THE ROT WITHIN, PART I: OUR PONZI ECONOMY

Dependent on inflating bubbles to evince “economic strength”

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by CHARLES HUGH-SMITH |ZERO HEDGE | JULY 22, 2014

Depending on blowing the next bubble to temporarily prop up the economy is the height of foolhardy shortsightedness.

All the conventional policy fixes proposed by Demopublican politicos, technocrats and the vast army of academic/think-tank apparatchiks are the equivalent of slapping a coat of paint on a fragile facade riddled with dryrot. All these fake-fixes share a few key characteristics:

1. They focus on effects and symptoms rather than address the underlying causes, i.e. the dryrot at the heart of our government, society and economy.

2. They maintain and protect the Status Quo Powers That Be–no vested interests, protected fiefdoms or Financial Elites ever lose power as a result of these policy tweaks.

3. They are politically expedient, meaning they assuage the demands of vested interests rather than tackle the rot undermining the nation.

4. They ignore the perverse incentives built into current systems and the incentives of complicity, i.e. to cheer another coat of paint on the dryrot rather than face the costs of real reform.

The financial underpinnings of the economy and society are rotting from within:finance, higher education, defense, healthcare, law, governance, you name it.

This week I want to highlight a few key causes of this pervasive and eventually fatal systemic rot.

Let’s start with Our Ponzi Economy. There are three primary examples of our Ponzi Economy: pay-as-you-go social programs (Social Security, Medicare, Medicaid, etc.); housing and the stock market. All are examples of financial Ponzi schemes.

All Ponzi schemes rely on an ever-expanding pool of greater fools who buy into the scheme and pay the interest/gains due the previous pool of greater fools. Ponzi schemes fail because the pool of greater fools is finite, but the scheme demands an ever-expanding pool of participants to function.

All Ponzi schemes eventually fail, though each is declared financially soundbecause this time it’s different. The number of greater fools required to keep the scheme going eventually exceeds the working population of the nation.

Here’s why Pay-As-You-Go Social Programs are all Ponzi schemes:

1 retiree consumes the taxes paid by 5 workers.

Those 5 workers when they retire consume the taxes paid by 25 workers.

Those 25 workers when they retire consume the taxes paid by 125 workers.

Those 125 workers when they retire consume the taxes paid by 625 workers.

Those 625 workers when they retire consume the taxes paid by 3,125 workers.

You see where this goes: very quickly, the number of workers required to keep the Ponzi scheme afloat exceeds the entire workforce.

The only way to keep the Ponzi scheme going is to keep raising payroll taxes on the remaining workers, which is precisely what welfare states (i.e. every developed economy on the planet) has done.

But raising taxes merely extends the Ponzi scheme one cycle. Eventually, taxes are so high that the remaining workers are impoverished. Right now, the U.S. has reached a ratio of 2 full-time workers for every retiree. As the number of retirees rises by thousands every day and the number of full-time jobs stagnates, the ratio will slide toward 1-to-1:

The Problem with Pay-As-You-Go Social Programs: They’re Ponzi Schemes (November 5, 2013)

Estimates are even worse in other developed nations. In Europe, the ratio of retirees over 65 to those between 20 and 64 will soon reach 50%–and that’s of the population, not of people with full-time jobs paying taxes to fund social welfare programs. (source: Foreign Affairs, July/August 2014, page 130)

As the percentage of the working-age populace with full-time jobs declines, the worker-retiree ratio will become increasingly unsustainable. The taxes paid by each worker are nowhere enough to fund the generous pension and healthcare benefits promised to every retiree.

In the U.S., the number of people of working age who are jobless is 92 million; the number of full-time jobs is 118 million. This chart of labor participation includes almost 30 million part-time employees who don’t earn enough to pay substantial taxes and millions of self-employed people making poverty-level net incomes.

