The Coming Divide in America

In yesterday's post, I wrote about Paul Ryan and the massive unfunded liabilities of the U.S. government.  While I think Ryan is for big government, it is interesting that he is being portrayed as a government cutter.  While Ryan's proposals have not advocated any actual cuts in overall spending (even his proposed budgets increase spending), there are discussions about Medicare and Social Security (called "entitlements" for some reason) and possible reform.

At the end of my post yesterday, I wrote that there is a coming divide in America in the next decade and that I will make a prediction as to which side will prevail.

The coming divide will be between generations.  Generally speaking, it will be between young and old.  The young side will be taking the more pro-liberty side.  The old side will be taking the more pro-government side.

As I stated yesterday, there are actually some estimates that the unfunded liabilities now exceed $200 trillion.  The biggest portions of this number belongs to Medicare, Social Security, and government pensions.  Out of those three, Medicare is by far the biggest.  The large majority of those unfunded liabilities (government promises for the future) are for older people.

The U.S. government is setting up the economy for a train wreck.  We are headed over a cliff at a high speed and there may be no way to stop.  Someone is going to get hurt.  The question is, who will get hurt the most?

Eventually, Congress will hit a brick wall.  Social Security has already begun to run a deficit.  More is being paid out than taken in from payroll taxes.  The difference has to be made up from the budget.  This means more debt monetization.  It means that spending will continue to increase until it can't any longer.

The day of reckoning will come when the Federal Reserve has to stop buying government debt.  There will come a day when interest rates go up and price inflation is high.  If that day doesn't come, then the Fed will be sitting on its hands out of fear of those things.  Either way, there will come a time when the Fed has to stop creating money out of thin air.  I don't think the Fed will go to hyperinflation and destroy the whole economy.  Instead, it will stop buying government debt and Congress will have to figure something out.

Congress will be faced with choices.  Voters will be mad, no matter what.  Voters want free lunches.  They want lower taxes with their free lunch.  When the Fed can't print more money, then free lunches will have to go away.

That is why the American empire will probably fall first.  When given a choice, Americans will tell the politicians to stop fighting wars overseas.  They will prefer that to increased taxes or domestic spending cuts.

While cutting military spending can make a big difference, it won't be enough.  More will have to be cut.  Some politicians will propose tax increases.  They will be geared towards high income earners, but they may also go after the middle class.  Either way, they won't work.  Increased tax rates don't necessarily lead to an increase in government tax collections.

I don't think it will get to this point anyway.  I am waiting for the first serious politician to stand up and say, "If you vote for me, I will cut Medicare and Social Security benefits for seniors.  I will cut taxes for workers.  People should not have to work harder and longer and struggle to raise their families while older people are taking vacations and playing golf."  It will be a turning point when that politician actually gets elected.

This will not happen in south Florida.  It also won't happen in Los Angeles or San Francisco.  But I believe something like this will happen.  It will send shockwaves everywhere.  All of a sudden, there is a message sent to aspiring politicians across the land that you can threaten to take away Medicare and Social Security and not be destroyed in the voting booth.

It hasn't happened yet because senior citizens vote in large numbers.  But if the economy gets bad enough, more young people will pay attention, as they are already starting.  The younger generation is not going to continue to pay higher taxes into Social Security and Medicare knowing that they won't be receiving anything comparable in return, if anything at all.

While I don't think that all Social Security and Medicare will be eliminated, I believe that major changes are coming.  It is inevitable.  The age to collect will go up.  The benefits may get cut, even for people in their 80's.  Perhaps it will be done by eliminating a cost-of-living adjustment.  The checks will stay the same and they will buy less and less.

I'm not sure how this whole thing will take shape.  I don't know if it will be divided along party lines or if it will be split.  If it does divide along party lines, I would expect that the Republican Party would represent the younger generation and the Democratic Party would represent the older generation.

Politicians will do almost anything to get elected.  If it becomes popular to take away granny's Social Security check, then so be it.  Politicians won't put it in those terms, but they will make it clear that the young people will not see their taxes go up.

I believe the young people will finally get with the program and start to vote based on their pocketbook.  The young side will mostly prevail.  If you are over 65 right now, you may or may not be ok.  Your biggest threat is inflation.  If you are in your 50's, you will probably get stiffed.  I don't see any way that you will retire in your 60's while depending on the government for your retirement income.

Changes are coming.  There is no way that things can keep going on the way they are now.  Plan your future accordingly.