Keeping Pace With a Declining Empire

Somebody slipped Uncle Sam’s credit card under our hotel door this morning. Well, almost. The image, as captured on the front page of Canada’s The Globe and Mail’s business section, showed the “National Credit Card of the United States of America…member since 1776…valid through 08/02/11.”

The accompanying story, “Austerity Key to US Debt Talks,” gives a few of the troubling details. Here’s a list of “put it on the plastic” transactions Uncle Sam rang up on your behalf just last year, as provided by that Globe and Mail piece:

US federal spending

Fiscal year 2010 (in billions of US dollars)

• Discretionary $660
• Other mandatory $416
• Net interest $197
• Medicare and Medicaid $793
• Social Security $701
• Defense Department $689

TOTAL: $3.456-trillion

Now compare that to…

US tax receipts

Fiscal year 2010 (in billions of US dollars)

• Social Security/Social insurance $865
• Corporate income $191
• Other $140
• Excise $67
• Individual income $899

TOTAL: $2.162-trillion

As you can see, there’s a bit of a discrepancy there. Well, a bit more than a bit. For every dollar the government spent in 2010, it was only able to steal roughly 62 cents through taxes. The rest came from the kindness of strangers with last names like Wong and Kim. Now, why would a Wong bother lending money to the US, you ask? A better question might be for how long will Wong lend? And what happens when Wong’s kindness runs out?

You’d think such questions, and the uncomfortable answers they beg, would be enough to make politicians second guess their spending habits, tighten their belt a tad, shape up. Ha! Don’t make us laugh!

Thus far, the United States has incurred an impressive $14.3 trillion in public debt, “subject to limit,” as they say. Put another way, that’s about $46K per citizen, or $130K per taxpayer. At current rates, those figures will jump to $22.9 trillion by 2015; $70K per citizen, or almost $190k per taxpayer…assuming there are still working stones from which the politicians on Capitol Hill can extract blood four years from now.

And that’s not even factoring in the exponential growth debt expansion tends to deliver toward dying days of a typical Empire. In 2007, for example, that debt stood at about 36% of America’s GDP. Today, that same little monster has grown to reach 70% of GDP.  All that in four years; one Olympiad! They grow up so quickly, don’t they? Even so, that’s some pretty gnarly spending, even by politicians’ own standards.

And what do these geniuses have to show for all of their greasy-mitted stimulus spending, for their various bailout programs and phony-baloney make-work schemes? What, in other words, does a few trillion dollars worth of other people’s money – some stolen, the rest begged and borrowed – buy you these days? More jobs? A rebound in the housing market? A new suit and tie? Any measure of honest, good-for-something growth? A – dare we even say the word – “recovery”?

Not from the looks of it. Not even by the government’s own accounting!

The US economy probably grew at about a 2% annualized during the second quarter, a report due out this Friday is likely to show. That’s roughly 1-2% slower than it needs to grow just to keep pace with population expansion, just to add enough jobs to avoid going backwards. Which begs another question: What does a declining Empire look like, a giant, lumbering colossus of warfare misadventures and welfare promises?

The grim picture will already look familiar to Fellow Reckoners, who’ve been patiently, if not painfully, listening to us rant and rave about the US debt crisis for years.

Joel Bowman
for The Daily Reckoning