One third of Americans living on Government Handouts

CNBC
March 8, 2011

Government payouts—including Social Security, Medicare and unemployment insurance—make up more than a third of total wages and salaries of the U.S. population, a record figure that will only increase if action isn’t taken before the majority of Baby Boomers enter retirement.

Even as the economy has recovered, social welfare benefits make up 35 percent of wages and salaries this year, up from 21 percent in 2000 and 10 percent in 1960, according to TrimTabs Investment Research using Bureau of Economic Analysis data.

“The U.S. economy has become alarmingly dependent on government stimulus,” said Madeline Schnapp, director of Macroeconomic Research at TrimTabs, in a note to clients. “Consumption supported by wages and salaries is a much stronger foundation for economic growth than consumption based on social welfare benefits.”

The economist gives the country two stark choices. In order to get welfare back to its pre-recession ratio of 26 percent of pay, “either wages and salaries would have to increase $2.3 trillion, or 35 percent, to $8.8 trillion, or social welfare benefits would have to decline $500 billion, or 23 percent, to $1.7 trillion,” she said.

Last month, the Republican-led House of Representatives passed a $61 billion federal spending cut, but Senate Democratic leaders and the White House made it clear that had no chance of becoming law. Short-term resolutions passed have averted a government shutdown that could have occurred this month, as Vice President Biden leads negotiations with Republican leaders on some sort of long-term compromise.

“You’ve got to cut back government spending and the Republicans will run on this platform leading up to next year’s election,” said Joe Terranova, Chief Market Strategist for Virtus Investment Partners and a “Fast Money” trader.

Terranova noted some sort of opt out for social security or even raising the retirement age.

But the country may not be ready for these tough choices, even though economists like Schnapp say something will have to be done to avoid a significant economic crisis.

A Wall Street Journal/NBC News poll released last week showed that  less than a quarter of Americans supported making cuts to Social Security or Medicare in order to reign in the mounting budget deficit.

Those poll numbers may be skewed by a demographic shift the likes of which the nation has never seen. Only this year has the first round of baby boomers begun collecting Medicare benefits—and here comes 78 million more.

Social welfare benefits have increased by $514 billion over the last two years, according to TrimTabs figures, in part because of measures implemented to fight the financial crisis. Government spending normally takes on a larger part of the spending pie during economic calamities but how can the country change this make-up with the root of the crisis (housing) still on shaky ground, benchmark interest rates already cut to zero, and a demographic shift that calls for an increase in subsidies?

At the very least, we can take solace in the fact that we’re not quite at the state welfare levels of Europe. In the U.K., social welfare benefits make up 44 percent of wages and salaries, according to TrimTabs’ Schnapp.

“No matter how bad the situation is in the US, we stand far better on these issues (debt, demographics, entrepreneurship) than other countries,” said Steve Cortes of Veracruz Research. “On a relative basis, America remains the world leader and, as such, will also remain the world’s reserve currency.”

Pentagon does not account for Billions; Congress sends more Cash

by Robert Burns

The House prepared Tuesday to send President Barack Obama $33 billion to pay for his troop surge in Afghanistan, unmoved by the leaking of tens of thousands of classified military documents that portray a war effort beset by Afghan shortcomings.

War Pigs continue financing Genocide in the Middle East

From Obama on down, the disclosure of the documents was condemned anew by administration officials and military leaders, but the material failed to stir new anti-war sentiment. The bad news for the White House: A pervasive weariness with the war was still there — and possibly growing.

At a Senate hearing on prospects for a political settlement of the Afghan conflict, there was scant mention of the leaked material, posted on the website of the whistleblower group WikiLeaks, but there were repeated expressions of frustration over the direction of the fighting.

Sen. John Kerry, D-Mass., who has questioned the realism of U.S. goals in Afghanistan though he supports the war, pointedly asked why the Taliban, with fewer resources and smaller numbers, can field fighters who are more committed to winning than are Afghan soldiers.

“What’s going on here?” Kerry asked with exasperation.

Still, the House seemed ready to vote final approval for more than $33.5 billion for the additional 30,000 U.S. troops in Afghanistan and to pay for other Pentagon operational expenses. Other non-war provisions brought the total bill to nearly $59 billion.

Republicans were strongly behind the major war spending, with opposition coming mostly from members of Obama’s own Democratic Party who argued that the money could be better spent at home. Rep. Jim McGovern, D-Mass., said the leaked documents revealed corruption and incompetence in the Afghanistan government.

“We’re told we can’t extend unemployment or pay to keep cops on the beat or teachers in the classroom but we’re asked to borrow another $33 billion for nation-building in Afghanistan,” McGovern said.

At the separate Senate hearing, meanwhile, Sen. Edward Kaufman, D-Del., questioned whether the U.S.-led war effort is capable of pushing the Afghan government to provide the kind of leadership that wins the confidence of the population.

“Can we carry this off?” Kaufman asked.

In his first public comments on the weekend leak of tens of thousands of documents, Obama said it could “potentially jeopardize individuals or operations” in Afghanistan. But he also said the papers did not reveal any concerns that were not already part of the war debate.

Obama said the shortcomings in Afghanistan as reflected in the leaked documents explain why, last year, he undertook an in-depth review of the war and developed a new strategy.

“We’ve substantially increased our commitment there, insisted upon greater accountability from our partners in Afghanistan and Pakistan, developed a new strategy that can work and put in place a team, including one of our finest generals, to execute that plan,” Obama said. “Now we have to see that strategy through.”

The leaked documents are battlefield reports compiled by various military units in Afghanistan that provide an unflinching view of combat operations between 2004 and 2009, including U.S. displeasure over reports that Pakistan secretly aided insurgents fighting American and Afghan forces.

Even as the administration dismissed the leaked documents as outdated, U.S. military and intelligence analysts were caught up in a struggle to limit the damage contained in the once-secret files now scattered across the Internet.

In Baghdad, Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, told reporters he was “appalled” by the leak, which he said had the potential of putting troops’ lives at added risk.

Officials also are concerned about the impact the disclosures could have on the military’s human intelligence network built up over the past eight years inside Afghanistan and Pakistan. The people in that network range from Afghan village elders who have worked behind the scenes with U.S. troops to militants working as double agents.

Beyond expressions of disgust at the document dump, the political fallout in Washington appeared limited.

Advocates of pulling U.S. troops out of Afghanistan said the leaks reinforced their argument for disengaging. War supporters said they illustrated why Obama was right to decide last December to send an additional 30,000 troops and step up pressure on the Afghan government to reform, while pressing Pakistan to go after insurgents on its side of the border.

At the State Department, spokesman P.J. Crowley said efforts to explain to Afghanistan and other allies that the U.S. government played no role in leaking the documents seemed to have paid off.

“We’re very gratified that the response thus far internationally has been moderate, sober,” Crowley said.

In his only reference to the leak, Kerry called the new material “over-hyped,” said that it was released in violation of the law and that it largely involved raw intelligence reports from the field.

The House, meanwhile, prepared to approve legislation to pay for the extra 30,000 troops.

House Appropriations Committee Chairman David Obey, D-Wis., said he was torn between his obligation to bring the bill to the floor and his “profound skepticism” that the money would lead to a successful conclusion of the war.

Even if there were greater confidence, he said, “it would likely take so long it will obliterate our ability to make the kinds of long-term investments in our own country that are so desperately needed.”