The Road to Default: Let’s Look at the Damage with a Rant.

July 8, 2011
By

(This article was first published on The Dancing Economist, and kindly contributed to R-bloggers)

The following graph shows Real GDP as a percentage of the Gross Federal Debt.  FRED is the resource I frequently use for United States financial data and it serves us well here.  


What is Gross Federal Debt? Well, its total government debt outstanding- including all the various agencies. 
Why do we compare real GDP with it? We want to hypothetically see that even if we have a 100% tax rate  for one year and kill every business we still couldn't eliminate all of our Government debt! 
Notice that we are at above 100%! Default is inevitable! Raising taxes (aka revenue) is frivolous at this point, the only way to bring this unsustainable rise in debt down it to deleverage by way of default.  This is the only way because our politicians are resolved to not do anything and to see what happens. Their lives are more important than ours and that is why they may refuse to engage in political blasphemy (cutting medicare, down sizing social security payments, ending unemployment benefits). 
The Republicans & FOX NEWS will blame the default on President Obama and John Stewart, no matter how ridiculous and untrue that may be. 


 The Democrats will blame it on the Republicans refusal to come to a deal sooner.  In the end both will be severely discredited. I will blame it on our political system. It dooms us. How can anyone make a politically unpopular decision when they are worried about getting re-elected? They can't and they won't most likely.  Our country is in trouble and it's not because Casey Anthony was found not guilty, that we don't allow drilling in the gulf, or that we have millions of illegals pouring over the border.  It's not the small and meaningless stuff.  It's the structure of our broken system, the stubbornness of our elderly, and most importantly it's a failure to be truthful and do what's right.  



"The nation's long-term fiscal imbalances did not emerge overnight. To a significant extent, they are the result of an aging population and fast-rising health-care costs, both of which have been predicted for decades. The Congressional Budget Office projects that net federal outlays for health-care entitlements--which were 5 percent of GDP in 2010--could rise to more than 8 percent of GDP by 2030. Even though projected fiscal imbalances associated with the Social Security system are smaller than those for federal health programs, they are still significant. Although we have been warned about such developments for many years, the difference is that today those projections are becoming reality."

We have a severely flawed tax system that would cause no uprise if only it was consumption based, a financial system that gets drunk every year off new financial innovations and lack of regulation, and media that "tells" the truth- even when they lie. I'm not a religious man, but God help us! 


Keep Dancin'


Steven J.

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