David Stockman, White House budget chief under President Reagan, notes it took the United States 205 years to reach $1 trillion in debt, but only 33 more years to get to the current $18 trillion debt mountain. And he says things are about to get worse.
In Stockman's recollection, the stage for today's fiscal irresponsibility in Washington, D.C. was set in the 1980s, when Congress finagled to show delayed revenue gains from tax increases and a massive payroll tax was buried in a Social Security rescue plan.
"Thereafter, Social security and Medicare entitlement reform was off the table due to the trick of the front-loaded payroll tax increase," he wrote on his Contra Corner blog
"Likewise, the White House took any further tax increases or defense cuts off the table in January 1985. The spending-cut weary politicians of both parties, in turn, were more than happy to oblige by shelving any further meaningful domestic spending reductions, as well.
"So in 1985, fiscal policy went on automatic pilot — where it has more or less languished ever since."
Stockman estimated today's federal debt amounts to 106 percent of GDP, and when state and local debt is factored in, total government debt is 120 percent of GDP – a load that would put many Americans in a homeless shelter if they owed it money on an individual basis.
In his view, what makes today's titanic debt burden possible is concerted action by the Federal Reserve and other central banks to create massive credit expansion and the fact the Fed sells Treasurys to other countries.
"That convoy of money printers generated large but dangerous central bank 'vaults' where Uncle Sam's debt has been temporarily sequestered," Stockman noted.
"It was the equivalent of a monetary roach motel: the bonds went in, but they never came out."
In Stockman's view, the massive monetization of the public debt cannot go on much longer or the global monetary system will be destroyed.
He believes the rosy scenario currently projected by the Congressional Budget Office (CBO) for 4 percent GDP growth in coming years is ridiculously optimistic and "does not have a snowball's chance of materializing over the next decade. Rather than $8 trillion of cumulative baseline deficits over the next 10 years as projected by CBO, the current policy stalemate in Washington — that has been running for 30 years now — will generate at least $15 trillion of new public debt in the decade ahead."
When that new debt is added to the current $18 trillion hole the nation has dug itself, the mountain of public debt will hit $33 trillion in 10 years, he wrote. At that point, Stockman estimates America's public debt will total a whopping 140 percent of GDP.
The federal debt has risen 70 percent under President Obama, and when it hit $18 trillion last week, it meant that each household in the U.S. now carries the burden of $124,000 in national debt alone — or $56,378 per individual, according to GoldCore's Mark O'Byrne
"This does not include the massive private debt or household debt burden – people's mortgages, personal loans, credit card debt, student loans, car loans and other household debt," he wrote.
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