Why no economic growth will kill the U.S. And why you must prepare.

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TrainwreckFirst quarter Gross Domestic Product (GDP) is in, and well, the U.S. economy still stinks, growing at a paltry, inflation-adjusted rate of just 0.5 percent annualized.

Unsurprisingly, the lack of growth falls well below the already dreary Federal Reserve expectations for 2016, which is projected in December 2.4 percent for the year. Which still stinks. Even as the economy struggles to catch up, perhaps we’ll even meet that growth projection this year. Which is the problem.

The U.S. economy has not grown above 4 percent since 2000, and not above 3 percent since 2005. While President Barack Obama goes around the world claiming he has been “Saving the world economy from a Great Depression” with his policies, in point of fact the last 10 years marks the worst performance of GDP since the 1930s. The rest of the world, particularly in emerging markets, have performed well above the U.S. in that timeframe.

And at the current slow-to-no-growth rates, the U.S. economy is poised to underperform its way into financial oblivion.

Without growth, the U.S. will be unable to meet its full faith and credit financial obligations both publicly and privately. Right now, the $19.2 trillion national debt stands at 105 percent of GDP.

The U.S. has sustained such largesse with extremely low interest rates, but that will only work for so long. Nominally, the national debt grew 5. 7 percent in the past 12 months. Compare that to 2015’s nominal economic growth — that is, before inflation adjustment — of 3.5 percent.

If those numbers held true for the foreseeable future, by 2050, the national debt would be $140 trillion, while the economy would be just $60.9 trillion — a whopping debt to GDP ratio of 229 percent. That is unsustainable, even with low interest rates.

Greatest default in human history?

And left unchecked, it may result in the greatest default in human history. Harvard economist Carmen Reinhart recently, remarkably called for debt restructuring — they dare not call it default but that is what restructuring is — writing for Project Syndicate, “[W]ith the largest economies, nearly eight years after the global financial crisis, burdened by high and rising levels of public and private debts, it is baffling that comprehensive restructuring does not figure prominently among the menu of policy options. Indeed, for the global economy, debt restructuring is the proverbial elephant in the room.”

But if the economy grows faster than the debt, the debt to GDP ratio shrinks — and there is no financial crisis. No need to restructure or default, or at least far less of a need. Reinhart does not see growth on the horizon, so she points to restructuring.

Without growth, the U.S. will be unable to maintain its global security posture, which the free world has depended on since the end of World War II to maintain freedom of the seas, operate the world’s nuclear defense deterrent and be able to respond to hotspots that threaten national and regional security.

With aging submarines, air force and missile defense and operations systems, the U.S. is unprepared for a major war — and that lack of readiness puts the lives of hundreds of millions of people at risk.

But with accelerated economic growth, revenue will be readily available to fashion a new fleet of 21st Century arsenals that will deter a major attack from other world powers. Defense hawks do not foresee growth and boosted revenue either, and so call for Congress with its scarce resources to prioritize spending towards the military.

Without growth, the U.S. will be unable to meet its commitments to Baby Boomers, 9 million of whom will be indigent and require Medicaid by 2030 for either nursing home or at-home care.

Overall public and private health systems will become overwhelmed as health expenditures could encompass 40 percent of GDP by 2080, as projected by Romneycare and Obamacare architect Jonathan Gruber of the Massachusetts Institute for Technology in 2011, writing for the National Bureau of Economic Research. Gruber wrote it was “doubtful” that the health care law alone would “fully solve the long run health care cost problem in the United States”. Gruber’s approach and the idea behind the law is to deal with the problem by controlling costs.

But the real solution again is to get the U.S. economy growing again — robustly — so that public and private systems are not so strained.

See a pattern? All of these questions are moot if the U.S. economy picks up the pace.

Some of the causes of the economic slowdown are easier to deal with than others. The demographic slowdown of fewer babies poses a generational challenge, with a lower relative growth of demand. As for the accumulation of too much debt public and private, which serves as a net drag on growth, that run-up of credit occurs very much as a function of growth being too slow. That is, we tend to borrow to move consumption to the present.

