At Middle Age, Are You Prepared for America’s Debt Crisis?

The January 2, 2013 headline in our local newspaper boldly proclaimed, “FISCAL CRISIS AVERTED.” Having been reassured, I fear the average American will breathe a big sigh of relief, go back to watching American Idol and the NFL and leave it to our politicians to work out the details. That Federal budget deficit stuff is just too complicated to understand, anyway. “Because I won’t earn over $400,000 this year my taxes won’t go up and they aren’t cutting my entitlements so I’ll be fine!”

Guess what: things are not “fine” for those of us at middle age diligently saving and investing for retirement. The extended, contentious, often bitter negotiations have produced almost nothing more than a symbolic victory for the President and another kicking of the deficit can further down the road. Standard & Poors warns that the budget agreement did little to put the government’s finances on a “more sustainable footing.” Tax increases on the wealthy will produce $620 additional revenue over 10 years (presuming no economic slow-down from the higher taxes) but estimated total growth in our deficit during those same 10 years is $7.9 trillion, so that’s an 8% solution!  

Incredibly, despite President Obama’s repeated calls for a “balanced approach”, the legislation includes only $12 billion in 10-year spending cuts! A bloated Uncle Sam just keeps spending more and more and borrowing and printing additional dollars to pay for it. When are we Americans going to force our politicians to go on a diet?

When I sold my business in 2010, my finances appeared to be in sound order to finance the rest of my life–now, I’m beginning to have serious doubts. How do those of us over 50 protect ourselves now? Gold and silver don’t provide interest and dividends to fund retirement lifestyle. More and more currency chasing finite resources can only lead to one ultimate result: rampant inflation. How long until a McDonald’s hamburger costs us $100? 

The Federal Reserve has financed our four-year, $5.2 trillion increase in national debt through “quantitative easing”, buying Treasury and other Federal notes and “paying for” them by creating out of thin air additional reserves for our nation’s major banks. The public, including foreigners, has pitched in, buying Treasury notes desepite interest rates near zero. Treasury has gotten away with offering these low rates because of our lax economy; banks and corporations are sitting on a lot of cash. What will happen when economic activity, then inflation kicks up; the Fed will want to end quantitative easing and buyers of Treasury notes will demand higher returns? Runaway inflation and an ever-worsening Federal deficit problem, that’s what!

The bottom line: our nation’s debt crisis can ruin present and future retirement for those of us over 45–along with everyone else! Can you imagine what it would be like to be nearing retirement age in Greece? So what can you and I do to force our politicians to grow up, act their age, put the country’s interests ahead of their own and find some real solutions? To start with, we need to demand common sense to cut through all the B.S. and double-speak:

  • A $4 trillion deficit reduction over the next 10 years” actually means a $6 trillion increase in debt rather than a $10 trillion increase.”
  • “A fair and balanced approach” really means higher taxes now with promised expense reduction and entitlement reform later: but the reductions and reform never occur.
  • “We will reign in federal government spending.” Fact: Estimated $2.5 trillion in 2012 government receipts were $119 billion below 2007 receipts but annual outlay has risen from $2.7 trillion to $3.5 trillion! Does this sound like restraint?
  • “We will do everything we can to protect the middle class.” In fact, inflation and a languid economy are eating away at our purchasing power and lifestyle. Real average disposible income has declined in each of the last four years. Goods and services purchased for $1.00 in 1970 require $5.86 today. Wait until dollar devaluation, runaway inflation and financial collapse hits!

Although not a pleasant subject for the start of 2013, you and I need to make sense of what our $1+ trillion per year deficit spending means to us and how it will impact our wallets, our jobs, our lifestyle and our retirement–not to mention our children and grandchildren. An even bigger problem may be unfunded liabilities. The November 27, 2012 Wall Street Journal estimated $86.8 trillion in combined unfunded liability for Social Security, Medicare and federal employee retirement benefits. How are we going to pay this tab as more and more Baby Boomers retire?  

To pay for accrued expenses, funded and unfunded liabilities, the Wall Street Journal estimates Treasury soon will need $8 trillion in annual tax revenues. Actual 2012 government receipts were $2.5 trillion, a mere $5.5 trillion a year short! In fact, were the feds to confiscate 100% of all income for anyone earning $66,000 or more a year, we would still be $1.3 trillion a year short, and this assumes that all of us “wealthy” individuals are willing to begin working and investing for nothing!

Despite our recent tragic spendthrift ways, we didn’t get to $16.4 trillion in national debt over night. Both political parties share the blame. At this point, is there a feasible solution for turning around decades of fiscal irresponsibility? I don’t have the answers but I can offer these suggestions:

  1. Strive to get the word out to the average American: “If not brought under control quickly, our nation’s debt crisis will impact you and your loved ones and you won’t like the results.”  If we don’t regain control now, rampant inflation, unfathomable reduction in entitlements and irreperable harm to our lifestyle are inevitable consequences.
  2. Force our politicians to accept base-line budgting. Automatic, built-in increases to expenditures can no longer be tolerated  Let’s start talking about actual reductions in federal spending rather than patting ourselves on the back for marginally slowing its growth.
  3. Ensure all Americans have skin in the game through higher taxes or reduced entitlements, sharing now in small sacrifices to avoid disastrous consequences later. We need to overcome the mentality that “budget restraint is great so long as it doesn’t impact me.”
  4. Until our fiscal house is in order, raise taxes only to pay down the debt, never to fund additional spending.   
  5. Realistically reform entitlements & pay them out strictly based on need. How about “means testing” for Social Security? Heck, I’ll give up my entire social security check if the government can protect the purchasing power of assets I own now.  

For more ideas on solutions to America’s debt crisis, tune in to the Decmber 31, 2012 broadcast of my Internet radio show, “Middle Age Can Be Your Best Age” on WebTalkRadio.net. Together, you and I can start the new year by making our voices heard: the voices of good-old measured, middle-age common sense!

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