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Will our politically created welfare state and unsustainable entitlements sink the USA?

*Financial Times, by Alan Greenspan, January 3, 2012

”The failure of the ‘Super Committee’ last year to reach a budget deal underscored the underlying wedge in US politics.”

”The emerging fight over the future of the welfare state, a paradigm without serious political challenge in eight decades, is accentuating the centre’s decline.  The welfare state has run up against a brick wall of economic reality and fiscal book-keeping.  Congress, having enacted increases in entitlements without visible means of funding them, is on the brink of stalemate.  As studies by the International Monetary Fund have demonstrated, trying to solve significant budget deficits predominantly by raising taxes has tended to foster decline.  Contractions have also occurred where spending was cut as well, but to a far smaller extent.

The only viable long-term solution appears to be a shift in federal entitlements programmes to defined contribution status.  The assets of private defined benefit pension plans, confronted with the same economic forces, have already fallen from 67 per cent of private pension plans at the end of 1984 to 37 per cent at the end of last September.  But the political problems of such a switch can be seen in state and local governments’ attempt to trim public defined pension plans.  Public sector unions have fought mightily to avoid having their pensions shrink, as they have in the private sector.

Cutting back on benefits that are ‘entitled’ is going to be a far harder political task than curbing federal discretionary spending.  We have created a level of entitlements that will require a greater share of real resources to fulfill than the economy seems likely to be able to supply.”

*This information is solely a highlight of the opinion of a third-party publication and is incomplete.  Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.