Courtesy of STA Wealth Management, here is a chart that shows full-time workers are less than half the labor force:

Housing is also a classic Ponzi scheme: prices can only go up if there is an ever-expanding pool of greater fools willing and able to pay even more for a house than the previous pool of greater fools.

As I have explained many times, the only way the Status Quo has been able to expand the pool of greater fools is to lower interest rates to near-zero, drop down payments to 3% and loosen previously-prudent lending standards.

The Housing “Recovery” in Four Charts (May 27, 2014)

These tricks extend the Ponzi for a cycle by artifically expanding the pool of greater fools, but that pool is not infinite. (Foreign buyers are currently enlarging the pool, but their participation is dependent on the Ponzi schemes in their home economies not blowing up.)

The stock market has been made the official metric of the nation’s economic health; too bad it’s a Ponzi scheme. Financial bubbles are what economist Robert Shiller calls “naturally occurring Ponzis” because the psychology of ever-rising prices and profits fuels an inflow of greater fools that sustains the bubble until all available greater fools have sunk their cash and credit into the bubble.

Here is what a market that is increasingly dominated by Ponzi bubbles looks like: this is the S&P 500 (SPX):

(source: Gordon T. Long, Macro Analytics)

Depending on blowing the next bubble to temporarily prop up the economy is the height of foolhardy shortsightedness. Yet that’s our Status Quo, increasingly dependent on inflating bubbles to evince “economic strength” when the Ponzi paint will soon peel off the rotten wood of the real economy.

SHOCK REPORT: 70 MILLION PEOPLE WOULD BE STARVING IN THE STREETS WITHOUT GOVERNMENT WELFARE PROGRAMS

The fundamental numbers behind all the propaganda tell a starkly different story

by MAC SLAVO | SHTFPLAN.COM | JULY 10, 2014

Amid all the talk of recovery by politicians, economic officials and big business leaders, the fundamental numbers behind all the propaganda tell a starkly different story.

Home sales have dropped to record lows, more people are out of the workforce than anytime in the last 50 years, and cash-strapped consumers have run out of money to fuel economic growth.

By all meaningful measures the American boom times of old are gone.

A recent report from the Department of Health and Human Services suggests that we may have already reached the tipping point and that things are only going to get worse going forward.

According to the HHS, nearly half of all Americans are now dependent on some form of government benefit just to put food on the table. And of our population of 310 million, nearly one in four receive welfare benefits.

That’s over 70 million people who, if the government safety nets broke down due to lack of funding or a monetary crisis, would be starving on our streets right now.

The sheer magnitude of the numbers is shocking. What’s worse is that they are indicative of a continuing down-trend that won’t be improving any time soon.

According to the 2014 version of a report that the Department of Health and Human Services is required by law to issue annually, the percentage of Americans on welfare in 2011 was the highest yet calculated. The data for 2011 is the most recent in the report.

By this measure, according to the report, 23.1 percent of Americans were recipients of welfare in 2011. Since 1993, the earliest year covered by the report, that is the highest percentage of Americans reported to be receiving welfare.

A startling 38 percent of all children 5 and under in the United States were welfare recipients in 2011, according to the report.

When recipients of non-means-tested government programs (such as Social Security, Medicare, unemployment, and veterans benefits) were added to those receiving benefits from means-tested programs, the total number receiving benefits in the fourth quarter of 2011 was 151,014,000, according to the Census Bureau. That equaled 49.2 percent of the total population.

CNS News via Infowars
Of critical importance is that this particular report looks only at 2011. Since then we’ve seen even more people taken out of the labor force. Moreover, we’ve seen prices for all consumer goods rise during that time frame and incomes either stagnate or drop to inflation adjusted levels not seen since the 1960′s.

Thus, in all likelihood, we are well over the 50% mark. This means that without government assistance that may include social security, welfare, unemployment or other social services, at least one in two Americans would not be able to pay their rent, buy food, or keep their utilities turned on.

The end of the world as know it is happening right now.

What’s worse is that the those in the upper echelons of our government know it.

