America's Debt Debacle

An interesting article from www.ucg.org  about America's debt problems. This follows this post analyzing personal spending.  For a free magazine subscription or to get this book for free click HERE! or call 1-888-886-8632.

America's Debt Debacle





article by Mike Kelley





The recent debate over raising the U.S. debt limit showed a national leadership bitterly divided over the country's priorities and how to address its debt explosion. What are the larger implications of this debacle?







Source: Photos.comMany have seen the growing gridlock in the U.S. Congress between the conservative Republicans and liberal Democrats.



That gridlock played out in a deplorable way in late July during the debate to raise the U.S. federal debt ceiling from its present $14.3 trillion to $14.6 trillion or more. The historic tradition of compromise in Congress evaporated as conservatives and liberals refused to budge from their firm positions on efforts to trim billions in federal spending over the next decade.



Each side dug in its heels as the clock neared midnight on August 2, when the Federal government would supposedly shut down if a debt ceiling compromise was not reached.



With less than a day to go before the threatened shutdown, Congress managed to agree on a deal that would raise the debt ceiling by $1 trillion immediately and an additional $1.7 trillion in four months. The increase in the debt ceiling would be offset by budget cuts over the next 10 years, a condition demanded by Congressional Republicans, while leaving the larger picture of significant budget cuts to a Congressional "super committee" of six Democrats and six Republicans.



They have until late November to develop a plan acceptable to Congress, with the alternative being automatic cuts of $1.7 trillion over the next decade. Of that amount, roughly half would come from U.S. defense spending.



Ground rules for the super committee are few—everything is on the table, including cuts to entitlement programs such as Social Security, Medicare and Medicaid. On the revenue side, the super committee could eliminate certain tax breaks to corporations and wealthy individuals, a matter Republicans refused to consider during the debt limit debate.



So just what does this mean to the United States?



What really got cut?

After all the hype and drama, it was soon apparent that this was not a big deal. Actual cuts to the 2012 Federal budget amounted to only $21-25 billion out of a budget of $3.7 trillion—a paltry 2⁄3 of 1 percent.



With the super committee idea approved, Congress was able to kick the tough choices down the road. It neither solved the debt crisis, which has ballooned to become a threat to the very viability of the U.S. government, nor helped the creation of jobs desperately needed in an American economy mired in three years of high unemployment.



However, avoiding major, immediate budget cuts probably saved a number of jobs for the time being. And some economists argued that an already feeble economic recovery could be threatened by large cuts to federal spending. The first half of 2011 marked the worst six-month economic performance since the Great Recession officially ended in June 2009.



Around the world, political and economic watchers labeled the deal "America's budget debacle." Congress demonstrated to the world a broken system that could not solve the reality of the debt crisis. To quote the famous movie line, they could not handle the truth.



But the largest of the international credit rating agencies, Standard & Poor's, did understand the truth that the United States will not address the harsh reality of its ballooning national debt. S&P promptly downgraded its rating on U.S. treasury securities from AAA to AA, the first bond rating downgrade in U.S. history. The news reverberated through the world's financial institutions, and the U.S. stock market plunged.



But, as some have pointed out, America has done this to itself!



Insignificant as the true budget cuts were, it must be pointed out that the deal was done, clearing the way for a rise in the U.S. debt ceiling from its current $14.3 trillion limit. Default was averted for the moment, which likely would have had catastrophic effects on U.S. borrowing. Future Treasury securities buyers would demand higher interest rates

to compensate for the perception that America, now the world's largest debtor, was no longer the world's safest debtor.



Stark realities no one wants to admit

So we come back to the question of what the deal means for the country.



Remember that figure noted above—only $21-25 billion cut from a $3.7 trillion budget. The compromise was only a speed bump on the road of runaway debt. The 2010 budget deficit of $1.29 trillion was the largest in U.S. history to that point, but the deficit has grown to an estimated $1.7 trillion for fiscal 2011.



