Government: Destroying Your Wealth a Trillion Dollars at a Time

Recent financial headlines provide a remarkable glimpse into America’s future if we stay on the same track we are now. From Bloomberg news we learned: “US Stocks fluctuate amid concerns European debt crisis hasn’t run course.” Meanwhile, the IMF predicted that the “US national debt will soon reach 100% of GDP.” Sadly, the World’s, the United States’ and California’s (16% of the US Economy and the 9th largest economy in the world) financial prospects are far worse than those headlines recognize.

The US economy is nearing $15 trillion in gross domestic product (GDP) per year. The national debt it carries on the books is nearly that high and will certainly reach it, and far surpass it, within 2 years given the trillion dollar deficits that are predicted as far as the eye can see. Of course, off the books, in accounting that would make Enron blush, the US government has $75 trillion or more in long term unfunded liabilities. On a more short term basis consider this: the US Government revenues are running below $3 trillion dollars per year – yet its debt is over $13 trillion and growing. In other words, the existing US debt is 4 to 5 times its current revenue.

Imagine if you will, if your credit card debt was 4 times your current income and the income you are likely to earn in each of the next 4 years. There is not a bankruptcy attorney in the country that would not tell you that it is time to declare bankruptcy. For its part, California is projected to have unfunded liabilities as high as $600 billion or 6 times it current revenues. Sadly for the US and California taxpayers, bankruptcy is simply not an option.

All of which brings us to the European debt crisis – which has anything but run its course. Indeed, German Chancellor Merkel said this about the recent bailout of Greece: “We didn’t do more than buy time . . .” to get their collective government houses in order. Meanwhile, USA Today, whose financial reporting is rather blunt at times, featured this headline: US “Investor fears ignite sell-off.”

Within the article, US Today warns that:

“There’s no shortage of worries . . . David Kotock, chief investment officer at Cumberland Advisors blames government meddling. ‘Markets have stopped looking at Fed policy, interest rates, tax rates and economic data’ he says. ‘The markets are worried about politically driven decisions. Investors are always worried about political damage, but this time, there is a huge concentration of political risk.'”

In other words, to paraphrase James Carville: “It’s the government stupid” – or perhaps the stupid government which has bungled economics so badly that there is a crisis of confidence a la Jimmy Carter.

Of course, the troubles of Europe will lead to lower economic activity in America as their sliding economy results in reduced trade around the World. Even so, there is also one other stark result that cannot be overlooked: Amidst economic troubles around the globe, America should be a safe haven for worldwide investors – but it is not – and as a result, your investment portfolio is suffering, i.e. your wealth is being destroyed.

It is becoming a simple fact of life that America is no longer the gold-standard of investment. For a century America was the land of investment opportunity with the US dollar the currency of choice. As the US public debt has exploded over the last decade, however, headlines have reached the mainstream press to the effect that the US dollar may be dropped as the international standard, the far east is a better investment despite some of its communist/centralized government regimes and the US is heading in the same direction as Greece.

The Obama Administration, along with Nancy Pelosi and Harry Reid obviously do not take those warnings seriously – lest how could they seriously propose and enact budgets with trillion dollar deficits with no plan to reduce the mounting debt? Obviously they don’t and as a result, the US economy is treated as suspect and the investment dollars which are leaving Europe are not coming here and enriching the United States. So, as they fiddle while the US investment outlook darkens, government is destroying American wealth – your wealth – a trillion dollars at a time.