The Coming Collapse of America: How to Balance the Federal Budget: Second Edition 2023

By Ken Casey

This book is designed to solve the coming fiscal crisis in the US. Increasing debt will lead to hyperinflation within ten years. According to the CBO, if the US continues business as usual, the US will have a debt of $50 trillion in a decade. Investors will flee the US bond market and the Federal Reserve will end up paying off this debt with inflated currency (a technical but not actual default). Flooding our economy with fiat currency will result in hyperinflation and unemployment with the likelihood of a worldwide depression.

The solution is not to increase the US debt. The only way this is possible is to balance the federal discretionary and mandatory budgets. Interest on the debt should be paid by the Federal Reserve without borrowing more money, i.e., just printing money. The easiest way to balance the budgets is to cut the military and Medicare budgets. Using President Biden’s proposed 2022 budget, we need to cut the military budget from $.8 trillion to $.3 trillion (still greater than China's and Russia’s combined military budget) and reduce Medicare expenses by 50%. Medicare expenses can be cut by providing a low option Medicare plan (subsidized to the extent of 50%) with significant coinsurance and co-payments.

• Language: English
• Publisher: Xlibris US
• Release date: Feb 21, 2023
• ISBN: 9781669867913

Ken Casey

Ken served as a Russian interpreter during the Vietnam War and then spent over 30 years practicing as a tax attorney. Ken also has an MBA in accounting and a CPA.

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THE COMING COLLAPSE OF

AMERICA: HOW TO BALANCE

THE FEDERAL BUDGET

Second Edition 2023

KEN CASEY

Copyright © 2023 by Ken Casey.

All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without permission in writing from the copyright owner.

Any people depicted in stock imagery provided by Getty Images are models, and such images are being used for illustrative purposes only.

Certain stock imagery © Getty Images.

Rev. date: 02/21/2023

Xlibris

844-714-8691

www.Xlibris.com

851255

CONTENTS

Dedication

Introduction

Continuing Deficits Are Unsustainable

Raising The Alarm

What Is The Solution?

The Hypothetical Household Couple

The Analogy To The US Government

Chapter 1: Does Debt Matter?

The Debt/GDP Ratio

The Tipping Point: A Debt/GDP Ratio Of 120%

The Danger Of Exceeding The Tipping Point: Hyperinflation

The Greek Crisis Of 2009

The Japanese Crisis Of 2011

Chapter 2: The US Budget

Chapter 3: The US Debt

Chapter 4: Balancing The Budget

The Tipping Point

Reform Of Entitlements

Budget Deficits Due To Obamacare

Future Interest Costs

Entitlements Will Devour The US Revenue

Food Stamps And Welfare

Chapter 5: Social Security

History Of Social Security

The Heavy Reliance On Social Security Benefits By Retirees

Is The Social Security Fund Solvent?

Demographic Trends

Calculation Of Social Security Benefits

Is Social Security Taxable?

Is Social Security A Ponzi Scheme?

Can The Present Social Security Be Fixed?

Is Privatization The Solution?

The Foreign Models Of Individual Accounts

Is Partial Privatization The Answer?

The Solution To Social Security: Full Privatization

The Alternative To Privatization Is To Cut Benefits

Chapter 6: Medicare

The History Of Universal Healthcare

The Enactment Of Medicare In 1965

How Does Medicare Work?

Chapter 7: Foreign Healthcare Systems

The Four Models Of Universal Healthcare

France: An Example Of The Bismarck Model

Great Britain: The Beveridge Model

The Canadian Model

The Out-Of-Pocket Model

Chapter 8: Medicare Costs

The Skyrocketing Costs Of Medicare

Partial Privatization Of Medicare

Voluntary Euthanasia

Chapter 9: Cost Of Healthcare

Adverse Selection And Moral Hazard

The Elderly Spend Disproportionately On Health

Runaway Premium Costs

Annual Family Health Insurance Premiums Compared With Household Income, 1996 To 2025

Chapter 10: Medicaid

History Of Medicaid

Amendments To Medicaid By Clinton & Obama

Romneycare

Assisting The Uninsured

The Solution To The Uninsured Problem: Taxation Of Employers

Chapter 11: Defense

Military Spending

Military Spending In Iraq & Afghanistan

Should The Us Be The Policemen Of The World?