They have been actively preparing for the fallout by war-gaming large scale economic collapse scenarios and militarizing domestic law enforcement for the civil unrest to follow.

The American public got a small taste of what something like that might look like when the Electronic Benefit Transfer systems in sixteen states went offline last year for about 12 hours last year.

Nothing short of panic ensued; along with the looting and riots the government expects will invariably happen should the welfare and social distribution systems come under strain.

Watch: Like a Tornado – Grocery Store Shelves Razed in Less Than 3 Hours

Watch: How Am I Going to Feed My Family

The above videos depict the reactions from people in an event that was limited to a small portion of benefits recipients in several states.

Imagine what would happen if such a crisis developed across the entire United States and affected a full quarter of our entire population.

Tess Pennington, author of The Prepper’s Blueprint, warns that such a scenario could lead to a breakdown of the system as we know it within a matter of days.

“Think of mass chaos of people running into grocery stores to get as much food and supplies as possible, gas lines that run out into the street, highways at a virtual stand still, banks not giving out money, looting, fires, the health of the elderly deteriorating due to not being able to get needed medicines, babies crying because they have no formula to drink. It’s not a pretty picture when you allow yourself to imagine it.”

(Source: Emergency Items – What Will Disappear First)
And then, once the store shelves are empty, the real disaster begins, as the government will have no choice but to deploy military assets to quell the riots, and that means mass detentions, incarcerations and maybe worse.

HHS Spent $62 Billion On Improper Payments In Health-Care Programs Last Year

Sarah Hurtubise

The federal government’s health-care programs made over $62 billion in improper or fraudulent payments last year, according to a Senate report out Wednesday, and the sum is likely to rise in the future as the federal government’s role in health care is expanding drastically.

Medicare, Medicare Advantage and Medicaid alone accounted for $62.2 billion of the federal government’s improper payments in 2013, the last full year of former Health and Human Services Secretary Kathleen Sebelius’ tenure, according to the Senate Special Committee on Aging report.

While improper payments across the entire federal government have dropped from a record-high $121 billion in 2010 to $105 billion total last year, incorrect payouts from federal health-care programs are growing.

In 2012, 8.5 percent of all Medicare payments were considered incorrect, but last year the rate grew to 10.1 percent. Medicare has hired more auditors to provide higher levels of oversight to the Medicare and Medicaid payment processes, but so far they’ve failed to actually prevent the improper payouts from happening.

“Medicare just isn’t getting the job done when it comes to preventing payments errors,” said committee chairman Sen. Bill Nelson. “Medicare must change the way it pays its providers so that the cheats are getting caught and the honest providers are getting paid.”

Ranking member of the committee Maine Republican Sen. Susan Collins pointed out that the auditors aren’t helping.

“The increase in audits has not translated into a reduction in improper payments,” Collins said. “In fact, Medicare is currently experiencing its highest improper payment rate in five years.”

The bipartisan report focused on the growing rate of Medicare and Medicaid fraud and even honest mistakes, emphasizing that the health care programs administrator, the Centers for Medicare and Medicaid Services (CMS), must shift from documenting improper payments that have already occurred and attempt to prevent the faulty payments from happening in the first place.

Absent any drastic changes in the federal government’s practices, however, improper health care payments are, if anything, likely to increase over the next several years. CMS administers Medicare, Medicaid and beginning this year, Obamacare as well — creating yet another opportunity for taxpayers to be hit billions in improper payments.

The risk for improper taxpayer spending through the Affordable Care Act is well-documented. Because CMS failed to build an income verification system in time for Obamacare’s launch, the Obama administration is belatedly sending out millions of letters to customers asking them to provide further proof of their eligibility for premium subsidies through Obamacare exchanges.

