All Governments Are Insolvent and Taxation Can’t Help

Monday, 14 Nov 2011 12:17 PM

By Arnaud De Borchgrave

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"All our governments are insolvent.

"No level of taxation could make them solvent.

"So we must cut the source of our insolvency.

"Government accounting systems are fundamentally flawed.

"Wall Street scandals are known and published. But this has been happening in government accounts as well.

"Principles of government accounting are riddled with gimmicks.

"Governments make promises that cannot be kept. This runs across government behavior at all levels.

"The truth about pension plans is that they all lack the assets to cover promises. None are fully funded.

"States, counties, cities cannot meet their pension commitments. Current shortfalls can safely be trebled.

"Promises have to be broken on a massive scale on both sides of the Atlantic and austerity decreed. Medicare and Medicaid cannot be spared.

"We have fought two wars on borrowed money.

"The principal source of insolvency is the expansion of the welfare state.

"What has happened was perfectly predictable.

"Defense spending will have to be curtailed to tackle coast-to-coast collapsing bridges, roads, schools."

The top-drawer qualified expert was speaking not for attribution by name, addressing a two-day, below-the-radar conference in Washington last week, attended by corporate chief executive officers, former intelligence chiefs and government officials from 20 countries.

Between the beginning and the end of the Washington palaver, two European prime ministers bit the dust (Greece and Italy) and the euro teetered on the edge of disaster.

But there was no alternative to soldiering on. Italy's 75-year-old playboy prime minister vowed to return. The media mogul is Italy's wealthiest man and no one is betting against him.

Austerity is the new slogan for the 27-nation European Union. But this can only deepen recession and make their billions in debt to Germany that much harder to recover. They long lost their competitiveness against Germany. Hard choices are ahead as their economies struggle to avoid recession and more unemployment.

Tax increases and spending cuts in Greece, Italy, Spain, and Portugal spell major trouble ahead for the EU. European societies are aging rapidly, which means fewer people working and paying taxes and ever more people claiming retirement benefits.

The International Monetary Fund says that for the wealthy countries to trim public debt to 60 percent of gross domestic product by 2030, they would have to improve their budget balances by 8 percent of GDP in the next nine years. No one can see that happening.

America's coast-to-coast anti-Wall Streeters have found favorable echoes in Europe where wealth owned by top 1 percent of populations keeps growing to the detriment of those at the bottom of the ladder.

The Congressional Budget Office says the wealth of the 1 percent of the population with the highest incomes soared 275 percent in the past 30 years. Middle-income Americans increased their income 40 percent in the same period while the lower 20 percent of the population saw an 18 percent increase.

At the entirely off-the-record conference, one high-tech U.S. CEO said we are defense spending ourselves into oblivion. Even today, as we exit one war, he said, "we are continuing to spend 4 percent to 5 percent of GNP on defense" and an immediate "12 percent to 14 percent cut is coming, or $62 billion to $72 billion."

"But the Afghan war on its present course is costing the U.S. $50 billion a year," said a retired general who served in Afghanistan, and "current projections show another $400 billion before all the troops come home, as they will do in Iraq next month."

One brigade combat team runs $1 billion a month in Afghanistan.

"If the Afghans are to reject Taliban," the general added, "we need an immensely compelling strategy worthy of the name. They have no interest in global feuds. But if they are to reject Taliban, we need a credible political choice. We don't even own the night in most places. We are not addressing the cure, only the symptoms."

Underlying the entire effort is a fear that when the last U.S. troops leave at the end of 2014, Congress will do what it did to the South Vietnamese army in 1975. Two years after the last U.S. soldier left Vietnam in March 1973, the United States shut down all further military assistance to Saigon — turning the country over to the communists.

America's NATO allies are becoming less capable militarily. Only two — Turkey and the United Kingdom — are spending slightly more than 2 percent of GNP on defense.

As the European attendees pointed out in Washington, they have fallen below 2 percent and are alarmed when they see that U.S. Defense Secretary Leon Panetta and U.S. Secretary of State Hillary Clinton are refocusing U.S. attention on the Pacific region and different priorities.

Afghanistan and Iraq notwithstanding, the steady rise of China and the resources of India and Indonesia are driving the U.S. geopolitically from west to east.

Deployable ships — 284 — are at their lowest level since 1930. The drastic naval cutback is expected to level off at 200. U.S. President Ronald Reagan's objective of a 600-ship U.S. Navy made it up to 535.

Aircraft carriers are expected to be trimmed from 11 to eight as drones and swarms of small suicide boats laden with explosives — not to mention crewless submarines now being tested — point to future vulnerabilities, at least in the Persian Gulf.

The cost is also prohibitive: $30 billion to build a carrier task force; $5 billion a year to maintain. Manpower costs are escalating and healthcare is expected to treble over the next 10 years.

As long as Iran continues its barely secret nuclear weapons quest, the U.S. 5th Fleet, with headquarters in the Persian Gulf, will need a carrier on station. It now has two in the region.

The debate in Washington and Jerusalem over whether to bomb some of Iran's nuclear installations has powerful protagonists in both camps. The Israeli lobby in Washington favors U.S. strikes.

Those opposing strikes argue the post-bombing retaliatory consequences would be disastrous. And these include three U.S. former CENTCOM commanders as well as three former Israeli intelligence chiefs who retired this year (Mossad, Shin Beth, and the Israeli military).




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