Numbers need to be added up!

The sad reality has dawn upon us for at least a decade that we are running out of resources (money) to support the expenses that we incurred; Medicaid, Social Security, bank bailouts, military expenditures, and the list goes on. So why have we not done anything? Because we are playing ignorant. Well that really is not right either, because we can see it vividly. The best answer is that we are procrastinating in a perpetual optimism that somehow this big debt burden that we incurred for decades will be solved through a miracle. The miracle that experts are always pointing to is growth. Growth of economy indeed would be a cure all solution to our problem, as growth will compound the tax income. However the problem is that our nation has been growing very very slowly. After the dotcom bubble collapse, our economy grew at an annual rate of 3% or more, but the "growth" was fueled by borrowed money from foreign nations who was running a extraordinary trade surplus against us (ie China, Saudi Arabia, etc).

Now, debt can finance investment or consumption at present, but the future income will be reduced to pay off the debt at a later date. That's why it usually is better to use debt as investment to increase future income. However, majority of the debt we incurred after dotcom bust was used for consumption. The "growth" that we had was basically consuming our future income now by using debt. This poses a thorny problem for policy makers, because the expected growth, was but a mirage from the debt financed consumption and the end result would be lower growth in the future.

As the problem stands, our nation canoot to finance our liabilities if we stay the course. We now must make the choice of either to cut back on spending, increase taxes or combination of both.