LTC Bullet: The Entitlement Hurricane

Wednesday, December 10, 2008

Bend, Oregon (LTC Tour Mile 27,285; State #40)--

LTC Comment: Evidence mounts that the real debt problem America faces is more than ten times the $9 trillion in net worth already lost to the current financial crisis. More, after the ***news.***

*** SENSING A TSUNAMI? In keeping with today's weather metaphor, read Isabel Hogue's December 6 blog entry at http://indianainsurancelady.blogspot.com/. It concludes that in case of an oncoming fiscal tsunami:

* Don't wait for official evacuation orders from Congress.

* Immediately leave low-lying entitlement dependency.

* Move inland to the higher ground of thrift, self-reliance, and responsibility.

* RUN -- you've been told a tsunami is coming!

Right on! ***

*** IN A HOLE? STOP DIGGING: John Goodman of NCPA says: "If the federal government stopped the Medicare and Social Security programs today - collecting no more payroll taxes and allowing no more accrual of benefits - it would still owe up to $52 trillion to those who have already earned these benefits, according to a new study by the National Center for Policy Analysis (NCPA). Of that amount, $33 trillion is owed in Medicare benefits. To put the numbers in perspective, the size of the entire U.S. economy is $14 trillion. No one thinks we are going to end these programs. Yet these are the right numbers if we account for federal obligations the way private pensions and state and local governments are required to. Continue Reading

*** GAO's LATEST FISCAL OUTLOOK: "[O]ur updated simulations continue to show escalating and persistent deficits that illustrate the long term fiscal outlook is unsustainable. The federal government faces large and growing structural deficits driven primarily by rising health care costs and known demographic trends. Furthermore, these simulations do not yet reflect recent actions taken by the federal government to support the financial sector." Source: The Nation's Long-Term Fiscal Outlook: September 2008 Update. GAO-09-94R, November 6. http://www.gao.gov/cgi-bin/getrpt?GAO-09-94R ***

*** USE YOUR HOME TO STAY AT HOME: Watch our latest "LTC-TV" feature on the LTC Tour's YouTube channel at http://www.youtube.com/watch?v=5X00ONThGto. Steve Moses interviews Dr. Barbara Stucki about her work on home equity conversion for the National Council on the Aging. ***

*** LTC BULLET ARCHIVES by subject are available. Did you know that on the Center's public website at www.centerltc.com you can find every one of our nearly 800 LTC Bullets archived both chronologically and by topic? Check it out now at http://www.centerltc.com/bullets/index.htm. You'll find links to our latest five Bullets and separate links to "Archives by Date" and "Archives by Subject." ***

 

LTC BULLET: THE ENTITLEMENT HURRICANE

LTC Comment: A key message of this year's National Long-Term Care Consciousness Tour is that America's social entitlement safety net cannot survive in its current form.

So people need to look through the windshield at what's coming, not through the rear-view mirror at how retirement income security, acute care and long-term care were financed in the past.

Social Security and Medicare are already under water financially. Medicaid, including its long-term care component, doesn't even have phony "trust funds" like those "social insurance" programs.

When it all comes crashing down, the poor will be hurt most. The middle class and affluent will turn first to savings, next to home equity, and finally to private LTC insurance. But by then, most of the damage will be done.

Pipe dreams by politicians and bureaucrats that new government programs will somehow correct the damage done by existing government programs will have no more effect than a candle flame in a hurricane.

Here's the latest from two of the best commentators on this issue I've ever found. Read the excerpts, follow the link to the whole article, and encourage your prospects and clients, but also your friends, families and loved ones, to read and heed as well.

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Neil Howe and Richard Jackson, "Why Economic Recovery Requires Confronting the Long-Term Fiscal Challenge" Facing Facts Quarterly: A Report about Entitlements & the Budget from The Concord Coalition, Vol. 4, No. 2, December 2008. Read it.

Excerpts:

"In this hour of financial emergency, the prevailing wisdom in Washington is that any effort to control the long-term growth in entitlement spending must be deferred as we apply whatever fiscal stimulus is needed to jumpstart the economy. In other words, fiscal discipline can be pushed to a distant back burner.

"The prevailing wisdom is mistaken. . . ." (p. 1)

"The stock market and housing market bubbles have burst. But there's another and much larger bubble that is still growing-the entitlements bubble. If America is to emerge from the current crisis with its economic prospects restored, it will have to restructure and rebalance its economy. It will have to raise savings and reduce debt on all balance sheets-household, business, government, and foreign. This cannot be done without tackling entitlements." (p. 1)

"Over the next ten years, between 2008 and 2018, the CBO projects that federal spending on Social Security, Medicare, and Medicaid, the three major entitlement programs, will grow by 2.1 percent of GDP. Between 2018 and 2040, when the boomer retirement is in full swing, it is projected to grow by another 6.0 percent of GDP. We could try to pay for the spending growth by raising taxes-BUT THAT WOULD ULTIMATELY REQUIRE DOUBLING FEDERAL INCOME TAX RATES. We could also try to pay for it by cutting other federal spending-BUT THAT WOULD ULTIMATELY REQUIRE ZEROING OUT THE FEDERAL GOVERNMENT'S ENTIRE DISCRETIONARY BUDGET, from the national parks to national defense. In the end, absent entitlement reform, the result will be widening deficits that undermine national savings and economic growth." (p. 1, emphasis added)

"David Walker, former U.S. comptroller general and president of the Peterson Foundation, likens the looming fiscal meltdown to a 'super subprime crisis.'

"There is the same lack of attention to who bears the ultimate cost and risk. As Walker explains, 'Just as originators of mortgages let themselves off the hook by unloading packages of dubious loans onto others, lawmakers have increased spending, expanded entitlements, and cut taxes while expecting future generations to pay the bill.' There is the same misleading accounting, with trust funds that consist of nothing but IOUs the government has written to itself counted as genuine savings. There is the same lack of transparency, with entitlement obligations showing up nowhere on the federal government's official balance sheet. And there is the same abdication of effective government oversight. Absolutely nothing in the budget process requires Congress to review the budget outlook beyond the next ten years, much less take corrective action.

"There is, however, one crucial respect in which the near-term financial crisis and long-term fiscal crisis differ: their magnitude. To be sure, the financial crisis is huge. According to IHS Global Insight, roughly $9 trillion in U.S. household net worth has already been wiped out since September 2007-and it is by no means clear that all the air has yet escaped from the housing market and stock market bubbles. Yet however high the ultimate cost of the financial crisis is reckoned, it pales when compared with the size of unfunded obligations for federal entitlement programs. One way to measure these obligations is to look at what the government is promising in benefits above and beyond what today's and tomorrow's workers and beneficiaries are scheduled to pay in payroll taxes and premiums. By this measure, the unfunded obligations for Social Security and Medicare now total $102 trillion, or a nearly $1 million off-the-books lien on every U.S. household." (p. 2)

"Up to now, we have always found ways to put off the hard choices. But this time, there is no more room for delay, diversion, and denial. The economy is sinking into what may be the worst recession since the 1930s, even as the leading edge of the baby boom generation begins to retire. The net national savings rate for the year 2008 will be negative for the first time since 1934. We have finally arrived at the juncture where the nation's near-term and long-term economic challenges have become inseparable. If we don't act on both together, we risk solving neither." (p. 3)