Read more: http://dailycaller.com/2014/07/09/hhs-spent-62-billion-on-improper-payments-in-health-care-programs-last-year/#ixzz3719Sze50

Obamacare’​s Medicare ‘Reforms’ Result in Little Savings

Obamacare’​s Medicare 'Reforms' Result in Little Savings

Promoted as a way to move away from an outdated payment structure in Medicare, Accountable Care Organizations were expected to deliver better care at lower costs. But, two years later, like many of Obamacare’s promised savings, this experiment is falling short.

As part of the “Medicare Shared Savings” program under Obamacare, ACOs join together doctors and hospitals to manage the care of Medicare beneficiaries. If an ACO can lower spending and meet performance and quality standards, the providers share in the savings with the Medicare program.

From its inception, the ACO model mandated under Obamacare was flawed. Moreover, the financing challenges facing Medicare call for a much more significant structural reform than the ACOs ever could deliver.

Early Results Show Limited Savings. Overall, the Department of Health and Human Services estimates $380 million in initial savings from both Medicare ACOs and “Pioneer” ACOs (a subset of the Shared Savings Program).

As of December 2013, there were 218 Medicare ACOs participating in the Medicare Shared Savings Program. Though results are not yet available for all participants, interim financial results are available for 114 ACOs that were the first to participate in the program and have generated enough data to assess savings. Of these 114 Medicare ACOs, only 29 achieved savings significant enough to qualify for a shared savings payment. According to the CMS press release, “29 generated shared savings totaling more than $126 million… In addition, these ACOs generated a total of $128 million in net savings for the Medicare Trust Funds.”

The “Pioneer” ACOs, a subset of the Shared Savings Program, were identified as some of the nation’s most experienced provider groups in terms of care coordination and expected to be the most capable of meeting the ACO targets. The Pioneer ACOs are eligible to earn a higher percentage of any shared savings payment awarded but also are at risk of owing the government money if they do not achieve savings or meet their quality benchmarks.

Initially, there were 32 Pioneer ACOs, but concern over the proposed methodology for quality benchmarks led several to withdraw. In July 2013, CMS announced that nine Pioneer ACOs had left the program. Seven of the nine switched to the Medicare ACO Shared Savings Program, where they will not accept financial risk, only reward, and two dropped out altogether.

Citing an “independent preliminary evaluation,” CMS reports that of the 23 remaining Pioneer ACOs, only nine had significantly lower spending growth relative to traditional Medicare and exceeded quality reporting requirements, generating gross savings of $147 million. The press release states, “These savings far exceed findings from a previous analysis conducted by CMS, which used a different methodology.” It does not explain how much of those savings were retained by the Medicare program and how much was shared with the ACOs that achieved their targets.

These weak initial results for both the Medicare ACOs and the Pioneer ACOs cast growing doubt that a wide application of the ACOs throughout the rest of the health care sector will result in significant savings in Medicare.

Bigger Savings Needed for Medicare. The Medicare program has substantial financing challenges in its near future, and the Obamacare ACO model will not result in the level of savings required to extend the solvency of the Medicare program. We’re still awaiting the 2014 Medicare Trustees report, but last year’s report projected the Part A trust fund to be exhausted by 2026 and under the most realistic scenario, the whole program has a long-term unfunded obligation of $36 trillion.

These financing challenges call for a much more significant structural reform to preserve the Medicare program for future generations. The best reform option, which would benefit both taxpayers and seniors, is premium support. As the CBO estimates, it could accomplish savings ranging from $15 billion to $45 billion in 2020 alone, with greater savings over the long-term.

Examiner Editorial: CBO gives up on projecting long-term costs of Obamacare

Examiner Editorial: CBO gives up on projecting long-term costs of Obamacare

One of the great subjects of debate during the fight over President Obama’s health care law concerned the effect that the legislation would have on long-term deficits. When it became law, the Congressional Budget Office projected Obamacare would reduce deficits, but critics, pointing to multiple accounting gimmicks Democrats used to game the CBO score, questioned whether the projection would prove accurate. Now, Americans may never get an answer – at least from the CBO. More than four years after Obamacare passed, the CBO is now saying it is “not possible” to do another complete analysis on the effect of the law on the nation’s deficits.

