Politics and Medicine - "Dumb Americans, Dumb Americans, This is the DUUUmb Americans"

Author

"Dumb Americans, Dumb Americans, This is the DUUUmb Americans"

Chuck

2005-08-27, 11:53 am

Yo, "Bring em on," says duh prez.

Self-assbiting at its finest:
http://www.the-dispatch.com/apps/pb...757&cachetime=5
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AP National News

August 27. 2005 12:01PM

Experts Warn Debt May Threaten Economy

By ROBERT TANNER
AP National Writer

You owe $145,000. And the bill is rising every day. That's how much it
would cost every American man, woman and child to pay the tab for the
long-term promises the U.S. government has made to creditors, retirees,
veterans and the poor.

And it's not even taking into account credit card bills, mortgages -
all the debt we've racked up personally. Savings? The average American
puts away barely $1 of every $100 earned.

Our profligate ways at home are mirrored in Washington and in the
global marketplace, where as a society America spends $1.9 billion more
a day on imported clothes and cars and gadgets than the entire rest of
the world spends on its goods and services.

A new Associated Press/Ipsos poll finds that barely a third of
Americans would cut spending to reduce the federal deficit and even
fewer would raise taxes.

If those figures seem out of whack to you, if they seem to cut against
the way you learned to handle money, if they seem like a recipe for a
national economic nightmare - well, then, at least you're not alone.

A chorus of economists, government officials and elected leaders both
conservative and liberal is warning that America's nonstop borrowing
has put the nation on the road to a major fiscal disaster - one that
could unleash plummeting home values, rocketing interest rates, lost
jobs, stagnating wages and threats to government services ranging from
health care to law enforcement.

David Walker, who audits the federal government's books as the U.S.
comptroller general, put it starkly in an interview with the AP:

"I believe the country faces a critical crossroad and that the
decisions that are made - or not made - within the next 10 years or so
will have a profound effect on the future of our country, our children
and our grandchildren. The problem gets bigger every day, and the tidal
wave gets closer every day."

Federal Reserve Chairman Alan Greenspan echoed those worries just last
week, warning that the federal budget deficit hampered the nation's
ability to absorb possible shocks from the soaring trade deficit and
the housing boom. He criticized the nation's "hesitancy to face up to
the difficult choices that will be required to resolve our looming
fiscal problems."

Certainly, there are those who feel such comments bring to mind the
preachers who predict the end of the world at a specific time and
place, and have always been wrong. And undeniably, borrowing isn't all
bad - easy access to money has been a critical tool in building
America's businesses, from mom-and-pops to multinationals.

But something has changed. More than two centuries ago, Benjamin
Franklin warned: "He that goes aborrowing, goes asorrowing." Now, a
laugh-til-you-cry commercial portrays a man with a beautiful home and
car declaring: "I'm in debt up to my eyeballs. I can barely pay my
finance charges. Somebody help me."

The epidemic of American indebtedness runs from home to government to
global marketplace. To examine it, let's start at home.

Americans used to save, but no longer. Back in the 1950s, a generation
of Americans who had survived the Depression and Second World War saved
roughly 8 percent of their income. The savings rate rose and fell
slightly over the decades - it went as high as 11 percent and as low as
7 percent during the "greed is good" 1980s - but now those days are
only a memory.

In the charge-everything start of the new millennium, savings have
plummeted: to just 1.8 percent last year, below 1 percent since January
and at zero in the latest estimate from the Bureau of Economic
Analysis.

The lack of savings is mirrored by a rise in debt. In 2000, household
debt broke 18 percent of disposable income for the first time in 20
years, meaning debt eats almost $1 in every $5 American families have
to spend after they get past the bills that keep them fed and housed.
(That figure hasn't dropped. Credit card debt alone averages $7,200 per
household.)

Many people take comfort in the rising value of their homes, and its
spurred record home-building and buying, with new construction making
places like Las Vegas the fastest-growing in the nation. But a home
translates into wealth only when you sell it - and there's a vigorous
debate over whether the housing boom is becoming a bubble that will
burst.

"It seems like, with the younger generation, that they want to have now
what it took us years to get," says Jo Canelon, a 46-year-old social
worker in Statenville, Ga.

"I see people younger than me with comparable jobs that drive new
vehicles and have a boat and mortgage and things," says Canelon, who
responded to the AP/Ipsos poll. "And I just wonder about their debt."

Canelon sees echoes in the rise of obesity: a pervasive I-want-it-now
attitude no matter what the consequences. To her, debt's a symptom of
disease, and one that's spreading.

If she's right, the government is sick, too.

Leaders are elected by the people they serve, of course, and the
American people seem to want the best of both worlds - tax cuts and
government services - while they hope the dollars sort themselves out.
They worry about the nation's problems, but not enough to agree on a
course of action to fix them.

The AP/Ipsos poll of 1,000 adults taken July 5-7 found that a sweeping
majority - 70 percent - worried about the size of the federal deficit
either "some" or "a lot."

But only 35 percent were willing to cut government spending and
experience a drop in services to balance the budget. Even fewer - 18
percent - were willing to raise taxes to keep current services. Just 1
percent wanted to both raise taxes and cut spending. The poll has a
margin of error of 3 percentage points.

The nation's political leaders could hardly be said to have a mandate
calling for fiscal responsibility.

A few years ago, government finances were the strongest they've been in
a generation. Then came a turnaround - and a stunningly quick one. The
budget surplus of $236 billion in 2000 turned into a deficit of $412
billion last year. The government had to borrow that much to cover the
hole between what it took in and what it had to spend; a difference
that's called the federal deficit.

Blame the bust of the dot-com boom, the ensuing recession, President
Bush's federal tax cuts, the Sept. 11 terrorist attacks and the
subsequent wars in Afghanistan and Iraq.

