As long-time clients and readers are well aware, the explosion in our national debt has been one of my continuing themes over the last 30+ years, under both Republican and Democrat presidents. So today’s discussion is not a political issue, and it should worry us all.
By the time President Obama leaves office in January 2017, the U.S. national debt is projected to have almost doubled during his eight years in office. Put differently, Obama will have added as much to the national debt as all presidents before him combined. That is simply staggering!
Throughout history, no major nation that has accumulated debt of more than 100% of Gross Domestic Product has ever paid it back. Instead, they have defaulted. So will we, at some point if we don’t reverse course, which seems very unlikely. As such, the question is when will the U.S. default and what will trigger it?
Saddest of all is the fact that, despite almost doubling the national debt over the last seven years, with much of the spending on social programs, the poverty rate in the US is near an all-time high; ditto for those living on food stamps. You would think that doubling the national debt and increasing entitlements should have dramatically lowered poverty and those living on food stamps. It didn’t.
Over the last decade, we’ve also seen an explosion in the number of Americans who receive disability benefits. Unfortunately, Congress has watered-down the requirements to receive disability payments to the point that many able-bodied Americans are no longer working.
The above is what we’ll talk about today. But first, let’s take a quick look at the jobs report.
October Unemployment Rate Plunges to 7-Year Low
The Labor Department reported that the U.S. unemployment rate fell to 5.0% last month, the lowest level since 2008, and down from 5.1% in September. The economy added 271,000 jobs versus the pre-report consensus of just 181,000.
A broader measure of unemployment that includes those who have stopped looking for work, as well as those working part-time because they can’t find a full-time job, declined to 9.8%, the first time it’s been below 10% since May 2008.
Perhaps more important than the headline number was the growth in average hourly earnings, which jumped 9 cents, representing a monthly gain of 0.6% and an annualized increase of 2.5%. That was the best monthly gain this year. The only disappointments in the report were the average work week which did not increase and held steady at 34.5 hours, and the labor force participation rate was unchanged at 62.4%, a 38-year low.
$20 Trillion Man: Debt to Double Under President Obama
When the president signed into law the latest two-year budget deal in November, our national debt immediately swelled by $339 billion. These were bills that had piled up after we hit the debt ceiling. Our national debt went from $18.15 trillion to a new record of $18.49 trillion, all in one day.
The new budget deal authorizes the Treasury to borrow another $1.5 trillion between now and March 2017, which means our national debt will be nearing $20 trillion (if not more) around the time Mr. Obama leaves office. He will be the “$20 Trillion Man.”
When Mr. Obama took office in January 2009, the total national debt stood at $10.5 trillion. That means the debt will have very nearly doubled during his eight years in office, and there is much more debt ahead with the budget deal’s abandonment of “sequestration” spending caps enacted in 2011. The National Taxpayers Union had this to say:
“Congress and the president have just agreed to undo one of the only successful fiscal restraint mechanisms in a generation. The progress on reducing spending and the deficit has just become much more problematic.”
If you recall, the new budget deal increased federal spending by $80 billion over the next two years. If that weren’t bad enough, the bipartisan Committee for a Responsible Federal Budget estimated that only about half of the increased spending in the budget deal is paid for.
Rather than a spending increase of $80 billion over two years, the nonprofit group said, the actual spending hike is $154 billion – almost twice as much – when interest costs and bogus budget gimmicks are factored into the equation.
Then there’s the issue of the debt ceiling. Rather than raising the debt limit by some specific amount, as is usually the case, Speaker Boehner agreed to simply “suspend the debt ceiling.” That means there is no debt limit for the next two years. Here’s what Senator Rand Paul, who opposed the budget deal, said: “We will be giving President Obama a free pass to borrow as much money as he can borrow in the last year of his office. No limit, no dollar limit. Here you go, President Obama. Spend what you want.”
Given this ridiculous cave-in to Obama, there is little doubt that he will become the $20 Trillion Man by the time he leaves office. The only question now is, will the bond market stand for it? I’ll have more on that scary question at a later date.
Debt Held by the Public vs. Intragovernmental Debt
As discussed above, our national debt swelled to $18.49 trillion when President Obama signed the new budget deal. The national debt is comprised of two components: 1) “Debt Held by the Public;” and 2) “Intragovernmental Debt.”
There has long been a debate, mostly in liberal circles, that the Intragovernmental Debt shouldn’t be counted toward the national debt since, they argue, this is money we owe ourselves. This argument is ridiculous, and I have debunked it for years. Yet with our debt headed for $20 trillion by early 2017, it is time to debunk it again.
I’ll begin by explaining the difference between Debt Held by the Public and Intragovernmental Debt.
Debt Held by the Public is all federal debt held by individuals, corporations, state or local governments, Federal Reserve Banks, foreign governments, and other entities outside the United States government.
Intragovernmental Debt consists of debt securities held by various government trust funds (including Social Security), revolving funds, special funds and Federal Financing Bank securities.