It’s worth clarifying the distinction between costs and deficits. On the one hand, Obamacare costs a lot of money – mostly due to the expansion of Medicaid and the provision of subsidies for individuals to purchase coverage through government-run insurance exchanges. At the time of passage, the CBO projected that the gross cost of expanding insurance through Obamacare would be $938 billion over a decade – but this vastly underestimated the actual cost of the program.


Though the law increases health care costs by trillions, it also includes tax increases and cuts to projected Medicare spending aimed at offsetting those costs.

The reason is that the original CBO score was for the 2010 through 2019 budget window. Because the major spending provisions – Medicaid and exchange subsidies – didn’t kick in until 2014, the first 10-year score only included six years of real spending. In the most recent estimate in April, the CBO revealed that the cost over the new 2015 to 2024 budget window would be more than $1.8 trillion, or roughly double the first projection.

Though the law increases health care costs by trillions, it also includes tax increases and cuts to projected Medicare spending aimed at offsetting those costs. At the time of passage, the CBO concluded that once everything was factored in, the law would reduce deficits by $143 billion over the first decade. In July 2012, an updated forecast shrunk that estimate to $109 billion. The CBO has not done a complete deficit forecast since that July 2012 report, though it has continued to provide updates to the spending forecast.

In its April update, however, the CBO included a footnote, highlighted recently by Roll Call, noting that, “CBO and (the Joint Committee on Taxation) can no longer determine exactly how the provisions of the (Affordable Care Act) that are not related to the expansion of health insurance coverage have affected their projections of direct spending and revenues… Isolating the incremental effects of those provisions on previously existing programs and revenues four years after enactment of the ACA is not possible.”

Obamacare critics – as well as actuaries at the Centers for Medicare and Medicaid Services – have questioned whether the proposed Medicare cuts will actually remain in effect as the law projected. The actuaries also wonder if unions, medical device companies, insurers, and drug makers will succeed in undoing any of the tax provisions that affect them. Undoing these provisions would unravel the deficit reduction claims of Obamacare. Regardless, Americans can no longer count on a revised ruling from Congress’s official scorekeeper on Obamacare’s true costs to taxpayers.

Warning: ObamaCare A Risk For The Elderly (What You Need To Know)

Warning: ObamaCare A Risk For The Elderly (What You Need To Know)

On May 7, the Obama administration boasted that ObamaCare was improving health-care quality for seniors; and it pulled out a bag of statistical tricks to prove it. But a closer look shows that it’s not improving care. It’s skimping on it, socking seniors with unexpected bills for “observation care” and likely shortening their lives.

President Obama’s Health and Human Services department announced that fewer seniors discharged from the hospital are returning for additional care within a month’s time. HHS claims that this drop in “readmissions,” from 18.5 percent in 2012 to 17.5 percent in 2013, signals quality improvement.

Nonsense. The 50 best hospitals according to US News & World Report’s Best Hospitals annual rankings have above-average readmission rates.

Nationwide, readmissions are dropping because Section 3025 of ObamaCare punishes hospitals if a senior returns within 30 days.

What happens to the senior treated for a heart attack who rushes to the hospital a week later feeling faint, possibly because of arrhythmia?

To dodge the penalty, hospitals put the patient under “observation.” It’s just a word on the chart. The patient may get the same tests and be put in the same room as if he had been admitted.

But unless he stays at least two nights, the hospital won’t bill Medicare for a stay; and the patient gets clobbered with the cost. Many seniors don’t even know they were under observation until they get the bill.

So much for HHS boasting about the drop in readmissions. HHS officials fail to mention that this coincides with a rise in elderly patients placed under “observation status.” It’s a hospital billing trick, and a dirty one for seniors.

Penalizing readmissions, which started in 2013, is one of the law’s tricks to reduce Medicare spending, never mind the impact on seniors. Cuts in future Medicare spending pay for more than half the law’s cost – robbing Grandma to fund health-care coverage for other groups.

