Warf Rat

THE INESCAPABLE POLITICAL TRUTH

From the title of this newsletter you can sense I've got something
important on my mind this month, and it has to do with subjects not being
discussed by ANYONE running for President or Congress. While the subject
is critical to this country's future, politicians have been trained by
voters to not mention these things or they will be quickly voted out of
office. The United States is barreling toward a financial crisis that has
every chance of rivaling the 1930's Great Depression and every American in
their hearts knows the story I will lay out for you is true. What is
becoming more and more sad to me is this could have been addressed many
years ago and the severity of the upcoming train wreck could have been
drastically reduced. Now the situation has reached a critical mass and is
unavoidable, yet the politicians aren't even suggesting you should be
fastening your seat belts before the impact of this runaway train against
the immovable future. Do I have your attention now? Good. So please
remember who reminded you to fasten your own personal seatbelt and might
have potentially saved your economic life.

Also, please be aware that although I am obviously outlining the situation
and circumstances for the United States, there is the substantially similar
situation in place for most of Europe, Japan and even China. I referenced
in a newsletter earlier this year how grossly under funded the Chinese
Social Security program was and how Japan is aging even faster than most
western countries, so there are many governments out there facing
difficult choices in the future. Not just the U.S. Many of the European
governments have already begun addressing the aging of their populations
through higher taxes and managed healthcare. The size of the U.S. problem
and looming retirement of the largest segment of people in the country has
set up the following series of unavoidable events.

Beginning sometime around 2008, and worsening further and further for the
next decade, Americans will see the following:

--Massive increases in Federal, State and local taxes.

--Substantial cuts made to their Social Security and Medicare.

--Substantial cuts made to their government pensions and retirement health
benefits.

--A bitter and volatile generational war pitting the "Greatest Generation"
of World War II paired with the "Baby Boomers" against "Generations X and
Y".

For a change, these are not any sort of predications being made by me.
These are absolute facts of life and backed up by an army of people who
know the details of the situation far better than I do. Consider this
quote by David Walker, who is Comptroller General of the United States and
is employed by the government as its chief accountant:

"I am desperately trying to get people to understand the significance of
this for our country, our children and our grandchildren. How this is
resolved could affect not only our economic security but also our national
security. We're heading to a future where we'll have to double federal
taxes or cut federal spending by 50%."

Every single year the Social Security and Medicare trustees tell the
Congress the awful truth, which is that they have absolutely no way to pay
for their programs even if the economy were to reach levels of prosperity
never seen before.

The Congressional Budget Office updates the Congress constantly about the
level of the liabilities being bourn by the government, and the
politicians listen to the reports and mention nothing of them on the
campaign trail.

So here are some of the numbers that the trustees and the CBO share with
Congress that you might have never heard before. In trillions of dollars,
here is the list of liabilities carried by the United States Government and
local governments:

--$4.2 trillion of Federal borrowing

--$3.9 trillion of Federal and military pensions

--$30.0 trillion in Medicare benefits

--$12.7 trillion in Social Security benefits

--$0.2 trillion in misc. Federal obligations

--$2.0 trillion in State and local debt

The total of all these liabilities is 53 trillion dollars. I apologize in
advance for pointing out what may be obvious to some, but perhaps not
crystal clear to others. I want people to remember that the fact that
these are being referred to as "liabilities" is because they are in effect
debts owed by the government. These liabilities have not been funded in
any way, shape or form and will need to be repaid by taxpayers in the
future and that future is now only a few short years away.

USA Today ran a terrific headline that I thought captured the heart of the
matter in a very succinct way. In a very large, red font it showed these
two numbers:

--$85,454 is the average household's personal debt

--$473,456 is the average household's share of this $53 trillion of
liabilities

One other elementary thing I want to also remind you of is that the $53
trillion is how much the liability is right NOW!! Not how much these
liabilities are going to cost over their lifetime. If the government were
required to fund these liabilities the way a corporation would be required
to, the government would need to put away RIGHT NOW the $53 trillion so
that there will be the money available to pay for these programs in the
future.

If you don't keep track of these numbers on a regular basis, the U.S.
government collected a grand total of $3 trillion in taxes in 2003. This
fact causes you to wonder where in the heck the government is ever going
to put together the money to back up these programs. Well, clearly, they
are not going to be able to do that. So what are they going to do
instead?

Here is where things become somewhat imprecise since all the choices that
will be open to politicians are horrible. If the new crew of elected
official who will take office for the year 2005 wanted to step up and
actually fix the situation immediately, here are two solutions that would
render the problem fixed:

--They would have to immediately double all federal taxes beginning
immediately in the 2005 tax year and make these increases permanent. All
state and local taxes would also need to be increased by 20% immediately
in the 2005 tax year and made permanent also.

--Or they could simply reduce all Social Security, Medicare and government
pension payments immediately and permanently by 50%. The average Social
Security check would drop from the current $1,500 monthly to $750
immediately. A government military pension monthly payment would be
instantly cut from the current $1,782 to about $891. And Medicare
spending would be reduced from an average of $7,500 per person to $3,750
for senior citizens. Also, the Medicare prescription drug benefit plan
that passed last year will need to be cancelled.

Obviously the politicians could also blend the two solutions in whichever
way resolves the pending implosion of the situation.

If your gut reaction to reading what I have written so far is that you
cannot imagine politicians doing ANYTHING to fix this crisis, then the day
of reckoning only becomes darker and more gloomy.

And before you go blaming this situation on George Bush or any of the
current crop of politicians, don't bother. This problem has been in
making for the past 60 years and no one has stepped up in any earnest way
during that timeframe to offer solutions. Of course, the current office
holders haven't done anything to make progress toward answers, but I
resist making any John Kerry type of blaming which would likely lay this
whole mess at the feet of Bush. Given that Kerry has spent almost 20
years in the U.S. Senate compared to Bush's three and half years, and has
voted for nothing but benefit increases for all these programs he would be
well advised to keep his mouth shut regarding this issue.

So how did we end up in this horrible jam? Well, simply, the World War II
generation and Baby Boomers have granted themselves all sorts of wonderful
retirement benefits and have contributed very little toward financing
them; basically leaving the bill for their children and grandchildren. I
liken it to someone inviting you out for a wonderful meal, stuffing
themselves like gluttonous pigs and then sticking you with the check. One
can only figure there might end up being some lingering resentment and
anger as the government pins this tab on Generations X and Y who I would
suspect might be reluctant to pay for all this nonsense, and who could
blame them? This is where the generational warfare might begin sometime
no later than 2015 I figure.

I wish there was some "silver lining" to this whole fiasco, but I cannot
imagine one and neither can you. All outcomes are gut wrenching and ugly
and all we can be certain of is that it will take a crisis mentality for
the politicians to get off their rump and do something about, and that
crisis is not probable but guaranteed.

It was not my wish to bum anyone out, or set a negative tone for your day.
Anyone reading this already knew that the system was broken, and the
younger the person, the more likely they weren't counting on ever getting
their Social Security. If Americans want to ensure a comfortable old age,
they will need to abandon their consumerism and embrace dedicated savings
for their future as well as watching their own levels of debt. Readers of
this hideous newsletter count on me being honest with them and that is what
I am attempting to do when I don't hear a single politician sounding an
alarm. I won't be the government who pees on your leg and then tries to
convince you it's raining. Nope. This time the government is just plain
peeing on your leg.

By Mike Gasior



We all need to stop looking for people to blame (there are plenty to go around), and face some harsh decisions.

If you want to blame Bush fine, but it will take more than one Prsident to fix this problem. It will take a strong stomach and a lot of time.

__________________
A day late, and a dollar short.