Tags: economy | national | debt

U.S. Economy on Brink of Disaster

Sunday, 11 Jan 2009 11:02 AM

By Arnaud de Borchgrave

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When "IOUSA" made its documentary film debut last August, it soon earned the sobriquet "fiscal wake-up tour."

Its unrelenting gloom toted up a $9 trillion federal debt, a $738.6 billion trade deficit, and the news that each U.S. citizen now owes $30,000.

But all the stats are already hopelessly out of date, as evidenced by CNN's two-hour Saturday update of "IOUSA," repeated on Sunday, starring Dave Walker, president and CEO of the Peter G. Peterson Foundation, and former U.S. comptroller general under three presidents; Pete Peterson, chairman of the Blackstone Group, chairman of the Council on Foreign Relations, former chairman of the Federal Reserve Bank of New York, and former chairman and CEO of Lehman Bros.; Bill Bradley, former U.S. senator and Democratic presidential candidate; and Alice Rivlin, former director of the Office of Management and Budget.

The all-star cast was supplemented by cameos by Warren Buffett; two former Federal Reserve chairmen, Paul Volcker and Alan Greenspan; and two former treasury secretaries, Paul O'Neill and Robert Rubin.

On the short list for an Oscar nomination for Best Documentary, "IOUSA" revisited by CNN's Ali Velshi and Christine Romans, co-anchors of "Your Money," piled on with stats that put the United States among the world's failing nations as it plunges into another Great Depression.

Global forces now can override most anything that monetary and fiscal policy can do, said Alan Greenspan, "and central banks have increasingly lost their capacity to influence the longer end of the market."

Fiscal irresponsibility is now a calamitous cycle that poses a bigger threat than al-Qaida and its plans to attack the United States with a weapon of mass destruction.

David Walker, the Paul Revere of a total economic and financial collapse on the present course, says the United States has a fiscal cancer "that is growing within us." And "if not treated, it will be catastrophic for our country."

Cliches about growing our way out of it now ring hollow. But other cliches have America running on empty and about to go over the cliff.

The National Debt Clock in New York ran out of digits as it raced past $10 trillion to $10.7 trillion and still rising.

"IOUSA" explains that the first perceived crisis with national debt took place after the Revolutionary War, and that revolutionary governments took action under George Washington, John Adams, and Thomas Jefferson.

Budget deficits and national debt remained under control for many years, even during the Civil War, World War I, and World War II. And there really wasn't a problem, says the documentary, until the 1980s, with Ronald Reagan's huge tax cuts, and then early this decade, with George W. Bush's huge tax cuts — coupled with the Iraq war, whose estimated cost is $1 trillion.

President Bill Clinton finished his eight years with a surplus and an economy that had expanded 50 percent in real terms, and a GNP of $10 trillion, one-quarter of the entire world economic output.

Clinton also left office with a jobless rate of 4 percent, a 40-year low, while the economy grew 15 million jobs.

Today, counting all those who have dropped off unemployment rolls for part-time work or no work, 21 million Americans are either jobless or underemployed, according to the Economic Policy Institute.

Average workweeks also are being cut back. Some employers now shorten workweeks as a way to keep some on the payroll. And as the baby boomer generation begins to retire, "IOUSA" asks if there will even be any Social Security benefits left to collect.

Overextended entitlement programs and debts to foreign countries are becoming impossible to honor.

Unfunded entitlements are calculated at $53 trillion, or $175,000 per person. America has to mend its spendthrift ways, the documentary says, or face an economic disaster of epic proportions.

The documentary follows former U.S. Comptroller General David Walker as he crisscrosses the country explaining America's death-wish fiscal policies to average citizens. "We've become a culture that wants it all now, but doesn't want to pay for it." So we borrow $3 billion a day from other countries, chiefly China, to keep up the world's highest standard of living, based on conspicuous consumption.

The United States has mortgaged its future to foreigners with promises to its own people it can't possibly keep. China, with $1.3 trillion in U.S. paper, could decide its strategic interest is no longer compatible with America's — and quit as America's banker.

How do we get Americans to save more? Overspending still dominates the lives of U.S. citizens. The Chinese save 35 percent of what they earn; Americans save less than 1 percent, the lowest of any developed country.

Singapore, Chile and Australia, for example, have mandatory savings — outside of government control. "IOUSA" says there should be stronger incentives to save, because without savings America has no future.

Americans are now shocked to see their 401(k) retirement savings accounts losing their allure, as many employers say they no longer can afford matching funds. The government, for its part, is taking in more than it can pay out.

Isn't that how Ponzi schemes work?

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