Entitlements: The Real Threat to Our Prosperity

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Entitlements: The Real Threat to Our Prosperity

We have already discussed on numerous occasions the causes of the present global financial crisis.  But the response to that crisis is still an open question, and one that is the subject of heated debate.  Famed economist Horace Brock weighed in recently on the InvestorsInsight1 Web site.  In his lengthy essay, he argues that the unprecedented global recession has combined with an unprecedented level of deficit spending in the name of "stimulus" to pave the way for serious troubles in the U.S. that are little understood. 

In recessions, as long as monetary policy remains accommodative, pent-up demand eventually breaks out into consumer spending, forcing a recovery.  A number of factors, though, including an aging population, are combining to create a situation in which this natural healing process is far more difficult than in any downturn since the 1930s.  The biggest factor is that people are saving more, and are willing to spend less.  To compensate for unusually high private sector saving and inhibited consumer spending, public expenditures have been ratcheted up to extraordinary levels.

The concern now is that, as stimulus spending grows beyond a certain level, it pushes interest rates up, choking off private investment and consumption.  This, in effect, neutralizes the intended stimulus effect of the public expenditures.  It also creates a great debt load that has to be serviced in the future.  During that future, the Baby Boomers will be retiring and placing demands on our entitlement programs, especially Social Security and Medicare.  This sets the stage for negative consequences for the global economy, as well as the U.S. 

Worse yet, new entitlements are being contemplated that will make an already dire scenario even more bleak.  Consider, for example, the so-called "ObamaCare" health plan now being debated in Washington.  As reported recently in Newsmax2magazine, the entitlement could provide insurance to 47 million new people, while also potentially stalling the economic recovery.  Instead of creating a temporary deficit aimed at recovery, it would lead to a permanent drain on the economy that could never be paid off. 

To understand why this apparently benevolent program could have such negative implications, consider the situation we already face.  The existing entitlement programs amount to some $48 trillion in unfunded liabilities going forward.  Even without all the new debt being dumped on the books by the Obama administration, some experts forecast that tax rates above 60 percent will be needed to meet these obligations and service the debt accrued through 2008...

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