It’s true that some readmissions are unnecessary and can be avoided if patients follow up with their doctors and take their meds after leaving the hospital. Low-income patients are less likely to do that, and hospitals caring for the poor are getting whacked hardest by ObamaCare’s readmission penalty.

The Obama administration plans to expand the readmissions penalties in 2015 to apply to many more conditions. It’s no wonder medical experts are protesting.

Dr. Ashish Jha, a professor at the Harvard School of Public Health, says it’s bogus to equate declining readmissions with quality. Many top academic hospitals have high readmission rates because their patients have serious illnesses and complications needing repeated stays.

Jha says the gold standard for measuring a hospital’s quality is how many patients survive a specific disease, such as pneumonia or congestive heart failure. Dr. Bruce Lytie, chairman of the Cleveland Clinic’s heart and vascular programs, also warns not to trust claims that lowering admissions improves quality.

Don’t trust ObamaCare’s definition of “value,” either. Everyone wants value, but ObamaCare defines it in a way that produces the opposite: dangerously skimpy care for seniors.

Section 3001 sets up a bonus system to reward hospitals for “value.” Bravo for rewarding hospitals that prevent infections. But the lion’s share of bonus points go to hospitals that spend the least per senior.

That cost-cutting will shorten lives. Evidence from 208 California hospitals shows that Medicare patients treated in the lowest-spending hospitals had a worse chance of surviving their illness and going home than patients with the same diagnosis treated at higher-spending ­hospitals.

The research, sponsored by the National Institute on Aging and RAND, found that heart-attack patients were 19 percent more likely to die at low-spending hospitals. Who would want those odds?

Over a four-year period, 13,613 seniors who died from pneumonia, stroke, heart attacks, and other common conditions at California’s low-spending hospitals might have recovered and gone home had they been treated elsewhere. And that’s just in one state.

Ignoring this evidence, ObamaCare incentivizes hospitals in all 50 states to imitate lowest-spending hospitals that are deadly for seniors. That’s some definition of value.

Read more at http://www.westernjournalism.com/obamacare-risks-elderly/#EtzFeDSfcjEZrs5O.99

Flashback to 2011: New York Times Praises VA as a Model for Obamacare

Flashback to 2011: New York Times Praises VA as a Model for Obamacare

As Americans hear more and more horror stories emerging from the VA scandal, the Obama Administration purposefully has refused to connect the dots for the American people about the broader implications of this scandal.

Let me be clear: this is the face of socialized medicine; this is where we are all heading as we allow the government to take more and more control over our healthcare. Long wait times and inadequate levels of patient care will mirror the problems that we have seen in the VA.

However, as we view the VA scandal and witness the death toll mount, it’s important to remember that New York Times economist and unabashed Obama cheerleader Paul Krugman has long raved about the level of efficiency and care offered by the VA as a means of defending Obamacare and socialized medicine as a whole.

In November of 2011, Krugman gushed about the VA and Obamacare, saying, “Yes, this is ‘socialized medicine,’” and calling the VA a “huge success story.”

In the November 13th edition of the New York Times, Krugman raved, (emphasis added)
American health care is remarkably diverse. In terms of how care is paid for and delivered, many of us effectively live in Canada, some live in Switzerland, some live in Britain, and some live in the unregulated market of conservative dreams. One result of this diversity is that we have plenty of home-grown evidence about what works and what doesn’t.

Naturally, then, politicians — Republicans in particular — are determined to scrap what works and promote what doesn’t. And that brings me to Mitt Romney’s latest really bad idea, unveiled on Veterans Day: to partially privatize the Veterans Health Administration (V.H.A.).

What Mr. Romney and everyone else should know is that the V.H.A. is a huge policy success story, which offers important lessons for future health reform.