Bush has gotten his share of brickbats, from both the right and the
left, for the spending while he's in office. Still, the federal deficit
isn't as big as it was in the worst of the years under President Reagan
as a percentage of the overall economy.

Some note things are getting better: The latest reports project a
deficit of $331 billion for 2005, nearly $100 billion less than
expected. Outstanding debt - the amount of securities and bonds that
must be repaid - is far below what it was in the early 1990s.

But bigger worries lie ahead.

The nation's three biggest entitlement programs - Social Security,
Medicare and Medicaid - make promises for retirement and health care
(for the elderly and the poor) which carry a huge price tag that
balloons as the population grows and ages.

Add it up: current debt and deficit, promises for those big programs,
pensions, veterans health care. The total comes to $43 trillion, says
Walker, the nation's comptroller general, who runs the Government
Accountability Office. That's where the $145,000 bill for every
American, or $350,000 for every full-time worker, comes from.

Simply hoping for good times to return won't erase numbers like that,
Walker says.

"There's no way we're going to grow our way out of our long-range
fiscal imbalance," he says, adding that the country must re-examine tax
policy, entitlement programs and the entire federal budget.

"I really do not believe the American people have a real idea as to
where we are and where we're headed, and what the potential
implications are for the country if we don't start making some tough
decisions soon," he says.

The dangers are clear as day to Felicia Brown in Saginaw, Mich. To her,
it's the leaders who ignore them, she says.

"We're stealing from our children's future and our grandchildren's
future," says the cashier and mother of three, who also responded to
the AP/Ipsos poll. "We're led off on this belief that we should buy,
buy, buy. Everyone needs a big house, everyone needs a new car every
two years. We're spending all this money on that, and we're not saving
anything."

Some people, however - including economists - think the picture isn't
so gloomy.

Ben Bernanke, who recently left the Federal Reserve Board to serve as
President Bush's top economic adviser, has argued that the problem is
not with the United States. The trouble lies overseas, where people
want to save rather than spend their money. The key is to encourage
other countries to spend and invest more, he says, though he also
believes that the federal budget needs to be balanced.

By raising the issue of foreign investment, Bernanke touches on another
area that scares economists - America's inexhaustible desire for
foreign goods.

The trade deficit - the difference between what America imports and
what it exports - is the highest it's ever been, both in absolute
numbers and in comparison to the size of the economy.

As a society, Americans are on track this year to spend $680 billion
more on foreign goods such as Chinese-made clothes, Japanese-made cars
and Scandinavian cell phones than overseas buyers do on American goods.
The crush of arriving, Asian-made products recently spurred the Port of
Los Angeles to switch to 24-hour operations.

Nearly two decades ago, the country fretted over a trade imbalance
equal to 3.1 percent of the overall economy, or the gross domestic
product. It's more than twice as big now, roughly 6.5 percent.

Here's how economists, from former Federal Reserve Chairman Paul
Volcker to former Clinton Treasury Secretary Robert Rubin to analysts
at the International Monetary Fund, explain the danger: Americans, who
go into debt to keep living a life beyond their means, are spending
more and more of that borrowed money to buy goods from overseas.

At the same time, the government provides more services to the public
than it can afford to - and goes into debt to cover the cost.

Other nations actually purchase that debt, in the form of U.S. Treasury
bonds and notes. Those bonds have increasingly been snapped up not just
by private investors but by foreign banks. Japanese investors hold the
most U.S. debt, but China has been buying more than any other country
in recent months.

The biggest trade deficit is with China, too, at $162 billion. Japan is
next, at $75 billion.

In a very real sense, the U.S. economy is dependent on the central
banks of Japan, China and other nations to invest in U.S. Treasuries
and keep American interest rates down. The low rates here keep American
consumers buying imported goods.

But the lack of fiscal discipline in the United States is undermining
the value of the American dollar, thereby lowering the value of the
U.S. Treasuries in foreign banks. As the dollar's value drops, other
nations' willingness to keep investing cannot last, says Nouriel
Roubini, an economics professor at New York University.

If those banks reduced their dollar holdings or were simply less
willing to invest so much, it could spark a sharp fall in the value of
the dollar. And that could create a host of economic problems.

Economists and business leaders are closely watching China's decision
last month to uncouple the value of its currency, the yuan, from the
dollar and tie it instead to a basket of different currencies. The move
could make the dollar's position less exposed to a quick shift by
international investors - or it could spur those investors to look
elsewhere and leave the United States' position more precarious.

In the end, Roubini, Walker and others say, disaster is still
avoidable, but it's going to require the American people and the
country's leaders to clean financial house - to reduce the federal
deficit and the trade deficit. Global economics may drive some changes:
if Japanese cars cost more, for example, Americans may buy
less-expensive GMs.

If not, the future poses some frightening what-ifs:

- What if the dollar plummets? Do stocks follow? How about pensions?

- What if interest rates soar? How would all the new homeowners, who
stretched to buy with adjustable and interest-only loans, cover their
mortgages?

- How would consumers with record credit-card debt make their payments?
Would they stop buying? Stop taking vacations? What will happen if they
go bankrupt? New rules going into effect later this year make it harder
on such debtors.

- How would government, which depends on the taxes of a strong economy
to operate, keep all its promises?

Roubini says time is critical because the worse debt becomes, the more
vulnerable America is to shocks in the global economic systems -
another spike in oil prices, another major terrorist attack, another
major military conflict.

OK, now back to you. No one's asking you to write a check to cover that
$145,000, not yet. But the pressures are building around the world, in
Washington, and in America's homes to straighten out our finances or
get ready for a real mess.

"We're living beyond our means," Roubini says, "and we have to get our
act together."