Other wounds are self-inflicted, such as $8.7 trillion of trade deficits since 2000 and the regulatory stranglehold particularly on energy production by the Environmental Protection Agency. Those could be undone or at least affected by a smart mix of policy that seeks to restore U.S. competitiveness globally.

Regardless of the causes — and there are many — everyone should agree that growth is the solution. Because the danger of no growth is default on our massive bond bubble, a crippled U.S. defense posture and seniors who will simply die waiting for care.

But if we just start growing — and fast — it all goes away.

Robert Romano is the senior editor of Americans for Limited Government.

  • We have know growth because that is what Obama wants. He wants to change our system to the old Soviet Union socialist party. Obama is destroying job growth and his open door policy of letting everyone into the country and immediately they go on every government program they can get on is making it hard for the tax payers who are getting fewer and fewer with the democrat party and the progressive republicans in charge. Cruz stood up to them and the people hated him for it. That created Trump because the people hate the politicians and there destroying our country.

  • James Andrews

    The only way to truly fix it, is to seriously downsize the Federal government, and even some of our over bloated state and city governments as well.

  • guestimate

    No, the only true fix is get rid of the Federal Reserve that is the cause of the debt in the first place, 3% of GDP compounding annually, since 1913. ALL money printed for budgetary purposes incurs the 3% charge. If government owned the currency (it doesn’t at the moment) it could print as needed and no taxes either. Income tax didn’t begin until the Federal Reserve Act was signed. The government became broke overnight when it gave ownership of the currency to the Federal Reserve, whose name appears at top of the note– private, corporate paper. Borrowing old money to give new money value is retarded and done only as a courtesy to allow investors to participate in public debt creation. Uncle Sam should stop being so courteous, we can’t afford it.

  • James Andrews

    Good post, and great points, especially about the Federal Reserve! One thing is sure; we cannot afford them anymore!

  • JaniceELP

    You’ve missed one huge – and the major – cause of our economic woes. Over 50,000 factories have shuttered their doors, leaving millions of Americans out of work, and have moved their manufacturing overseas to countries where slave wages are paid. Meanwhile, the prices of those imported goods have not dropped commensurately with the dramatic decrease in production and wage costs. Instead, the corporations, which have committed this economic treason, have raked in ever-growing profit. In addition, they are taking advantage of numerous tax loopholes, which aren’t available to the rest of us. Corporations have made out like bandits, and the majority of us have suffered with greater unemployment, huge additions to the disability rolls (when unemployment runs out), and ever-increasing prices. When fewer and fewer Americans have jobs or jobs that provide a reasonable standard of living, there are fewer and fewer people to purchase the goods made overseas by these so-called American corporations, which are located elsewhere.

    If corporations commit economic treason and set our country up for collapse, then their incorporation in the US ought to be voided, and they ought to have to pay hefty import taxes on the goods they manufacture elsewhere and ship into our country. They can become Chinese corporations, Thai corporations, Indian corporations, or become the product of the countries to which they have given our good-paying jobs. I wonder how many tax breaks those countries will give them? We cannot any longer afford to subsidize corporations, which are destroying our economy.

  • guestimate

    THANK YOU. You may have noticed the Donald is blaming China for currency manipulation and unfair trade practices but the real villains are the US billionaires who find it profitable to operate there for reasons you mentioned. I think that’s so he can repatriate them but under the worst possible terms for US workers. Let’s hope the American public isn’t so easily duped this election cycle. We saw through Mitler, let’s hope we dump Trump.

  • guestimate

    Thank you, sir.

  • LocalYokel35

    With 7 0f the 12 board member positions guaranteed to be selected from banking positions, why would anyone expect change relinquishing banking authority?

  • guestimate

    Agreed. Well I wasn’t suggesting anyone was thinking about RELINQUISHING financial authority, but when enough people understand how the system works, they can’t kill everyone. I get so tired of people who talk about cutting spending. No we need to stop feeding the parasites & predators on Wall St. & FRCBOG’s first.

    A friend sent me a link that General Motors & John Deer want to make tinkering/self-repair illegal, I guess they’re taking a lesson from Bill Gates. The elite understand very well the importance of locking up the means of production, to keep the people helpless & dependent. “What’s in your wallet?” They hope, only plastic. Money outside the system isn’t earning them any leverage.