Many people still have an image of veterans’ health care based on the terrible state of the system two decades ago. Under the Clinton administration, however, the V.H.A. was overhauled, and achieved a remarkable combination of rising quality and successful cost control. Multiple surveys have found the V.H.A. providing better care than most Americans receive, even as the agency has held cost increases well below those facing Medicare and private insurers. Furthermore, the V.H.A. has led the way in cost-saving innovation, especially the use of electronic medical records.

What’s behind this success? Crucially, the V.H.A. is an integrated system, which provides health care as well as paying for it. So it’s free from the perverse incentives created when doctors and hospitals profit from expensive tests and procedures, whether or not those procedures actually make medical sense. And because V.H.A. patients are in it for the long term, the agency has a stronger incentive to invest in prevention than private insurers, many of whose customers move on after a few years.

And yes, this is “socialized medicine” — although some private systems, like Kaiser Permanente, share many of the V.H.A.’s virtues. But it works — and suggests what it will take to solve the troubles of U.S. health care more broadly.

Yet Mr. Romney believes that giving veterans vouchers to spend on private insurance would somehow yield better results. Why?
What has emerged, however, since Mr. Krugman gushed about the virtues of socialized medicine is that such reforms creates an unattainable burden for healthcare providers who soon begin cutting corners. Rationed care causes massive delays in treatment and to cover up these inadequacies, the socialized healthcare provider must choose: do we admit failure or fudge the numbers concerning wait times?

Yes, Mr. Krugman, this is socialized medicine and it’s an atrocity that has already cost American lives and will continue to cost more and more lives the longer it is allowed to continue.

New Grads Are Most Indebted Ever — But It’s Not Just Student Loans

New Grads Are Most Indebted Ever -- But It's Not Just Student Loans

Congratulations to the Class of 2014—after all of your hard work in college, you will leave your campuses the most indebted class of graduates ever. The average grad will carry $33,000 worth of student loans off the stage with her diploma, nearly double the amount students took on 20 years ago (even when factoring inflation).
But what’s even worse: your share of the national debt. That comes to $39,500.
Each American will see his share of the national debt increase from $39,500 today to $142,000 in 2038, or more than triple the average starting salary for 2013 graduates.
As The Wall Street Journal notes, the class of 2013 graduated with the then-record amount of debt last year, and as the student loan burden continues to rise faster than inflation, the class of 2015will likely claim the title next year. In addition, a greater share of college students took loans out in 2014, leaving 70 percent of all graduates in debt. Compare that to the Class of 1994, when only half of graduates left school with loan payments to make.
The explosion of debt that graduates face today mirrors that of the nation. Despite the temporary dip in budget deficits, each year’s cash shortfall adds to the mountainous national debt, which now stands at a record high of $17.5 trillion.
And the debt will only continue to grow more quickly. Similar to how a greater proportion of college students is taking out loans, a greater share of the U.S. population will begin to consume more government services as the baby boomer generation retires and becomes eligible for Social Security and Medicare. This will cause the government to take on more and more debt to pay for these services as the growth of retirees outpaces the growth of the workforce.
Indeed, the Social Security Trust Fund ran a $74.6 billion deficit in 2013, a number that will jump to $322 billion in less than 20 years. Furthermore, a report from the Institute of Economic affairs indicates that the national debt held by the public is really $95 trillion—more than seven times the published figure—once government pension and health care commitments missing from official budget calculations are accounted for.
The burden of student and national debt should be a major concern for recent graduates. In addition to having to pay off more student loan debt than ever, graduates face a weak job market still struggling in the Obama recovery. And as the national debt increases more quickly, younger generations could face a larger future tax burden and lower investment in the private economy, possibly hampering economic growth.
So what can recent grads do? Take steps to start saving today, as young Americans should not count on Social Security to provide them with the same benefits today’s retirees receive. Also, grads should make their voices heard and urge Washington to make necessary budget and entitlement reforms that would reduce the debt and ensure economic prosperity for all. Young Americans have faced challenges before and have overcome them—there is no reason that this generation should be different.