Tuesday, March 1, 2011

A Chart Showing Why America Will Face A Serious Financial Crisis


I got this chart from the Business Insider website.

We'll be breaking out some key sections in the next few days. In the meantime, here's the one chart you need to see to understand why the US is screwed.

This is the 'income statement' of the United States in 2010. 'Revenue' is on the left. 'Expenses' are on the right.

Note a few things...

First, 'Revenue' is tiny relative to 'Expenses.'

Second, most of the expense is entitlement programs, not defense, education, or any of the other line items that most budget crusaders normally howl about.

Third, as horrifying as these charts are, they don't even show the trends of these two pies: The 'expense' pie is growing like gangbusters, driven by the explosive growth of the entitlement programs that no one in government even has the balls to talk about. 'Revenue' is barely growing at all.

As we'll illustrate with more of Mary's charts next week, the US cannot grow its way out of this problem. It needs to cut spending, specifically entitlement spending. We hereby announce that we'll give a special gold star to the first "leader" with the guts to say that publicly.


You can view a clearer picture of the chart on the website. The revenue for the Federal government in 2007 was 2.4 trillion dollars before the worst part of the recession, some economist believe the recession began in 2007. I read from one source that double digit growth for a decade will not solve America's budget problems which this chart also shows. Serious cuts will have to be made to entitlements as noted by the IMF and by our Treasury Secretary who noted that the political will does not exist to make these cuts. No politician is even talking about this as it is politically impossible to do. No Tea Party rally is going to solve this budget problem. Even a majority of Tea Party followers do not support cutting entitlement spending. And note by 2020 the net interest payment will be around eight hundred billion dollars as noted by a Senator when question the Treasury Secretary and agree to by our Treasury Secretary. Either way things go, there will be a serious financial situation in the near future.

9 comments:

  1. Clearly there are problems but we are seeing progress, both with the Federal budget that House of Representatives submitted, and the actions going on in many states. Not resolution, clearly, but progress.

    The one thing we are seeing that both the receivers of benefits and those bitching about the benefits aren't talking about is something that is happening right before our eyes: Entitlements can disappear in a flash. You can look at all those entitlement programs and confidently say that if the money isn't there, they will evaporate. Precisely the same thing that is already beginning to happen at the state and local levels. And guess what? The state won't quit being a state. The country won't quit being a country. Has New Jersey gone bankrupt? No. The Public Employee Unions are beginning to take it in the shorts.

    Watch New Jersey, watch Wisconsin, watch Ohio, watch Indiana. It's playing out now. The entitlement section of your pie chart will grow until it can't grow. Then it won't grow. Just don't count on Social Security.

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  2. What the unions are experiencing now is what we all are going to be experiencing: our jobs and source that provides for our basic necessities run dry. I don't see any major Federal entitlement programs just disappearing without any lost of social cohesion. No major reforms will be enacted until the moment of crisis is upon us as the states you mentioned showed. Except in this case it will be the whole nation that will be experiencing this at the same time.

    I agree that things can't continue because of basic economics: the money will run out and the programs and the government entitlement breast spuing forth milk runs dry that is the end of the game. The question is what will happen when people lose their retirement and their ability to provide for the basic necessities of life. How will you react when you lose your private and government retirement account and lose the ability to feed your family? Things get dicey when that happens and history provides a look at what that leads to. The government won't allow this to happen but at a price: it will require the creation of a new economic system. This is will be a transformative event that America and the world has not experienced before and nothing that any of us can relate to. This is not the 1930's or the 1970's. This level of debt on a global scale has never existed before under these conditions.

    The simple fact is that the world economy is broken and bankrupt. America has never before experienced bankruptcy before.

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  3. I think that your "creation of a new economic system" might not be far from happening.

    I think you could be underestimating the people in America. I have seen more awareness of the issues that you have noted. People are looking down on entitlement programs a little more than before. There is still a chance that someone could put their dick on the table and not be destroyed politically. In order for that to happen, society has to understand the necessity of the cuts. Culture and society will dictate the outcome. I think the ultimate collapse will come. But I do think their is still a small probability that we get our shit together.

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  4. Social unrest or lost of social cohesion sounds like I got this from crazy talk radio. Probably Rush Limbaugh.