Chapter 12: Effects Of Inflation

Cost-Push Inflation

Demand-Pull Inflation

Steps Taken To Reduce Inflation

Expansion Of The Money Supply

Chapter 13: Hyperinflation

Chapter 14: Examples Of Hyperinflation

The Roman Empire Before Its Fall

The French Revolution

Germany In The Weimar Republic: 1923

Russia: 1998

Zimbabwe: 2008

Argentina: 1989

Venezuela: 2016

Chapter 15: State Bankruptcies

Puero Rican Bankruptcy

Illinois’s Underfunded Pension Funds

The Advantage Of Letting States Go Bankrupt

Chapter 16: American Democracy

A Broken System

Can Sequestration Solve The Budget Deficits?

Pros & Cons Of A Balanced Budget Amendment

What About A Constitutional Convention?

Do We Need A 3Rd Party To Balance The Budget?

Can The Debt Ceiling Scenario Be Used To Balance The Budget?

Chapter 17: Default

DEDICATION

"If I have seen further, it is by standing on the

shoulders of giants." Issac Newton

Normally I try to avoid showering praise on a single individual since most projects are a group effort. Nevertheless, I shall make an exception here. Peter Peterson, ex-CEO of Bell & Howell and ex-CEO of the Blackstone Group, has done more than any individual to highlight the dangers of the huge US debt. Peterson established two foundations, the Concord Coalition and the Peter Peterson Foundation, to carry on his work. The greatest threat to America is not being invaded by a foreign power but rather the insidious debauching of our currency by inflation. Peterson has thrown his heart and soul in trying to save America from this coming disaster. His efforts have been above and beyond the call of duty.

Peter Peterson has also published a number of award-winning books on the subject of the debt crises, including Steering Clear (2015), The Education of an American Dreamer (2009), Running On Empty (2004), and Will America Grow Up Before It Grows Old? (1996).

A great deal of appreciation also has to be shown to the many foundations that have promoted fiscal responsibility including the Cato Foundation, the Heritage Foundation, the American Enterprise Foundation, The Tax Foundation, and the National Taxpayers Union. In 2016, the Heritage Foundation published Blueprint for Balance detailing how lawmakers could lower federal spending and put the government on track to end deficit spending in just seven years. The Cato Institute published a study proposing a Balance Budget Veto Amendment to the Constitution.

If you are focused on the coming bankruptcy of the US, here are some well-written books: Economic Collapse, Bobby Akart (2016), The Escape from Balance Sheet Recession and the QE Trap, Richard C. Koo (2015), Hormegeddon, Bill Bonner (2014), The Real Crash: America’s Coming Bankruptcy, Peter D. Schiff (2014), Inflation-Proof Your Portfolio: How to Protect Your Money from the Coming Government Hyperinflation, David Voda (2012), A People’s Guide to the Federal Budget, Mattea Kramer (2012), Endgame, John Mauldin and Johnathan Tepper (2011), The Price of Civilization, Jeffrey D. Sachs (2011), Bankruptcy of Our Nation, Jerry Robinson (2009), The Return of Depression Economics, Paul Krugman (2009), It Could Happen Here: America on the Brink, Bruce Judson (2009), The Dollar Meltdown, Charles Goyette (2009), I.O.USA., Addison Wiggin and Kate Incontrera (2008), Crash Proof: How to Profit From the Coming Economic Collapse, Peter D. Schiff (2007), Taxes, Spending, and the US Government’s March Toward Bankruptcy, Daniel N. Shaviro, (2007), The Coming Generational Storm, Laurence J. Kotlikoff and Scott Burns (2004), and When Money Dies, Adam Fergusson (1975).

The best books on Social Security reform are as follows: The Politics of Policy Change, Daniel Beland and Alex Waddan (2012), Balancing the Budget is a Progressive Priority, Donald H. Taylor, Jr. (2012), Social Security: The Story of its Past and a Vision for its Future, Andrew G. Biggs (2011), The Moment of Truth, Alan Simpson and Erskine Bowles, (2010), Individual Accounts for Social Security Reform, John Turner (2006), Making Sense of Social Security Reform, Daniel Shaviro (2000), and Balancing the Federal Budget, J. W. Aros (1996).

The best books on healthcare reform are as follows: The Human Face of Obamacare (2016), How Obamacare is Unsustainable (2015), Health Care Wars(2012), and Breaking Point (2011), Dr. John Geyman, Reinventing American Health Care, Ezekiel J. Emanuel (2014), Power Politics, and Universal Health Care, Stuart Altman and David Shactman (2011), Tracking Medicine, John E. Wennberg (2010), The Healing of America, T.R. Reid (2009), Putting Our House In Order, George P. Shultz and John B. Shoven (2008), The Healthcare Fix, Laurence J. Kotlikoff (2007), and The New Health Insurance Solution, Paul Zane Pilzer (2005).

