Congress issued a screaming wakeup call regarding the dire state of our economic future in a Congressional Budget Office report outlining the ten-year federal budget and economic outlook.
While it would be great if today’s candidates stood up and took notice, it seems we’ll only get more and more from reality star politicians. This isn’t going to end well for Gen Y.
Old and Frail: Welcome to America
In the year ahead, the federal budget deficit will grow relative to GDP for the first time since 2009 and is $130 billion greater in total size than the most recent estimate made back in August. Time flies doesn’t it?
Either way, overall deficit growth is the result of increases in three key areas: Social Security, health care and debt financing.
Although constantly singled out for being lazy and entitled, it’s actually the not-so-golden oldies finger-wagging us that are the ones wrapping our economy in the stale perfume of death.
As Baby Boomers retire and collect federally funded benefits, the balance between the workers and collectors will swing dangerously out of balance. Due to a variety of factors, the Baby Boomers ended up having fewer kids per person than their parents did. This means that as your beloved parents retire, there are fewer working people paying taxes relative to those collecting the benefits paid for with those taxes.
Still, the biggest increase in mandatory spending came from health care costs. Medicare, Medicaid, the Children’s Health Insurance Program and subsidies for insurance purchased on exchanges (heyo, Obamacare!) are all going up, and CBO projects them to all continue rising in the decade ahead – largely as a result of America getting old and frumpy.
CBO reported, “Almost half of the projected $2.5 trillion increase in total outlays from 2016 to 2026 is for Social Security and Medicare.” Because our expensive health care system is keeping people alive on our expensive retirement system for longer periods of time. Good stuff.
The Statue of Liberty Is Choking On Her Credit Score
The final prong from the poisoned trident, debt financing, is perhaps the scariest of the bunch. CBO predicts net interest spending, how much it costs the government to pay for public-owned debt (just like the percentage paid on any loan), will rise by $32 billion in 2016 alone. And this is during a time of historically low interest rates!
As interest rates continue to rise to normal levels in the years ahead, increasingly swollen gobs of money are going to be spent just servicing existing debt. Start taking into account a widening deficit and you can hear the thunderclouds clapping on the horizon.
The good news is that, in theory, we have the ability to keep public-held federal debt from reaching 155 percent of GDP in 30 years time — the current projection and an all-time record. However, if we don’t stop kicking the can down the road, we enter a doomsday scenario where we’re taking on debt to service our existing debt.
As CBO states:
The likelihood of a fiscal crisis in the United States would increase. There would be a greater risk that investors would become unwilling to finance the government’s borrowing needs unless they were compensated with very high interest rates; if that happened, interest rates on federal debt would rise suddenly and sharply.
This, friends, is called Greece. Let’s avoid this.
We live in a country diverse not only in ethnicity, but also in ideology. Bridging those ideological gaps is a challenge, but maintaining the status quo clearly isn’t sustainable.
Leaving this problem for the next generation to solve is an appealing one for today’s candidates, something that will only change when we demand change through our decisions at the voting booth.
What do you think of CBO’s projections? What should be done to secure America’s financial future?