Big government spending today that hurts tomorrow’s youth, economist says.
The U.S. government’s finances are “going to hell” and they hurt everyone, claims a former Wells Fargo CEO as lawmakers will face another budget/sequester crisis in 2014.
Dick Kovacevich, in recent YouTube comments, criticized both the republicans and democrats for not finding a long-term solution to deficit woes in the recent fiscal cliff crisis. The criticism comes at the same time as a sequester, requiring some $85 billion in immediate budget cuts, could soon be triggered unless the two parties agree on how to reduce red ink. The sequester is slated to go into effect this fall.
That’s because republicans and democrats again can’t agree on how to attack overspending, he notes.
“Basically, nothing has been done,” complains Kovacevich of the recent fiscal cliff deal to raise taxes and cut some spending without any substantial changes in entitlement formulas. Kovacevich, comparing the nation’s income and debt to an individual household, says “we’re like a family that makes $22,000 a year and spends $38,000 a year and already has a $143,000 credit card bill.”
The debt is the record of all the red ink of all American governments going back decades. The deficit is the yearly amount of red ink. Almost every year, the federal government has run deficits. Over the last four years, the government has recorded four consecutive trillion dollar deficits that have added to the debt. Recently, the Congressional Budget Office said it projects the deficit this fiscal year could drop to $845 billion.
Kovacevich warns that the government’s spending “is totally out of the control.”
And that, if both major political parties don’t become serious about overspending means, “we will pass on this debt to our grandchildren,” according to Kovacevich.
The government’s official debt number is some $17 trillion, but numerous debt experts, such as David Walker, former Comptroller General of the United States, have noted the true figure, when counting all government obligations for programs such as Social Security and Medicare that are put off budget, is actually several times that. But an economics professor who has studied the issue says Walker is understating the debt.
“I would say the number is $222 trillion,” according to Laurence Kotlikoff, a professor of economics at Boston University who has written several books on the debt problems of the government. Kotlikoff argues that governments both right and left over the past 60 years have been fudging the figures through confusing economic terms.
So for generations, he argues, the government has been overspending and printing too much money to back up promises made to the old at the expense of future generations. But the future is now, he warns.
Kotlikoff said both the fiscal cliff and sequester talks are “economically meaningless.” He added that the government has not taken any serious measures to reduce spending.
“And that means we are fiscally abusing our children,” he contends. He also believes that, because the government is afraid of deflation—-the systematic drop of prices—-it will ultimately pay off a generation of retiring baby boomers in dollars that will be worth less and less owing to inflation.
But many baby boomers seem to be following the spending practices of their government.
At the same time, the government has been running up huge amounts of debt, the long-term trend among American households has been about the same. Over a 65-year period between 1946-2011, the ratio of household debt to disposable personal income, the red ink we run up compared to our ability to pay it, rose from some 20 percent in 1946 to a bit above 120 percent, according to Federal Reserve Board numbers. That means the average household’s income today is about 20 percent less than its household debt numbers.