Friday, April 09, 2010

Obama's Achilles Heel - Exploding National Debt


Now that the hoop ala over the health care reform has subsided and learned people have had the time to analyze exactly what the White House and Congress slammed down our throats it is fast becoming obvious that the spiraling national debt is far greater than Obama and the Democrats want us to believe. In fact, new estimates by the very same Congressional Budget Office that said health care would reduce the debt now say we are in serious trouble.

Doug Elmendorf, best known for arbitrating the costs of various health care proposals, added his voice to a growing chorus of economic experts who predict dire consequences if political leaders don’t scale back spending, increase taxes or both, and soon.

Elmendorf noted a recent CBO report that pegged an increase in the public debt from $7.5 trillion at the end of 2009 to $20.3 trillion at the end of 2020 if President Barack Obama’s fiscal 2011 budget were to be implemented as written. As a percentage of gross domestic product, the debt would rise from 53 percent to 90 percent, CBO forecasted. The last time the percentage was that high was right after World War II.

What that means is if Congress passes the president's budget, which includes health care, our national debt will nearly triple in the next decade. To put that in perspective, when Presidents Roosevelt and Truman managed the massive debt needed to carry out World War II while also overcoming the long term consequences from the Great Depression, the ratio of debt to Gross National Product reached the highest level in history, about 120%. The Obama budget will cause it to rise from the current 53% of GNP to 90%, nearly doubling the debt. That does not include normal adjustments to be made.

To make this clearer, when the debt hit the peak in 1947 it was equivalent to $10 trillion today. That pulled the economy out of the great depression and into high gear to win World War II. The Obama debt will hit twice that much, $20.3 trillion by 2020.

As for the normal adjustments, they have already begun. CBO warned the Democrats in Congress that changing the student loan program that was approved in the health care bill will actually increase the deficit by an additional $52 billion by 2020, not reduce the deficit by $68 billion like the Democrats said.

In the study, the CBO explains how the accounting mandated through the Federal Credit Reform Act (FCRA) is the standard procedure used to record the budgetary costs of the government’s direct and guaranteed loan programs.

However, the CBO notes that FCRA cost estimates exclude the value of “market risks” and the loan programs’ “administrative expenses” while the CBO’s “fair value” estimates takes them into account.

This discrepancy between the two estimates results in the FCRA figure being a less “comprehensive” appraisal of the true cost to taxpayers of the federal government’s direct student loan program, according to the CBO report.

“Fair-value subsidy estimates, which include the cost of risk and administrative costs, provide a more comprehensive measure that allows the costs of the two programs to be compared on a level playing field,” states the study.

That little change in what the CBO reported to Congress to help justify the bill makes the debt increase by $120 billion, from the projected reduction of $68 billion to the actual deficit of $52 billion.

The same health care bill allowed them to claim a $450 billion savings in Medicare costs by reducing the payment to doctors by 21%. Yet Congress promised to fix this problem by restoring the reduction. That bill is to be debated this month and Pelosi has promised it will be passed. If they don't pass it thousands of more doctors will refuse to treat Medicare patients meaning there will not be enough doctors to treat all the new patients Obama is flooding into the health care system. But if Congress delivers on their promise, it will raise the debt by another $450 billion.

Such adjustments can be found throughout the flawed health care legislation and either these accounting tricks were known to the White House advisors or they are just plain stupid. The rush to get Obama his historic bill will come back to haunt us for the next decade.

Three things are clear to anyone who digs through the reality of the Obama health care plan. Taxes have to go up, insurance premiums have to go up, and the only thing historic about the massive bill is our national debt will hit a historic high.

As Doug Elmendorf, head of the CBO warned yesterday, the nation’s fiscal path is “unsustainable,” and the problem “cannot be solved through minor tinkering.”

The calculations by Congress of every new entitlement program have been multiples off the mark. The 1965 Medicare program was supposed to cost only $9 billion by 1990. Instead it cost $67 billion in 1990 and it now costs $521 billion.

People must be told the truth or the next two generations will face a bankrupt national government. The Obama promise is also the Obama Achilles Heel and that says very little for the future security of our nation.


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