Great books on hyperinflation are as follows: When Money Destroys Nations, Philip Haslam (2015), The Death of Money, James Rickards (2014), Reinventing Collapse, Dmitry Orlov (2011), And the Money Kept Rolling In (and Out), Paul Blustein (2005), Minding the Public Purse, Janice MacKinnon (2003), and How to Profit from the Coming Hyper-Inflation, Henry B. Zimmer and Dave Greber (1984).

INTRODUCTION

CONTINUING DEFICITS ARE UNSUSTAINABLE

The word that keeps cropping up when experts talk about the US budgetary debt is the word unsustainable. Other expressions of the same sort are the tipping point, the looming iceberg, a runaway train, an economic tsunami, or the fiscal cliff. Every reputable economist in the US agrees that reform is imperative; otherwise, the economy will be seriously disrupted or may even collapse. The rising US debt and rising interest rates will eventually crowd out investment and the inevitable inflation will cause the collapse of pension plans and other savings.

The IMF (the International Monetary Fund) has warned the US multiple times to gets its house in order. The IMF has a benchmark which it considers the tipping point. This occurs when a country’s debt/GDP (Gross Domestic Product) exceeds 120%. The reason for this benchmark is that the 120% figure is a signal that a country’s debt service (payments of interest on its debt) is unsustainable.

In 2014, Greece was spending more than 30% of its total tax revenue just to pay interest. It defaulted on a major loan in that year. In 2015, Puerto Rico was also spending more than 30% of its total tax revenue to pay interest. It also defaulted on a major loan.

I consider 30% to be the tipping point. The US will reach this rate in 2023, when interest costs (of $1.6T or 5% x $31.4T) equal more than 30% of total tax revenue (30% x $4.9T or $1.47T), i.e., when the US costs for interest ($1.6T) equal more than 30% of the total tax revenue ($1.47T). Once this occurs, investors will demand a higher interest rate of interest to take into account the risk of default or will redeem their bonds.

Due to the Federal Reserve’s policy of quantitative easing to stimulate the economy prior to 2020, the US government paid a very low rate of interest for its debt, around 2.2%. Historically, the US government has paid between 4-6% in the past 20 years on its debt. The share of the US budget devoted to interest for publicly held debt of $24T in 2022 was only 7% ($.4/$5.8T) of the projected spending. If interest rates rise to 5% (which I project will happen in 2023), that share will increase to 30% in 2023 (5% x $30T/$4.9 trillion) for both publicly held debt and intragovernmental debt of $6T.

RAISING THE ALARM

The average US budgetary deficit, or addition to the US debt, was around $1 trillion in the last decade. In the next decade, if nothing is done (business as usual), the average deficit will be about $2 trillion according to the CBO (Congressional Budget Office). This will cause the debt to rise to $50 trillion by 2033. Investors will soon begin to curtail their purchase of US bonds and by 2033, the Federal Reserve will have redeemed the entire debt of the US with inflated dollars. This will cause hyperinflation and massive unemployment due to the fact that businesses will be unable to pay their own massive debt.

The time to raise the alarm is now. Actually, as Alan Greenspan stated, the time to raise the alarm was 10 years ago. What is the result if the US continues to increase its debt? The result will be inflation, probably ending in hyperinflation. This will cause the eventual collapse of all pension plans, the collapse of all investment, and a devastating depression.

As Gregory Mankiw, the author of a best-selling economics textbook, states in his textbook, When the government reduces national saving by running a budget deficit, the interest rate rises and investment falls. Because investment is important for long-run economic growth, government budget deficits reduce the economy’s growth rate. The IMF recently downgraded its projection of world growth to less than 2% per year due to the fact that excessive government debt is crowding out private investment.

WHAT IS THE SOLUTION?

Is there a possible solution? Over 50% of our budget today goes to Social Security, Medicare and Medicaid. If nothing is done to curtail these entitlements, in 20 years over 100% of today’s budget will be devoured by these same 3 programs. From the viewpoint of Congress, these 3 programs constitute the 3rd rail. If you touch any one of these programs, you die, i.e., your career as a Congressman ends.

President Biden, as well as many other politicians, prides himself on not touching either Medicare or Social Security. This is a misguided philosophy since both of these programs will be insolvent soon and somebody will have to deal with the problem. Medicare will be insolvent by 2028 and Social Security will be insolvent by 2035. Since both these programs are funded by payroll taxes, the US will have to absorb 20% of the costs of Social Security each year and 10% of the costs of Medicare each year into the general budget after their insolvency.

