The Debt Crists: what it really means
With Congress and the President doing the two-step Lindy when it comes to the future of our economy, there is one under-reported fact.
Even if the debt level was actually breached, there are safety valves that the Federal Government can implement in order to save itself. So in reality the past government shutdowns, as well as the projected possibility of one in the near future, may all just be for show. Or maybe this political theater is for more sinister reasons?
Here is a quote from the Treasury Department after the last ‘Debt Crisis.’ [the] “Secretaries of the Treasury in both Republican and Democratic administrations decided to use their authority to take certain extraordinary measures in order to prevent the United States from defaulting on its obligations. ”.
This resulted in four “ Extreme Measures,” which can be implemented by Congress to ensure the United States meets its obligations.
- Suspending sales of State and Local Government Series Treasury securities.
- Determining that a “debt issuance suspension period” exists, which permits theredemption of existing, and the suspension of new, investments of the Civil Service Retirement and Disability Fund and the Postal Service Retirees Health Benefit Fund.
- Suspending reinvestment of the Government Securities Investment Fund.
- Suspending reinvestment of the Exchange Stabilization Fund.So we ask again, is the “Debt Crisis” all for show, or is there really something more sinister lurking in the shadows? Well, let’s take a look at the second “Extreme Measure” and then apply what else we know about it. If you stop and think for a moment, it smells like something is not quite right.First, what we know. According to media reports, the United States Postal Service is unfortunately not doing so well monetarily. In fact, it has been reported that the USPS may even default on its pension fund, which has been set aside to pay for its retirees’ health care costs. This could wind up jeopardizing the retirements of many USPS employees.What we also know about this pension liability is that Congress is forcing the USPS to over-fund its pension fund in order to ensure that the fund is solvent. Estimates place the amount the USPS is funding to be roughly $8 billion per year, while according to Bloomberg, “the so-called ‘normal cost’ of health benefits for the USPS retirees is only about $3 billion.”
Think about all of this for a moment. Congress created a bill that forces the USPS to overfund its pension liability, which was introduced by Republican Congressman Tom Davis of the 11th CD of Virginia and sponsored by an another Republican, John McHugh, while also being co-sponsored by Danny Davis [D-IL7] and Henry Waxman [D-CA30]. The bill then flies through Congress with unanimous consent (Democrats included), and, now after the bill is law, Congress creates these “Extreme Measures” that allows them to withdraw money in case of a “Debt Crisis.”
But why would Congress want to do this to the country? How else are we going to get that weekly grocery store flier that is immediately thrown in the trash or a notice that the 4th frozen yogurt shop opened on Main St?
Well, if we look the demographics, we know there is a huge problem on the horizon.
Currently, according to Social Security, there are about 40 million people officially retired who are receiving both Social Security benefits and Medicare health coverage.
We also know that there are roughly 76 million Baby Boomers paying into these two entitlements to help them continue to help these retirees.
This is close to a 2 to 1 ratio and we know, from no shortage of information out there from the media and politicians, both Social Security and Medicare are unsustainable in less than 15 years.
Now here comes the bigger problem, and Congress is well aware of it. For the first time in U.S. history the generation heading to retirement, the Boomers, is in fact larger than the generation following it, Generation X.
Yes, thanks to all types of immigration the number of Generation Xers is around 90 million. But when we look at actual birth rates of that generation, there were only about 60 to 62 million.
So here is the possible problem with this scenario: If you are a member of the government and get paid by said government, the next generation, Generation X, has a minimal chance of ever being able to fund the entitlements. Despite populist jokes about how inept government is, here is a case where those in government know that access to the revenue that is desperately needed to feed Leviathan is going to get tighter later on. Government will need to generate new forms of revenue in the very near future, or else.
But where can the government get new revenue?
Generation X is tapped out as wages have not grown in the last 50 years while the price of goods like Food, Housing and Energy have risen and those Millenials that everyone loves, or at least claims will save our nation, are even in worse economic shape.
According to the Census Bureau close to 20% of all Millenials live under the poverty level while many more live with wallet crushing student loan debt that can’t be refinanced or paid off.
Oh and apparently they aren’t that bright too. According to a recent survey by Educational Testing Service, it found that “members of the so-called Generation Y ranked last in ability to work with numbers. And only their counterparts in Spain and Italy had lower literary scores”.
The study also revealed that the Millenials really aren’t that tech savvy either as they “landed in last place in the category measuring how well they use computer applications to solve work problems”.
The other issue with the Millenials, if immigration is not factored in, is they too are not as big as the Boomers. The U.S. is, for the first time, staring at what Brigham Young University dubbed a few years ago: a “Demographic Winter.”
One possible answer to the revenue generation question could easily be the Boomers themselves. It can come from something as simple the mail.
Right now, the government does not tax the mail. But it does generate revenue through shipping rates which is, right now, capped. According to the USPS website, there is roughly $65 billion in revenue generated by the USPS on annual basis and how much of that revenue is generated by taxes? Zero.
If we look further down the road, we can clearly see the day when the USPS will be in a spot where it will be considered bankrupt by Congress (because of legislation created by Congress), and thus could be shut down. And with this “Debt Crisis” conveniently dragging on every couple of years, it gives Congress even more time to redeem funds from that pension to help fund itself.
But should we even care?
Well for those that are young and who are gainfully employed, the mail may not be such a big issue. Everything can be done electronically these days, and even the purchases of goods through the internet are expected to be shipped by UPS or FedEx, which also comes at a cost.
However, if we just happen to take a step back and look into the future again, specifically one without the USPS, what do we see? A country with 76 million Baby Boomers who are now older, retired and whose health may not be as robust as it once was. A logical next and very simple question is the following: How are the elderly expected to receive their prescription medications?
Yup, through the mail.
Under Prescription Drug rules, those on medications are rewarded by lower prices, more volume and a wider variety if they choose to receive their medications through the mail. Almost anyone on maintenance medication knows that their 3 month or so supply of medicine comes in the mail.
With the specter of a defunct USPS, Congress could possibly create a way that will force the largest segment of society, the Baby Boomers, to have to use overnight mail carriers like UPS and FedEx at a much higher cost, while also being able to finally tax those deliveries.
May not sound like much, but with the possibility of laundering money through the USPS pension fund coupled with 76 million Baby Boomers who have somewhat funded their 401(k)’s, the ability to tax each purchase they make for their prescription medications could help offset many fiscal problems.
Will it pay down the debt? No. But what it can do is take the burden of the USPS off the backs of the government and move that burden to the citizens, specifically the Boomers.
This would allow the government to generate more revenue off the transactions that move through private mail carriers. What are Baby Boomers going to do, refuse to have their prescriptions arrive this way? Some of them will need these medications to live.
All that is left to do is for the government to figure out a way to tax those internet purchases the Boomers make for their medications and even more revenue can be made, especially when we consider the fact that they control about 80% of the country’s investible assets.