Thursday, April 11, 2013

Market Update from Mike Kuta Part 2

April 11, 2013
Current fiscal policy harms U.S. competitiveness.

We're focusing too much on the present, and too little on the future. Political dysfunction in D.C. has led to the American public being barraged by continuous media reports about the fiscal cliff, the debt ceiling and the sequester. But the political skirmishes and impasses around these short-term events are distracting us from the real danger ahead: Our reckless fiscal trajectory that threatens America's competitiveness. For the nation to prosper, we must remain an attractive location for companies to pay competitive wages consistent with high and rising living standards. This requires targeted investments by the government, especially in physical and informational infrastructure, education and training, and scientific research. But the bad measurements used by the government are keeping the public in the dark about how needed investments for the future are being crowded out by the government's enormous debt and other obligations.

The nation's reported debt has almost tripled— to over $16.6 trillion—just since 2000, and the interest on this debt will be paid every year into the future. This obligation, however, is not the real problem. The U.S. actually is in a much deeper financial hole, and one that is not evident on the federal balance sheet. The nation's off-balance sheet obligations include our country's promises for future Medicare and Social Security payments which, as of fiscal 2012, totaled nearly $50 trillion. These off-balance sheet obligations also include other promises, such as the unfunded pension and retiree health benefits for civilian and military personnel, and for various contingent commitments like guarantees for student loans, home mortgages and corporate pension benefits.

Adding up all these governmental obligations brings total debt and unfunded obligations to about $70 trillion, more than four times our current GDP, and up from about $20 trillion at the end of fiscal 2000. And, lacking any current action this number grows by $350 billion every month. Bill Clinton observed in 1992 that the government is "spending more on the present and the past, and building less for the future." Yet during the past 20 years this problem has gotten far worse. Paying for interest on the public debt and meeting our unfunded obligations and promises will drive mandatory governmental spending to unsustainable levels. The mandatory spending in the federal budget – which includes social insurance programs, federal employee retirement benefits and interest on the national debt - was 49% of the budget in 1972, 64% of the budget in 2012, and projected by the Congressional Budget Office to become 76% in 2023. As mandatory spending increases, fewer funds are available for discretionary governmental spending, especially on the critical investments that ensure and increase America's competitiveness.

Read More:
 http://sweetfutures.com/2013/market-update-from-mike-kuta-part-2-2/



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