By 2040, the number of senior citizens will rise to 80 million from today’s 40 million. Today seniors amount to 12% of the population but by the year 2040, seniors will reach 25% of the population. By 2050, the US centenarian population will exceed 600,000. Today, seniors past age 85 are the fastest growing segment of the population. Most senior citizens will vote against any Congressman who suggests reforming Medicare or Social Security. The AARP lobby will also fight hard against any reform. It looks like any attempt at reform will be doomed until this nation reaches a fiscal crisis.

A democracy has one downside. The will of the majority (senior citizens) can trump the will of the minority (the next generation). When President James Madison and the other framers of our Constitution sought to solve this problem, they put the Judiciary branch on equal footing with the executive and legislative branches. This nation never had to worry about chronic budgetary deficits because we were on the gold standard. This meant that our reserves of gold would diminish any time we had chronic deficits, so Congress was forced to try to balance the budget. In fact, President Andrew Jackson actually paid off the entire debt of the US in 1832. This restraint came off in 1971, when President Nixon left the gold standard, as did virtually all the rest of the countries in the world.

We live in an era of fiat currency, namely an era where our currency is backed by our reputation for paying its debts and by the large reserve of assets held by this country. Fiat currencies almost always go bankrupt in time because of the insatiable demand of politicians to cater to the demands of a populace that wants more entitlements.

Is there any solution? Can we tinker with our democracy so as to prevent politicians from bankrupting our country? Congress has shown that it is adamantly opposed to a balanced budget amendment. Is a constitutional convention the answer? Two-thirds of the state legislatures must approve of a constitutional convention, so this also is doomed to failure.

Is there any possibility of preventing continuing debt? Social Security is exploding because of the baby boomers. Every day 10,000 of the 77 million baby boomers retire and most of them will collect Social Security and Medicare Part A (dealing with hospital insurance). They will also join Medicare Parts B and D, which are heavily subsidized (approximately 52%).

The notional Social Security fund will be depleted by 2035. Once that fund is depleted, incoming revenue will be enough to pay about 75-80% of benefits through 2090. The notional Medicare fund will be depleted by 2028. Incoming revenue will thereafter be enough to pay out 87-90% of hospital costs. Medicare is a greater problem than Social Security. Medicare costs will double every 10 years until 2050. How can anyone solve this problem without drastically cutting benefits?

The answer is that we need to balance the discretionary and mandatory budgets (exclusive of interest costs). At this point in our history, it is now impossible to balance the budget inclusive of interest costs. If the US balances its budgets and privatizes Social Security, it will still have to pay debt service. To privatize the Social Security, the US will have to borrow about $2 trillion (hereafter T stands for trillion) in order to fund the Social Security Thrift Savings fund for those who have not yet retired. This will raise the US debt to about $34T.

I estimate that the interest cost on that debt in 2024 will be about 5% or $1.7T ($34T x 5%). With a GDP of about $22T (indexed for inflation in 2022 dollars) in 2024, I estimate that the inflation rate resulting from having the Federal Reserve print money to pay this debt service will be about 8% (1.7T/$22T). Since most of the industrialized countries of the world have an inflation rate around this figure, we can expect investors to continue to repurchase the US debt when it expires and is reissued.

How can the US balance its discretionary and mandatory budgets without a balanced budget amendment. The answer is to revise the Second Liberty Bond Act of 1917, dealing with debt ceiling scenarios. That Act requires the US to default on its obligations if the President fails to agree to spending cuts required by Congress for raising the debt ceiling. The Act needs to be revised to call for a new agency to enact a balanced budget and to monitor its compliance. Instead of default, the budget will be managed.

THE HYPOTHETICAL HOUSEHOLD COUPLE

Let’s take a hypothetical case where a retired couple living on $4,900 per year is told by their credit card company that it will not increase their $31,400 credit card debt ceiling. Prior to retirement, the couple was adding $1,000 per year to its debt and was obtaining an increase in the debt ceiling each year. The couple lives on a budget of $200 of each month for food and $100 each month for utility expenses (including TV). The yearly budget, exclusive of interest, was $3600. Interest costs were $400 per year. The total budget, inclusive of interest, was $3600 + $400 = $4,000.

The credit card manager, Kevin McCarthy, now informs the couple that they will not be allowed to increase their debt ceiling above $33,000 starting on October 1, of 2033 and that interest costs will be