory equipment and shipped it – along with the accompanying jobs – from the Industrial North to the South. Places like Georgia, Alabama, the Carolinas, Mississippi.
    In the 1970s and 1980s, they dismantled the factory equipment and shipped them across the border to the maquiladoras in Mexico. Countries like Japan and the other "Asian Tigers" also sought to compete with their own factories.
    In the 1990s and 2000s, manufacturing continued on around the world: to Guatemala, El Salvador, Honduras, UAE, Philippines, etc. But mainly to China. Just check the labels on your clothes.
    Today, factories in the more expensive developed areas of China are looking to move inland and to Vietnam.
    Tomorrow, don't be surprised to see factories in Africa.

Why? Because of labor costs, land costs, environmental protection laws, and and worker safety regulations. In many of those countries, rivers are polluted, living in their cities is like smoking a pack or two of cigarettes per day, and workers toil 12 to 16-hour days, 6 to 7 days per week for less per day than a worker here in the U.S. earns in an hour.

Like the scorpion who stings the frog while being carried across the river, it's just the nature of capitalism. You don't believe me? Don't businesses always seeks to minimize cost and maximize profits in a competitive environment?

It's Not Personal, It Is Very Personal
It's not personal; it's just business. Except of course for many millions of people, this is very, very personal indeed.

Something like 40,000 factories have left this country over the last few decades. Unfortunately, they are not coming back.
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Debt To GDP Is Dumb
Posted on June 25, 2011 by Paladin

The National Debt To GDP Ratio
You know how economists, politicians, and pundits argue about how our Debt to GDP ratio isn't that high compared to other countries in trouble like Greece? They often try to make the case that one country is better off – or in less dire circumstances – than another because it has a lower Debt to GDP ratio, and therefore has a better chance of paying back it's debt.

Well, that's a dumb argument! If you hear such an argument, allow your eyes to glaze over, because they've missed the point.

A Dumb Argument
The National Debt to GDP argument is dumb because a nation's debt to GDP is not a measure of a government's ability to pay back debt! The Gross Domestic Product (GDP) is merely the market value of all final goods and services produced within a country in a given period. National debt is money that is legally owed by contract – often in the form of sovereign bonds, like U.S. T-bills or British gilt.

Many of the goods and services measured in GDP aren't taxed at all. And of those goods and services that are taxed, not much of it can be taxed. Besides, every country has a different way of taxing what is produced – usually by taxing what is earned – so what that means is two countries that have the same Debt to GDP Ratio, don't face the same challenges nor do they collect the same amount in taxes.

Debt To Income Also Dumb
Based on the above, you would think that a better way to think about a country's ability to pay it's debts would be something like national debt to government income ratio.

But even that won't work. Just as two workers who make the same amount of money may each support a different number of kids to support and choose to live a different lifestyle, every nation has expenses they have to pay. They have to make those expenses before they can consider using any possible surplus income to pay off their debt.

So to really measure a government's ability to pay back its debt, you have to think about what it can realistically set aside from income after other expenses to pay off debt and the interest that comes with debt. That's a surplus government income to debt ratio.

You Can't Divide By Zero
So our current Debt to GDP ratio is close to 100% ($14.4 trillion National Debt / $14.7 trillion GDP). But our Debt to Government Income ratio is something well north of 600% ($14.4 trillion National Debt / $2.1 trillion Government Income). And our Debt to Surplus Government Income ratio is... well, we have no surplus government income. So there is no such ratio for us because dividing by zero is mathematically impossible.

Massive Problem
Do you see a problem with that?

Last year, the U.S. government earned $2.1 trillion in total revenue (including Social Security and Medicare/Medicaid), but it spent about $1.4 trillion over and above what was earned by borrowing. In the 2010 budget request:

    $695 billion on Social Security (mandatory)
    $743 billion on Medicare and Medicaid (mandatory)
    $400 billion on interest on the National Debt (mandatory)
    $571 billion in other mandatory programs

If you've been counting, that's $2.4 trillion in so far mandatory programs alone! More than the income generated. By the way, mandatory programs don't even include what we spend on Defense, Homeland Security, veterans, criminal justice, etc. Just military spending alone is $664 billion (including over $171 billion for war in Iraq and Afghanistan).

Hard Times Are Coming
How much longer do you think investors will want to lend to a government that spends much, much more than it makes? How much longer do you think our Federal government can continue to spend so much money on everything? Major cuts in government spending are coming. Federal taxes will also be increasing. Hard times are coming whether we like it or not. Prepare yourself.

 
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The Big Social Security Lie
Posted on June 19, 2011 by Paladin

The Big Lie Of Social Security
There is a big lie about Social Security benefits that a lot of people believe in. It is a huge lie hidden in plain sight. And yet because this lie comforts millions of Americans with little else to look forward to in terms of income and support in their old age, it remains widely believed. Unfortunately, there will be a lot of pain and sorrow when people find out that this lie cannot be depended upon.

The big lie is that there is enough money in the Social Security "trust fund" of $2.6 trillion dollars to – along with worker contributions – pay out full benefits as promised to retired seniors until the year 2036. After that, with the surplus exhausted, Social Security benefits will be reduced to 75%. The reduced benefits will be strictly based on money withheld from current workers. This is according to a report issued earlier this year by the Social Security Trustees.

The Social Security Surplus Was Spent
Sadly, this assumption just isn't true. The problem is that the Social Security "trust fund" money has already been spent by our politicians ever since the program began in 1935. Every year for decades upon decades, all the extra money collected was "invested" in special U.S. Treasury bonds.

