Social Security and Medicare's ‘moral crisis'(ZT)

Paul Farrell on Kotlikoff's "generational storm".....	Thomas
I got this from Farrell by email. I do not know how old it is, but it is timeless in my opinion.. Social Security and Medicare's ‘moral crisis' Massive $51 trillion deficit may sink boomer retirements ARROYOGRANDE, CA. (CBS.MW) – It suddenly hit me why a New Age fluff-piecelike The Power of Now is such a huge bestseller. And why it willout-sell The Coming Generational Storm: What You Need to Know AboutAmerica's Economic Future, an incredibly brilliant analysis ofAmerica's $51 trillion Social Security and Medicare disaster. “Now”is unbelievably optimistic. The book's philosophy encourages people tofocus on today, the short-term, the present moment, the blissful“eternal now,” the day-trader's dream world. “Storm” is so brutallyrealistic that most people will dismiss it as unbelievably pessimistic.Together, both books distract Americans from thinking about the futureand planning for the long-term. The books are actually two sidesof the same coin, exposing much about the American psyche today. Thecoming generational storm should scare the hell out every one ofAmerica's 77 million boomers, because this ‘perfect storm' will greatlyreduce Social Security and Medicare benefits just when boomers arehoping to relax and enjoy a peaceful retirement. Unfortunately, theywon't see the problems until it's too late. Blind optimism will not stop the storm Perfectstorm? Perhaps in the distant future, maybe 2020, you say? So whocares! Stay in the moment, today! Live with the Power of Now! Tomorrowwill take care of itself. Besides, nobody can really predict thefuture. Let our politicians figure it all out later. For now, beoptimistic. Trust. Live with a positive mental attitude! Hasn't thegreat America spirit always won out, no matter what the odds? Yes,optimism makes America great. We win behind battle cries like “damn thetorpedoes, full speed ahead.” But optimism also creates blind spots,preventing us from seeing the painful realities detailed in The ComingGenerational Storm, co-authored by Boston University economist LaurenceKotlikoff and Dallas Morning News' financial journalist Scott Burns. Thestorm is coming, riding a demographic tidal wave. By 2030, America willhave twice as many retirees as there are today as 77 million babyboomers settle into old age, but only 18 percent more younger workers. Irresponsible government spending Thisdemographic imbalance is exaggerated by a government accounting systemthat makes Enron's fraud look like petty thievery. Our retirementsystem operates on a cash basis. It worked in the past because youngworkers outnumbered retirees, filling the coffers. Soon, however, toomany old-timers will be pulling money out and too few kids puttingmoney in. Worse yet, says Kotlikoff and Burns, “the governmenthas lost its compass and the current administration is heading straightinto the coming generational storm,” with a combined deficit of $51trillion for Social Security, Medicare and the new drug benefit. Theyare equally critical of the naïve and misguided solutions of bothpolitical parties. Ideological extremes dominate, leaving little roomfor consensus. And none of the obvious remedies will work: Not taxreform, technological progress, immigration control, foreigninvestment, nor cutting wasteful government spending. Nothing. Moreover,the longer we delay, the worse the problem gets. Neither side willblink. Both are becoming ever more polarized. Yet, if we don't facefacts and start making sacrifices now, later the economic and politicalconsequences will be devastating … right when boomer-retirees dream ofenjoying peace in their sunset years. Great solutions, but no one listens Yes,this incredible book does paint a dark, frightening reality, a perfectstorm coming, that could increased taxes in the 40 to 50 percent rangeor force cuts in Social Security and Medicare to cover all the unfundedbenefits expected by boomers. But the authors also do offerperfect solutions for the perfect storm. On the larger scale, a plan toprivatize the Social Security system. One that would probably beunacceptable to both political parties as well as Wall Street.Similarly, the solutions for individual investors rely on increasedsavings which would work for only the third of Americans who arealready saving enough. Even Kotlikoff and Burns acknowledgethe near insurmountable political obstacles: “Our politicians care moreabout their next fix, the next election, than they do about the nextgeneration [and] as crazy as it sounds, our only hope is that theeconomy will go critical sooner rather than later.” Only hope, a earlydisaster? Yes. Perfect storm sooner than expected Andprobably much sooner than 2020. The perfect storm is acceleratingtoward shore faster than preciously imagined. This book was completedbefore the recent energy crisis, with the new warnings about the impactof China's increased energy demands pushing up oil prices, theincreased costs and dangers of Iraq and the war on terrorism, and apresidential campaign that will solve little, no matter who wins. Enterthe disaster scenario: It is highly likely that a catastrophic eventwill occur sometime before the end of the next presidential term in2008, more probably in the next couple years as one of severalscenarios triggers the early arrival for the coming generational storm.Consider this likely scenario: “Another flash point … thesequence of events might run like this. Greenspan leaves. Long-terminterest rates rise. The Congressional Budget Office issues a warningabout U.S. fiscal sustainability. The International Monetary Fund comeout with a similar report. Long-term interest rates rise some more.Inflation picks up owing to higher import prices, which is due to aweaker dollar. Long-term rates move into the double-digit range. Thestock market tanks. The Federal Reserve prints more money to lowerrates, but this raises long-term rates even further. The economy movesinto recession. Deficits hit seven percent of GDP. Inflation hitsdouble-digits ... Japan and the EU look shaky. And we're off to theraces.” And if not that scenario, more domestic terroristattacks, or other unpredictable disasters trigger an early arrival ofthe coming storm. No wonder we drift into “The Now,” this kind of stuffis unbearable. Too rational for optimistic ideologies? Beforewarned, this book has a fatal flaw: It's too good, too factual, toorealistic, too damn honest … and consequently, too complex to get theattention of the average American. I hope I'm wrong, but thetruth is, most voters are totally baffled by the complexity oflong-term issues with Social Security and Medicare. Instead, most willvote based on political rhetoric, slogans and ideologies, delivered notin great books like The Coming Generational Storm, but in 30-secondbiased media sound bites. Unfortunate but true. The fact isthat Americans prefer seeing the world through The Power of Now. Webelieve optimism creates a prosperous economy and new bull markets.Optimism tells us it's okay to buy bigger SUVs. Our national savingsrate is another signal. Almost zero. Americans really can't plan for2020, or the day after tomorrow, or even tomorrow! We're in love with“The Now!” The future will take care of itself if we simply livewith a positive mental attitude, affirm our belief in the greatAmerican Dream, and stay optimistically in the present moment, in thatever-blissful “eternal now” … and erase all pessimistic thoughts aboutdisaster scenarios like The Day After Tomorrow or The ComingGenerational Storm. But “make no mistake,” warn Kotlikoff andBurns, “this is not just a moral crisis of the first order. This is themoral crisis of our age.”