Since August 2, there has been no slowdown in government borrowing. With the restraints off again, the debt quickly jumped to $14.7 trillion as of Sept. 9. CNN pointed out that the debt is forecast to burgeon to more than $23 trillion by fiscal 2021, and keep rising thereafter.



Interest on that debt will also grow. The United States was on the hook for more than $383 billion in interest on the debt in fiscal 2009, which grew to more than $413 billion in fiscal 2010, and is projected to be $434 billion for fiscal 2011.



At the current rate of increase, and with somewhat higher interest rates as a result of the credit rating downgrade, that annual interest could easily amount to more than $700 billion by 2019. Within a few years, then, the interest on the debt alone could equal or surpass the current U.S. defense budget of about $665 billion.



Burgeoning debt to force crippling choices

All this has major implications for America's future. It means saddling future generations of Americans with ongoing debt payments that have no end in sight. By the end of this decade the vast majority of federal tax revenue is projected to be eaten up by interest on the debt and payouts to Medicare, Medicaid and Social Security. Little would be left for vital national defense and hundreds of other areas of the federal government.



The debt burden also reduces the ability of the nation to make future investments in infrastructure, energy and other crucial physical needs. America achieved the prosperity of the post–World War II era in part because it invested in interstate highways, modern airports and a growing electrical grid. But this infrastructure is crumbling.



For more than a decade, the American Society of Civil Engineers has sounded the alarm on our deteriorating infrastructure. By its estimates, $2.2 trillion is needed to fix America's infrastructure. But any funds to address these urgent needs would have to be borrowed, only worsening the debt problem.



Also curtailed is the nation's ability to respond to the rash of natural disasters that have struck the United States this year. Like a plague, disasters such as Hurricane Irene and a destructive wave of tornados in April and May swept across the land, taking hundreds of lives and causing hundreds of billions of dollars in damages. September saw wildfires raging throughout Texas, parched by the worst drought in nearly a century. But the Federal Emergency Management Agency (FEMA) is nearly broke, its cash reserves less than $800 million as of early September 2011.



A deeply troubled future outlook

A growing worldwide fear of American default has killed the confidence of millions of investors. The value of stock portfolios has plummeted, with new two-year lows in both the Dow Jones and S&P 500 stock averages.



Just when the economy desperately needs the natural stimulus of consumer spending, millions of consumers are closing their wallets, too fearful to spend and apprehensive about the future. The phrase "double-dip recession" has become all too frequently used of late.



Three years after the autumn 2008 mortgage meltdown, the housing market continues to limp along as builders refuse to start new homes in markets still flooded with foreclosures. Banks hold billions in cash but are leery of making new mortgage loans. With new home construction at depressed levels, the economic ripple effect has also reduced demand for new furniture and other household items.



Seniors of retirement age and baby boomers looking to retire soon are worried over the growing chorus of influential voices that has zeroed in on entitlement reform as part of the answer to America's burgeoning debt.



Social Security, enacted in the 1930s, is widely seen as a retirement plan by millions who have no other source of income once they stop working. It certainly can be argued that people who have worked all their lives and paid into the Social Security system should get the benefits they have paid for. But the consensus is growing that major adjustments to these programs are inevitable if the federal government is to take a serious stand on reducing the runaway debt.



In short, the debt deal averted disaster for the moment, but nothing more. Mohamed El-Erian, who heads the gigantic bond fund Pimco, gave the deal a grade between an incomplete and failure. "Other than eliminating default risk emanating from a self-manufactured crisis, there is nothing good about America's debt ceiling debacle," he wrote (quoted by Fareed Zakaria, "The Debt Deal's Failure," Time, Aug. 4, 2011).



No good choices—only bad and worse

Economists are noted for their disagreements over economic policy, but nearly all agree that the nation now faces a simple dilemma. Cut taxes, and many government employees and those who rely on government contracts could be out of work. Raise spending in another round of Keynesian-type economic stimulus, and the national debt balloons even more. But major cuts in federal outlays would increase hardship for the millions who rely on government aid programs, possibly exacerbate the unemployment problem and potentially drive the economy back into recession. The choices are painful.