Therefore, unlike with private retirement accounts or some government employee pension plans that invest in stocks or real estate or gold or other income-generating properties... All the "surplus" Social Security payroll taxes that workers contributed in past decades were used to pay out benefits to then-existing retired seniors. Any leftover money was immediately spent by a Federal government that borrows more every year to feed it's spending habit.

It's as if you gave a guy a good chunk of your earnings all the working years of your life and he spent it immediately on toys and fast food. But hey, he promised that he would start paying you back later when you retired! The problem is, the guy is in a lot of financial trouble already, and already living well beyond his means, borrowing for all his expenses. How much can you trust him to pay you back?

It Has Started Already
Last year, 2010, the Federal government started collecting less Social Security money than it paid out in benefits. Now the Federal government has to make up the difference with money from other taxes, or by borrowing more money. In effect, Uncle Sam not only borrowed all the "surplus" Social Security withholding all these past years and promised to pay back with interest, now Uncle Sam has to borrow money (with interest) to start paying the Social Security "trust fund" back.

It Is Getting Worse
Just to give you an example of how the Social Security taxes have increased as the number of workers per retiree has decreased, from various sources on-line, including the Social Security Administration:

    In 1935, the withholding rate for the Social Security program was just 2% (employer and employee) for the first $3,000 earned.
    In 1940, Ida May Fuller, was the first person to receive a monthly Social Security check. She contributed a total of $24.75. Her first check was for $22.54. Until her death in in 1975, she received a total of $22,888.92 in Social Security benefits.
    In 1945, there were 46 million covered workers contributing money for the retirement of just over 1 million retirees: a 45:1 ratio of workers to retirees.
    In 2010, there were over 156 million covered workers contributing to the retirement of over 53 million retirees: a less than 3:1 ratio. The withholding rate was 12.4% up to the first $106,800.
    In 2011, America's first Baby Boomers hit age 65. The ratio is getting squeezed.
    The economy is not getting better. Unemployment remains high and wages have stagnated. This affects Social Security contributions paid by today's workers to today's retirees.

The Problem Can't Be Fixed
There have been some suggestions raised. Some believe the system can be fixed by raising the full retirement age. But remember, it is already raised to 67 for people born after 1960. If life expectancy is still increasing, and Americans are still having fewer children, then the ratio of workers to retirees will continue to decrease.

Others want to raise the Social Security payroll taxes for everyone. Or at least raise it on income above $106,800 – but not give out Social Security benefits based that increased tax received, in order to benefit the poor. Yet as we have seen in today's political environment, it is easier to lower the Social Security tax, as was done with a temporary 2% decrease for 2011 (without change in promised benefits) than it is to increase the tax.

Well, assuming one or both suggestions manage to pass the political hurdles put up by people who don't want tax increases in these tough economic times marked by high unemployment and the outsourcing of jobs... Any "reforms" made still would not change the fact that the Social Security "trust fund" or "lock box" is just a promise by an increasingly indebted government to pay back trillions of dollars it already spent.

Benefits Reduced By Inflation
Already, we know that the Cost of Living Adjustments to Social Security aren't keeping up with inflation. They've never kept up with rising costs, especially not health care. In fact, despite record high food prices in the past couple of years, there have been zero in Cost of Living Adjustments for the year 2010, and none for 2011. This is part of how the government is reducing what it has to pay out.

Benefits Now Depend On Ability To Borrow
As we know, our Federal government borrows money to pay expenses. Even though it earned $2.1 trillion in revenues (including Social Security taxes) in 2010, it spent $3.5 trillion, meaning it had to borrow $1.4 trillion dollars. Every year, the U.S. Treasury also has to roll over previous debt, about 1/6th of the existing national debt of $15 trillion.

Therefore, last year, the United States government paid roughly $400 billion in interest on the national debt alone. Just to give you an idea, it's like a guy making $21,000 of income per year, borrowing $14,000, because he has to spend $35,000 on expenses. And of those expenses, $4,000 is just interest on credit cards. How much longer do you think such a person can borrow when he only makes 60% of what he spends, and his interest payments eat up almost 20% of what he makes?

This situation isn't going to last. If it were to last, then even by 2020, it is possible that interest payments on the national debt will rise to be over a third of total Federal revenue. Some of those interest payments would be going to retirees in the form of Social Security benefits. But it is unlikely that foreign governments or individual investors would be willing to lend to any government that was spending over a third of income on interest payments alone, and trying to borrow more. Already, the Federal Reserve has had to print money out of thin air to buy U.S. Treasuries, and the value of the dollar has suffered as a result.

Watch Out For The Politicians!
As the situation worsens, you will hear more and more politicians talking about "fixing the system". What they won't be so honest about, is telling you that all the surplus was spent and their "fix" is about trying to meet the benefits without making the government borrow more and more money as it has had to do, starting last year. After all, if there were really enough money in the Social Security "trust fund" to last til 2036, why would there be such an urgent need to "fix" anything now?

Conclusion
The truth is, Social Security benefits cannot be counted upon to deliver its promise because the money was all spent and now benefits depend on the government's ability to borrow. Currently retired seniors will have to rely on it less and less because benefits are not keeping up with real inflation. It is very possible that the U.S. government will have to make drastic changes to all benefits – not just for workers 10 years or more from retirement. And that's even if the government doesn't default on it's obligations through hyperinflation or a debt crisis.
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SR 19 - U.S. Debt Limit

[youtube:3oc2hsjt]http://www.youtube.com/watch?v=_ruYfR-Ht1o[/youtube]3oc2hsjt]


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