Aug 8, 2011

Beyond the Point of No Return

Todd StrandbergBy Todd Strandberg
Rapture Ready

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It is difficult to recall a time when the legislative process in Congress has reached such a level of absurdity. After months of high drama and debate over the debt ceiling, our elected leaders finally produced a bill that would have little impact on the river of deficit spending flowing from Washington .

US president Barack Obama and treasury secretary Timothy GeithnerThe nearly $1 trillion in cuts are spread over a decade and are skewed toward the end of that period. We don’t start saving a single penny until after the national debt has already reached $16.7 trillion. All the bill does is slow the growth of government spending from 9 percent to 8 percent per year.

Even if Congress cuts $2.4 trillion out of the budget over the next ten years, we will still be running annual deficits of more than $1 trillion. Before the agreement, our debt was projected to reach $28.6 trillion by 2021. It is now targeting a debt of $26.2 trillion.

There is already a huge hole in the numbers being used by the government. For the current fiscal year, Washington estimates GDP growth at 4 percent. We now know the actual growth for the first half of 2011 is below 1 percent. Unless the GDP sees a dramatic turnaround, the federal budget will be off by $3.1 trillion.

John Mauldin, president of Millennium Wave Advisors, says that Congress must cut $10 trillion over the next decade. Make no mistake, a trillion a year is a huge task and it will cause pain, but doing nothing will only create more pain. "We don't want to become Greece," he warns. If we fail to address the problems now, we'll have to "raise taxes to levels nobody can comprehend," he argues.

I have zero faith in the ability of the new twelve-member debt reduction panel to have an impact on the deficit. We've had several of these types of panels in the past, and Congress has always ignored their recommendations. If our politicians are too cowardly to make the most minor decisions on entitlements and taxes, it's doubtful the guidance from a "supercomittee" would be enough to spur them to action.

The key driving force behind our growing debt is our aging population. Over the next few years, millions of baby boomers will switch from "taxpayer" to "entitlement beneficiary." In 2010, there were 3.7 workers per retiree. In 2020, there will be 2.9, and in 2030, only 2.4. Just to keep things equal, the average worker will have to endure a 35 percent rise in taxes.

This weekend, Standard & Poor’s downgraded our credit rating from AAA to AA+. I think all the ratings services are ten years too late. The downgrade we need to worry about is one that might come from the nations that hold our debt. Both China and Russia have had sharp words about America 's fiscal policy. Russian Prime Minister Vladimir Putin recently said that the United States was a "parasite" on the world economy.

The road to ruination has many signposts, and we just passed one that has marked the doom of many economies. When the president signed into law the new bill, our debt shot up by $238 billion. The new borrowing caused our debt to instantly reach 100 percent of GDP. Our total public debt now stands at $14.6 trillion.

History shows that every nation with a 100 percent GDP debt load will eventually suffer a financial collapse. When a nation amasses this amount of debt, the power of compounding interest creates a gravity that is nearly impossible to escape.

The debt load is only going to get worse. If we make it to 2021, our debt to GDP will be over 180 percent. Since Greece needed its first bailout at 120 percent, there is no way we will be able continue down that path. America is the largest debtor nation in history, and there is no other big enough to bail us out. In some of the recent debt auctions, the Federal Reserve has been buying over 70-80 percent of out Treasury and bond notes. We are obviously at the point where we need to print money to fund our government expenses.

An economic implosion of the current financial system is almost required by Bible prophecy. During the Tribulation hour, the center of financial power will be in Europe and the Middle East. America has no leading role in the end-times scenario.

Knowledge of the precarious state of the world should help keep us focused on the eternal realm. True riches are not based on gold, bonds, and fiat currency. All who trust in Jesus Christ have a wealth that cannot be measured or appraised in any earthly market.

"Eye has not seen, nor ear heard, nor have entered into the heart of man the things which God has prepared for those who love Him" (1 Corinthians 2:9).

Related Links
Dow closes down 634 points after final plunge - Los Angeles Times
Gold Surges Past $1,700 As S&P Downgrades US Debt - RTTNews
We Hate To Say "We Told You So".... - Family Security Matters
China demands new reserve currency - Financial Standard
Unions, liberals push Reid to appoint party loyalists to 'supercommittee' - The Hill