Here Comes the Sledgehammer
In Austerity Will Hit America Like An Eight Pound Sledgehammer we quoted Charlie McGrath describing what would happen once austerity measures in the USA became the new normal:
A week from now when Republicans control the house, maybe the Senate, it really doesnâ€™t matter. Everythingâ€™s going to come to a grinding halt. Every talk of extending unemployment benefits is going to come to a grinding halt and austerity is going to be implemented on the American people. Like it or not, itâ€™s coming.
When austerity becomes vogue in this country, itâ€™s going to hit like an eight pound sledgehammer and a lot of people are not going to be able to take it.
The fiscal commission established by the White House has released a report that, if implemented, will have dire consquences for millions of Americans who depend on government sponsored personal bailout plans to keep them afloat.
According to the Huffington Post and The Wall Street Journal, the new plan would do serious damage to an already ailing economy and beaten down average Joe:
…taken as a whole, the plan authored by Erskine Bowles and Alan Simpson would have devastating effects on the government and its ability to help the most vulnerable in our society, and it would put the squeeze on the middle class, veterans, the elderly and the sick – all in the name of an abstract goal that ultimately only a bond-trader could love. (Huffpost)
Among the proposed austerity measures, the commission recommendations would:
- Increase the Social Security retirement age and limit yearly cost-of-living increases to the rate of inflation rather than of wage growth. The cut in annual increases would affect current retirees — which was supposed to be off the table. Their benefits would go down by about 3 percent after theyâ€™ve been retired for 10 years, and about 6 percent after theyâ€™ve been retired for 20 years.
- Eliminate the home mortgage exemption making it more difficult for middle class Americans to buy a house in the middle of the deepest housing recession probably in the history of the world, leading to even more pain down the road.
- Set a cap on the rate of growth of federal health expenditures to 1% of GDP per year, meaning health care costs for the federal government will not be able to exceed this threshold. This will lead to lower wages for doctors and health care professionals, as well as rationing of health care services.
- Make cuts in government spending, with at least $400 billion in cuts through 2015.
- Cut the federal work force 10%, at a further savings of $13.2 billion by 2015. The proposal would not terminate 10% of the workforce, but rather, slow the government’s hiring practices so that they hire only two employees for every three that leave their jobs.
- Cut $100 billion in annual defense spending. And though defense is important, it’s no secret that government spending in this sector is outrageous, with Donald Rumsfeld testifying before Congress on September 10, 2001 that the Defense Department misplaced $2.3 trillion dollars and the DoD unable to account for some 25% of their yearly spending. (Incidentally, we never got to the bottom of the missing $2.3 trillion dollars, as the accountants that handled the numbers were reportedly killed in the attack on the Pentagon)
- Add co-pays to veteran health care benefits, forcing military personnel to not only deal with an already rationed health care system, but to partially pay their own way.
- End schools for families on military bases
- Eliminate the Earned Income Tax Credit and the child tax credit for millions of families that currently depend on it to keep them out of poverty
The current iteration of the plan is subject to change and is still in commission, but it is clear that measures similar to these and more are going to be proposed over coming months and years – and there is nothing that can be done to stop them. They are necessary.
The government has overspent and it must take action with self-imposed measures to limit its spending. By doing so, millions of Americans are going to be impacted for the worse.
We knew this was coming.
Austerity will lead to more economic malaise for the average guy on the street going forward.
It will not, however, do anything to really change the direction of our economy at this point.
We maintain the view that the federal government, as well as states and cities have spent their way to oblivion and defaults are sure to ensue.
The Cutting of a few billion here and a few billion there is not going to do anything when our total outstanding debt and obligations over the next couple decades amounts to some $200 trillion. It’s kind of like borrowing $200 from a friend and then paying him back $5 and calling it even.
The commission has made concessions here, but nothing on the order of what is really required, which, realistically speaking, is massive and drastic spending cuts across the board, in every governmental entity. Given the trend towards unlimited government and centralization of control that has been the norm for the last 100 years in America, the proposed plan is nothing more than just kicking the can down the road for a few more months, maybe a year or two if we’re lucky.
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Date: November 10th, 2010
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