For Dummies In-need-of Comfort
Recently, my wife, Helen, and I visited a local bank for the purpose of setting up a new account. I rarely do any banking as this task is customarily done by my wife. Some decades back, Helen and I entered into a pact whereby I made the money and she managed the money. The arrangement worked well and she proved to be an excellent custodian of our funds. My wife has the type of gregarious personality I lack. As we entered the bank together, she was warmly greeted by everyone from the receptionist to the bank manager. It came as no surprise to me when everyone addressed my wife by her first name, and a few even embraced her. I stood silently by her side until the initial greetings were completed. Helen then introduced me to her banking buddies who, no doubt, were wondering about my identity. We were then led into an office where one of Helen’s friends rounded up the necessary forms for our transaction.
The two woman exchanged stories of their lives, children and events as they attempted to catch up with each other. While the females chattered, I was eyeing my way around the office. The furnishings were sparse, conservative and orderly as befits a banking environment. My view fixated on the corner of the desk where a bronze plaque sat. I read the inscription on the tablet. The large letters, FDIC, were underscored by the words, Federal Deposit Insurance Corporation. I picked up an explanatory pamphlet which described the FDIC in some detail. I was struck by a phrase that was repeated throughout the leaflet. No doubt, the repetitive slogan “backed by the full faith and credit of the United States of America” was meant to instill confidence. In essence, the FDIC promised to guarantee up to $100,000 in my account should the bank have a financial problem. For a moment, I felt reassured. After all, we are talking about my money being protected by the full faith and credit of the good old US of A.
I continued to check out the office until a business magazine grabbed my attention. The cover headline read -- “American government debt now at 53 trillion dollars”. I thumbed through the magazine and found the article. It seems The General Accounting Office had recently completed a survey of America’s debt and the magazine was reporting on the conclusions of the audit. Of significance in the report was the national debt, which as of June 30, 2007 was a shade under 9 trillion dollars. The report went on to say that the debt was legal because the President had approved an increase in the statutory debt limit to 9.8 trillion dollars. At the rate our legislators are spending money, I figure that gives them 6 months before they have to, once again, raise the debt limit. Just when I started to feel somewhat informed, the report went on to say that the 9 trillion dollar debt “excludes many items, including the gap between scheduled and funded Social Security and Medicare benefits, veterans health care, and a range of other commitments and contingencies that the Federal Government has pledged to support”. The statement went on to conclude “If these items are factored in, the total burden in present value dollars is estimated to be about 53 trillion dollars.” The report simplified the immense number by stating that the total debt represented a liability of $175,000 for every man, woman and child in the United States. Imagine, our country could be debt free tomorrow if every American forks up $175,000. I was gasping for air and choking on my outrage when I read the next sentence. The report confidently stated that the Treasury Securities issued to cover our debt were guaranteed by the full faith and credit of the United States.
I was fidgeting in my seat and was near ready for resuscitation when the banker shoved the papers in front of me for my signature. I signed off on the documents, and grabbed my wife for a hasty retreat. I needed to get home and get a first hand look at the actual report.
At home on my computer, I googled and found the full GAO report. Sure enough, the magazine article was accurate, but incomplete. The 9 trillion dollar debt was real. However, it is comprised of 2 factors. Approximately $5 trillion was financed by securities issued to investors which included over $2 trillion contributed by foreigners. This was a bummer as it was painfully clear that we are indebted to other countries for our financial existence. The remaining $4 trillion dollars was obtained from the cash surpluses in trust funds that exist in Social Security, Civil Service Retirement, Medicare, Military Retirement and a host of other government controlled programs. It seems our government takes the cash from the trust funds, spends it and replaces the money with government securities. Get the picture! Our government is using the money that is deducted from our paychecks, ostensibly for Social Security and Medicare, to pay off debts that the government has incurred. But, don’t panic as the GAO assuredly concludes that the debt obligations are backed by the full faith and credit of the United States! As for the $53 trillion liability, it was duly noted in the GAO report as a highly probable future cost which needs to be addressed.
If you’re not running a little scared at this point, you should be! Presently, the debt is continuing to grow even as the economy slows. Government revenues are declining causing the unsustainable debt obligations to climb at an accelerated pace. Just the interest expense on $9 trillion amounts to approximately half a trillion each year. In a few years, the cash surpluses in the trust funds will begin to diminish when the baby boomers become eligible for Social Security and Medicare. These funds will have to be replaced by investors. Will American investors be able to meet the new financial demands or will we be forced to accept the money from foreign investors, thereby increasing our dependence on outside influences? What happens if we piss off the foreign investors and they elect to cash in their Treasury securities? What occurs when we have further demands on our financial system as a result of the housing, mortgage, and credit impasse? Can we continue to produce hundreds of billions of dollars to plug the gaping holes in the financial infrastructure? The dollar is already under severe pressure from other countries that are spurning the dollar. Dollar devaluation is a direct result of the mismanagement of our finances and the money supply by our government and the Federal Reserve! And just to sour the milk a little more, it is no secret that we are overdue for a severe bout of inflation. Can America survive the economic crisis or will we be forced to declare national bankruptcy?
Each of us should begin to research these problems and demand solutions from our government representatives. There is no good short term answer, but it is critical that we immediately stop the financial blood letting. Together, we can make a difference! Of one thing I am sure – the good faith and credit of the United States is under attack and may well become an irrelevant slogan. As to the meaning of FDIC, I think it more aptly refers to -- For Dummies In-need-of Comfort!
My novel, The Road to the Third World, explores financial irregularities and a number of other issues which threaten America’s existence as a world leader. The book is concerned with the political, economic and social consequences of the excesses of capitalism, and the triumph of apathy over our great country.