Thursday, February 11, 2010

Two Looming Crises Grow Larger

Over the past week, largely ignored by the mainstream media, two simmering crises bubbled a step closer to finally growing too large to be ignored. Both issues have been slowly deteriorating over multiple presidencies and been neglected by both parties. Nevertheless, it is very ironic that both problems, one foreign and one domestic, moved up to the next level within days of each other.

The more dangerous of the two is the domestic issue. The Social Security Administration announced that in 2010 Social Security will pay out more in benefits than it collects in taxes [1]. Social Security has was predicted to begin losing money by 2017 as Baby Boomers begin to retire en masse, but layoffs and forced retirements from the Great Recession accelerated the losses as tax revenues fell. It is believed that that as the economy recovers, receipts will rise and push the program back into the black for a few years. As the program slips again into the red, it is forecast to go totally bankrupt by 2037 (long before I retire!).

This is not the first time that Social Security has lost money. The program had to be overhauled in 1983 to prevent it from going bankrupt years earlier. The bipartisan agreement that delayed the inevitable raised the retirement age to 67, increased payroll taxes, and made benefits taxable. The changes were supposed to keep the program solvent until 2058, but that estimate has now decreased by 20 years [1].

Social Security’s budget problems are symbolic of the larger financial problems facing the federal government (and most of the states) as a whole. Medicare began paying out more than it took in last year and is forecast to become insolvent by 2017 [2]. The federal government has long been taking in less than it spends, but in 2009 the federal budget deficit rose to more than 10% of the national GDP [3]. Even President Obama’s own budget director, Peter Orszag, admits that this is not sustainable, yet President Obama’s proposed budget calls for spending increases. Orszag and Obama are relying on primarily on tax increases and economic growth to bring the deficit down. In reality, Obama’s unchecked spending and anti-business policies are likely to push the deficit even higher.

The current deficits are the worst that the US has experienced since WWII. What makes this situation worse is that in the 1940s we had a plan to eliminate the deficit and pay off the national debt. We would win the war and shift our economy back to making profitable consumer goods. Back then, we also got something tangible for our money: ships, tanks, and airplanes. Today we not only have no plan to do anything other than run increasingly large deficits, much of the money that we have spent has been totally wasted.

In contrast to the USA’s 10% of GDP deficit, the European Union has a limit of 3% of GDP for member states. When Greece’s deficit came in at 13% for 2009, it sparked a crisis which may lead to a financial rescue of the Greeks by Germany and other European nations to prevent a default [4].

If the US trend continues, the government might find it hard to find buyers for our debt. Essentially other nations and investors would stop loaning us money to fund our excesses. Another possibility is that the US government might print more money, which leads to inflation, or default on its debts, ruining our national credit rating. Already bond rating agency, Moody’s, has warned that the US is in danger of losing its AAA credit rating, which would make it more expensive for the government to borrow money [5]. The worst case scenario is a creditor nation could call in our debts, which we could not pay, and collapse our economy.

The second threat is equally dangerous and could have just as big an impact as a US national bankruptcy. This week Iran announced that they had begun further enriching uranium. While Iran does not admit to having enriched to weapons grade uranium yet, this announcement is a further step in that direction [6].

Iran’s refusal to negotiate in good faith indicates a commitment to developing nuclear weapons regardless of the consequences. President Obama’s campaign promise to negotiate with leaders like Ahmadinejad has not borne fruit in Iran or anywhere else. It has been impossible to achieve agreement on meaningful sanctions because of interference from Russia and China. Russia is providing the Iranians with their nuclear reactor and stands to lose commercially if the Iranian nuclear program is dismantled [7]. China is a large purchaser of Iranian oil.

Many believe that Iran’s possession of a nuclear weapon is not a threat to the world. They point to their belief that Iran has not initiated wars of conquest in the years since the Iranian Revolution, but neglect the fact that one of Iran’s chief exports since then has been terror and hatred. Likewise, some believe that Iran’s possession of nuclear weapons would be defensive in nature. Others point to the fact that the US and USSR coexisted throughout the cold war without a nuclear exchange and believe that a nuclear Iran could be similarly constrained through the certainty of their own destruction if they ever used their weapons. These arguments ignore several crucial facts.

First, they ignore the many threats that the Iranians have already made against the US and Israel. President Ahmadinejad is a Holocaust-denier who hosted a “World without Zionism” conference and demanded that Israel be “wiped off the map” [8]. He apparently believes that he is called to attack Israel to usher in a Muslim messiah called the “Mahdi” [9].

Second, many prominent officials in the Iranian government believe that the destruction of their entire nation would an acceptable cost for destroying Israel. Hashemi Rafsanjani, currently Chairman of the Assembly of Experts, said the “application of an atomic bomb would not leave anything in Israel but the same thing would just produce damages in the Muslim world” [10]. In other words, Iran is merely a part of the Muslim world. If Iran is destroyed along with Israel, but other Muslim nations survive, the Iranian government would consider that a victory. The important thing to them is not that Iran survives, but that Israel does not.

The United States is also Iran’s mortal enemy. Iran has threatened the United States as well as Israel [11]. At the same time, Iran’s missile tests indicate that Iran is seeking to develop a nuclear electromagnetic pulse (EMP) capability in which a single nuclear warhead, detonated high above the US, could paralyze the entire country and kill millions through starvation and exposure by destroying our electrical grids [12]. A report on the EMP threat was delivered to congress in 2004 [13], but so far little has been done. The Iranians could use a nuclear weapon to attempt to control oil exports from other countries in the region as well.

At this point, there is still time to deal with both problems, but time is slipping away. Our elected leaders of both parties seem to be uninterested in either issue. If our leaders won’t lead, then it is up to the people to take the initiative.

On the spending issue, we need to encourage our politicians to make hard choices. Government spending must be cut. The solution that seems to make the most sense is to impose an immediate freeze on all nondefense spending. While spending levels are frozen, a bipartisan committee should go over the federal budget, not with a scalpel, but with a chainsaw. Everything that is not absolutely necessary and constitutional should be cut. The committee’s recommendations would go to congress for an up or down vote with no amendments allowed. Entire federal departments could (and should) be eliminated.

Voters can contact their representatives to ask them to stop taking earmarks and to cut spending. If they don’t listen, vote for someone who will. Entitlement programs such as Social Security, Medicaid, and Medicare together with interest on the federal debt make up almost half of the federal budget [15]. All of these categories will be growing in the future. To pay down the federal debt, entitlements must be cut, but this is politically difficult.

Growing the economy will help, but is not a solution in itself. Cutting federal spending will also help to grow the economy since the government won’t be competing with private firms for investment dollars. Keeping taxes low and regulations simple will also help the economy to grow.

With respect to Iran, we can also demand that our leaders pay attention to the problem and negotiate from a point of strength rather than weakness. A military strike should not be ruled out. If we choose not to strike, we should not limit the options of Israel. The US should also do as much as possible to support the Iranian dissidents who oppose their government’s vision of the world. President Obama has been noticeably quiet towards the new Iranian revolutionaries. They have even chanted on occasion “Obama, are you with us or against us? [16]” They should not have to ask.

In the meantime, we should pressure our representatives to take steps to defend against an EMP attack. Admittedly this is a time of national financial crisis, but national defense should be our number one priority. The very survival of our country could be at stake.


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