But perhaps more troubling than these stark choices is the diminishing of America in the eyes of the world.



Fareed Zakaria, originally from India, served as the managing editor of Foreign Affairs and editor of Newsweek International before becoming editor-at-large for Time magazine and hosting a CNN program covering domestic and international affairs. In the column cited above, he pointed out the damage America suffered abroad in the recent circus that masqueraded as public policy:



"The world once looked at America with awe as we built the interstate highway system, created the best public education in the world, put a man on the moon and invested in the frontiers of knowledge. That is not how the world sees America today.



"People watched what happened over the past month and could not comprehend it. We have taken something that the world never doubted—the credibility of the U.S.—and put it into question. From now on, every time the debt ceiling has to be debated, the world will wonder, Will America honor its commitments? Will it keep its word? Will the system break down? We have taken our most precious resource, the trust of the world, and gambled with it."



"Is something fundamentally wrong with America?"

Across America and around the world, more and more voices echo Zakaria. In The Global Post, an international news blog, writer Phillip Balboni poses the question, "Is something fundamentally wrong with America?"



He goes on to say: "America has a deep political malaise. Seldom before in the nation's history have the two main parties been so bitterly divided and so unable to find common ground in the national interest. Average Americans are worried and deeply frustrated. Many are angry."



Your Bible, believe it or not, has something to say about America's economic condition. Take a few minutes and turn to Leviticus 26 and Deuteronomy 28, known as the "blessings and curses" chapters. Notice especially Deuteronomy:28:43-44[43]The stranger that is within thee shall get up above thee very high; and thou shalt come down very low.[44]He shall lend to thee, and thou shalt not lend to him: he shall be the head, and thou shalt be the tail. and ponder this fact: America has gone from the world's leading lending nation to the greatest debtor nation in human history, all in the space of less than 20 years. Do the verses here seem to read exactly like our situation today?



The warnings in these chapters describe a series of curses that read remarkably like our national headlines—curses of agricultural failures, disease, war, drought, military failure, mental illness, emotional distress, confusion, exploding debt and finally national collapse. It's a sobering and terrifying glimpse into the future if we do not wake up, repent of our many sins and turn to the God who made us and so abundantly blessed the nation for so many years.



History shows that the crushing weight of government debt can bring about national decline and downfall. The Decline and Fall of the Roman Empire, by Edward Gibbon, has for nearly two centuries been the classic work on the why Rome fell. Gibbon cited excessive taxation and mounting government debt as a major cause of the empire's collapse.



Beyond disaster, a bright future

The recent debt debacle in the U.S. Congress failed to solve the problem of America's growing debt and all it portends. But the good news is that there is hope. While America's leaders have created these problems and now have utterly failed to solve them, you have a choice in the decisions you make in your life.



Moreover, unbelievable as it may sound to those who read today's headlines, a new world economic order is coming. It's not one that people or nations must work to bring about—in fact, it would be impossible for human beings to bring it to pass.



This magazine has for years taught the true identity of America, Britain, Canada, Australia and other major English-speaking countries. This vital key in understanding just how things will worsen before finally working out positively in the end is revealed in our booklet The United States and Britain in Bible Prophecy. Request your free copy or download it from our website.



The good news is that a new economic world order is on its way, and it's like nothing you have imagined. Regardless of whether or not the United States gets a handle on its debt and resulting economic malaise, you can ensure your place in the exciting, prosperous world to come!



To Learn More...

Is the United States really mentioned in Bible prophecy? While Bible prophecy mentions several rather insignificant nations by name, are major nations left out? Or are they identified in ways that few people understand? You need to know! Be sure to request or download your free copy of The United States and Britain in Bible Prophecy today!

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