To keep this discussion brief, let’s go back to when the national debt first reached $18 trillion.
The bulk of Intragovernmental Debt is owed to the Social Security Trust Fund and the Medicare Trust Funds, with the balance owed to other government trust funds. Most of these trust funds have run surpluses for many years, as planned, yet the government has chosen to borrow and spend these surpluses and replace them with Treasury IOUs.
Some argue that the roughly $5 trillion in such debt should not count toward the national debt since this is money “we owe ourselves.” Here’s why that argument doesn’t hold water. Intragovernmental Debt, just like Debt Held by the Public, has to be rolled over periodically and replaced with new securities. Debt is debt.
Put differently, does anyone doubt that the trillions of dollars Uncle Sam has borrowed from Social Security will have to be repaid at some point? Of course it will have to be repaid in one form or another as the SS bills come due, lest the government default.
The bottom line is that it is ridiculous for liberals to argue that Intragovernmental Debt should not count toward the national debt. This debt must be repaid at some point just like Debt Held by the Public.
The national debt is now almost $18.5 trillion, not $13 trillion or so, as many progressives would like us to believe. And as discussed above, we’re on our way to almost $20 trillion in debt by the time Mr. Obama leaves office in early 2017.
Poverty in America Remains Near a Record High
You would think that the wealthiest country on the planet, a country that will have borrowed almost $10 trillion during Obama’s eight years in office, would not have a big poverty problem. Surely the government could find enough money in that $10 trillion to care for the poor.
Yet the latest figures from the Census Bureau released in September showed that a near record 47 million Americans (or almost 15% of the population) were living at or below the poverty threshold of $24,250 for a family of four at the end of 2014 (latest data available).
While the average poverty rate was 14.9% nationally last year, the numbers were considerably worse for minorities and women. While Whites and Asians had poverty rates of 10% and 12%, respectively last year, Hispanics and Blacks had poverty rates of 23.6% and 26.2%, respectively.
More than one in seven women, over 18 million, lived in poverty in 2014. The poverty rate among adult women was 14.7% last year, as compared to the poverty rate of 10.9% for adult men.
Poverty rates were particularly high for women who head families (39.8%), African American women (25.0%), Hispanic women (22.8%) and women 65 and older living alone (19.7%). The poverty rate for all women 65 and older was 12.1% in 2014, compared to 7.4% for their male counterparts. More than two-thirds (68.1%) of the elderly poor are women.
More than half (56.7%) of poor children in America lived in female-headed families in 2014. Fatherless households are an epidemic.
Americans on Food Stamps Also Near Record High
Fourteen percent of U.S. households lacked access to enough good food at some point last year, according to the latest annual report in September from the USDA, which operates the Supplemental Nutrition Assistance Program (SNAP), otherwise known as food stamps.
Actually, the 14% number for 2014 was down slightly from 14.3% in 2013. Despite the slight improvement, the number of Americans that have to rely on government assistance to eat is woefully too high.
The number of Americans on food stamps peaked in 2013 at 47.6 million people. It has since fallen slightly and some estimate it will dip below 46 million for 2015. Still, despite an improving economy, the rate was almost double what it was in 2007 before the Great Recession.
James Weill, president of the Food Research & Action Center, an anti-hunger advocacy group, said in an interview earlier this year: “It’s just appalling that in this country – when at least from a GDP point of view we have a larger economy than we did before the recession – we have millions more people struggling with hunger.” This is very sad.
Americans on Disability Insurance Also Near Record High
America’s healthcare entitlements – Medicare, Medicaid and Obamacare – are the largest drivers of our exploding federal debt. Yet there is a fourth entitlement program that pays disability benefits through the Social Security Administration, which is also growing at an alarming pace.
At the end of 2014, there were 10.93 million Americans receiving disability benefits, down slightly from 10.99 million at the end of 2013. The number of people receiving disability benefits has skyrocketed since the year 2000 when the number was only 6.67 million.
While part of that growth can be explained by the aging of the U.S. population, the largest factor in the proliferation of disability spending comes from the fact that Congress has dramatically expanded the definition of who gets called “disabled.” As a result, many able-bodied Americans have been granted government paychecks for years, crowding out our ability to direct needed resources to the genuinely disabled.
The story of the growth in federal disability spending has been percolating for years. The Great Recession of 2008 led to a spike in unemployment. Many people who had difficulty finding work discovered that they might be eligible for Social Security disability benefits, benefits that would replace a significant portion of their previously earned wages.
Today, the United States spends around $200 billion a year, literally paying many able-bodied Americans not to work. Sadly, the number of Americans collecting disability payments, at just under 11 million, is larger than the entire population of several countries.
The number of Americans receiving disability payments is larger than the entire population of Tunisia and Portugal and more than double that of Bolivia.
Gary D. Halbert is the president and chairman of Halbert Wealth Management, Inc. His Forecasts & Trends Weekly E-Letter may be obtained free of charge by subscribing at www.halbertwealth.com