Tags: Donald Trump | Medicare | Social Security | Venezuela | brazil | democrats | gnp

We Still Haven't Learned Uncontrollable Debt's Painful Lessons

We Still Haven't Learned Uncontrollable Debt's Painful Lessons

(Marta Mirecka/Dreamstime)

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Monday, 10 September 2018 05:29 PM Current | Bio | Archive

Unemployment is near all-time lows, especially for minorities.

Manufacturing production is white-hot and the service sector is close behind.

Stocks keep going through the roof.

Productivity is the highest in years. Overall, growth is at a vigorous 4.2 percent.

Wars are winding down. Life expectancy is up. Infant mortality is falling.

Poor President Donald Trump is absolutely flabbergasted that he gets no credit, especially since his loosening of the regulatory burden and tax cuts undoubtedly contributed greatly to the steaming economy.

The media would be swooning if this happened under Hillary Clinton.

But dangers remain. Venezuela is a basket case with crushing debt, hyper-inflation, food shortages, people exiting, and the government seeking an International Monetary Fund (IMF) $50 billion rescue. Turkey’s lira has lost 40 percent of its value this year. Iran’s rial has dropped 140 percent. Brazil, South Africa, Russia, and Indonesia are not far behind.

Even China is on the cusp with a horrendous three trillion dollar debt repayment due.

Why should these economic small fry worry us?

It ominously evokes the Latin American debt crisis when after years of living high on the oil boom and generous government spending and debt, the Mexican finance minister announced in August of 1982 it could no longer service its external debt of $80 billion.

In 1976 it had devalued its peso by 50 percent but public debt continued to soar to 42 percent of Gross Domestic Product (GDP), absorbing 142 percent of its total government current account income and a full quarter of GDP.

The crisis quickly spread to equally profligate Argentina, Brazil, Paraguay, and Uruguay. Two-thirds of this debt was to Americans. By 1982 the total debt had reached an incredible $329 billion. The U.S felt forced to lead an "international lender of last resort" effort with the IMF and world banks to restructure debt and pay interest, while the debtor nations agreed to undertake structural reforms and to tame spending.

Still, little changed so private banks ended up forgiving $61 billion.

An additional $50 billion bailout was required in 1995.

The fact is more nations in modern times have fallen from debt than directly from war.

Proud Habsburg Spain defaulted in 1696 after 250 percent silver inflation and was gone in1700. A 62 percent debt service in 1788 led directly to France’s 1789 Revolution.

Interest payments in the Ottoman Empire went from 15 percent of its budget in 1860 to 50 percent in 1875, continuing until its expiration after World War I.

British debt and an interest rate of 44 percent forced large cuts in defense, leaving it unprepared for World War II and the dissolution of its empire thereafter.

German debt and inflation lead to Adolf Hitler and World War II. Debt and inflation were also the cause of Germnany's ultimate defeat — and partition.

As Robert Skidelsky carefully documents, even the Soviet Union ultimately fell from its debt more than from foreign pressure.

Well, the U.S. is different, right?

Our debt to Gross National Product (GNP) ratio was merely 32 percent in 1981, but 68 percent in the 90s and zoomed to 105 percent last year at $21 trillion — not Weimer Germany, but approaching 1970s Mexico.

The budget counts 16 percent spending on normal domestic programs, 16 percent on defense but 24 percent for Social Security, 25 percent for health entitlements, 13 percent for other mandatory programs, and 6 percent for interest.

What is not counted is the unfunded liability for the largest programs, led by Social Security, Medicare, Medicaid, and other entitlements, totaling $120 trillion — 600 percent above the official debt.

Tax income rarely exceeds 20 percent of GNP so does not cover current spending much less debt, especially as entitlements explode over the next decade. Even inflation is a dubious solution since the Federal Reserve’s monetary base already exceeds historical levels by 400 percent.

The problem is that both political parties have promised not to cut entitlements so the official government estimates of total debt will happen pretty much as predicted, although Venezuela, Turkey, Brazil or someone else off the radar could move up the dates.

And America’s experts involved in dealing with the last Great Recession mostly concede they had no plan then and just kept adjusting quickly to events with no theory to guide them.

The fact is no one knows how to solve a crisis like this. The Fed is dry. Who else is there?

Meanwhile, Democrats are actually promising to increase entitlements while Republicans promise never to touch them. Interestingly, the data say entitlements will start exploding after 2020.

Given their obsessed derangement against President Trump and recalling that it was the socialist parties that were forced to start cutting the welfare state in Europe in the 1980s to avoid bankruptcy, watching the Democrats and their media allies handle an entitlement-caused economic crisis would almost be worth having them win the next election.

Donald Devine is senior scholar at the Fund for American Studies, the author of "America’s Way Back: Reclaiming Freedom, Tradition and Constitution," and was Ronald Reagan’s director of the U.S. Office of Personnel Management during his first term. For more of his reports, Go Here Now.

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DonaldDevine
Given their obsessed derangement against President Trump, watching the Democrats handle an entitlement-caused economic crisis would almost be worth having them win the next election.
brazil, democrats, gnp, turkey
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2018-29-10
Monday, 10 September 2018 05:29 PM
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