Friday, March 12, 2010

And We Laugh at the Greeks

I realize it is easy to snicker at the sham that is the Greek economy. This NYTIMES article illustrates the folly of their system--- 580 government identified job categories that merit early retirement + government pension at age 50 for women and 55 for men. It's hard to believe. Before we laugh too much at the Greeks maybe we should take a closer look at what is going on in our own country because it seems to me that we are moving down a parallel path.

The US February budget numbers came out the other day and there is no polite way to describe the mess we face. It's almost surreal that we are only able to fund a third of our expenditures ( we are borrowing the rest). What blows my mind is the fact that we as a national economy are coming off of a 30 year cycle of relative prosperity, yet we face huge unfunded entitlement obligations in the not too distant future with no money in the piggy bank and an unfathomable credit card bill. And I repeat, this is after several decades of prosperity. I couldn't do a better job of describing the February budget debacle than Karl Denninger of The Market Ticker does ( highlights below). If and when we lose the abiltiy to borrow cheaply it will not be pretty.

50% of the federal budget right now goes to entitlements.
This last month we posted a record $220.9 billion budget deficit. We took in $107 billion but spent $328 billion.
Isn't that special. We only funded 32% of expenditures?
Remember - entitlements were half of that $328 billion.
So let's see if we can do the math here.
Entitlements were about $164 billion last month in spending. The rest was, of course, the rest.
But we only took in $107 billion.
So even if we eliminated all entitlement spending we still did not have enough money to cover the rest.
If you want to know why the market is floating higher it's for the same reason you feel all giddy and special when you strike out on the town with your shiny plastic. You have magic cards!
It doesn't matter if you have a job, it doesn't matter if you have any money in the bank, so long as you have magic cards.
For how long does the United States continue to have magic cards?

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