    "America and Europe face the worst jobs crisis since the 1930s and risk 'an explosion of social unrest' unless they tread carefully, the International Monetary Fund has warned. "The labour market is in dire straits. The Great Recession has left behind a waste land of unemployment," said Dominique Strauss-Kahn, the IMF's chief, at an Oslo jobs summit with the International Labour Federation (ILO).

    He said a double-dip recession remains unlikely but stressed that the world has not yet escaped a deeper social crisis. He called it a grave error to think the West was safe again after teetering so close to the abyss last year. 'We are not safe,' he said.

    A joint IMF-ILO report said 30m jobs had been lost since the crisis, three quarters in richer economies. Global unemployment has reached 210m. 'The Great Recession has left gaping wounds. High and long-lasting unemployment represents a risk to the stability of existing democracies,' it said.

    The study cited evidence that victims of recession in their early twenties suffer lifetime damage and lose faith in public institutions. A new twist is an apparent decline in the 'employment intensity of growth' as rebounding output requires fewer extra workers. As such, it may be hard to re-absorb those laid off even if recovery gathers pace. The world must create 45m jobs a year for the next decade just to tread water."

    O, I guess I got this ideal of social unrest and lost of social cohesion from the beloved IMF. I guess that means the IMF is no longer a creditable source. http://www.telegraph.co.uk/finance/financetopics/financialcrisis/8000561/IMF-fears-social-explosion-from-world-jobs-crisis.html

    The last paragraph of the quote points out "the lost generation" of youth growing up without jobs and unable to live life: getting married, working, and being able to provide for their basic necessities without a handout from the government. A generation of youth across the world is growing up being dependent on the government and is facing life altering changes in their character. I heard this talk of a lost generation on CNBC also.

    Toejamm, when I look at the character of the average person, there is no way that they can handle the economic storm that is coming in a way that will lead to the creation of free economic system.

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  5. Jeff, you act like people's psyche right now is judgemental on how they will act in 10-20 years. But I disagree. Just like the cultural movement goes, for lack of better words, to the left in a slow and gradual way, the cultural movement will go to the right in a slow and gradual way as well.

    Situations like the one below indicate that there is a chance for our western ideals to re-emerge and bring back our fundamental capitalist policies.

    "Republicans in the Wisconsin Senate passed a resolution Thursday calling for police to take 14 Democrats into custody for contempt after they fled to Illinois to avoid voting on a bill that would strip public-sector unions of nearly all their collective bargaining rights."

    "Never despair when there is still hope"-JRR Tolkien.(I think he said that)

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  6. I got that wisconsin quote from foxnews.com

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  8. I can be fairly certain as to how people will react by observing our culture. I gathered this information from several books. And if the economy does collapse and this situation makes it as to where people can't provide for their basic human needs, this it is a certain fact that they will respond in a manner that will be negative to liberty. I don't think that when the economy collapse or has a reset that things will get to the point where people can't meet their basic human needs, but I do think that the global monetary structure will collapse or have a shock and need to be reformed. And that shape will not be one that is good for liberty.

    I got a better quote, "Human societies come under the influence of great tides of thought and appetite that run unseen deeply below the surface of society. After a while these powerful streams of opinion and desire move the whole social mass along with them without the
    individuals in the mass being aware of the direction in which they are going. Up to a certain point it is possible to resist these
    controlling tides and to reverse them, but a time comes when they are so strong that society loses its power of decision over the direction in which it is going."

    The point of no return that people are unaware of and their ability to have the power to chose the direction we are going has been reached on a cultural and economic level. Do fishes know that they are wet? Look up that saying to see what it means in reference to you realizing the state of our culture. And look at how the government was basically forced to react to the economic downturn in 2008, President Bush was told by his advisers that if he did not bail out/take over the banks that the world was going to end. I am paraphrasing what he said in an interview. To prevent lost of social cohesion and the collapse of our system and way of life, the government will have to assume greater power and authority over the economy and our lives when the economic reset occurs. You can look at the EU and those individual nations that are losing their national soverignity as a result of their finanicial situation. We have reached the point where we no longer have the power to chose. The alternative to decide to go in the direction of less government intervention will be to painful and will in the end lead to worse due to the culture of our people.

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  9. Looks like 6 billion will be cut from the budget. Making progress, slowly but surely.

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