Barack Obama, Harry Reid, and American Insolvency

The Obama re-election campaign tactics are now approaching near-hysterical levels with the unleashing of the White House's pawn Harry Reid accusing Mitt Romney of not paying any taxes over the past ten years, claiming some anonymous source as the author of that charge.  He and the other re-election mouthpieces claim that it is up to Romney to prove the charges false in an obvious ploy to force him to release 10-plus years of tax returns so their "truth squads" can rummage through to find any nugget they can demagogue into portraying Romney as a out-of-touch rich guy not paying his fair share.

This and many more attempted smears are on the horizon, as Barack Obama cannot win re-election without destroying his opponent, as he has done in virtually all his previous campaigns for public office.  This is particularly true this year, as the facts underlying his stewardship of the economy are devastating.

It has been said, quite accurately, that the United States is going down the road taken by many European social democracies now facing imminent economic insolvency and societal upheaval.  But America is further down that road than many realize.

A snapshot of the present-day health of any nation can be ascertained by reviewing two factors: annual government budget deficits as a percent of Gross Domestic Product and the annual unemployment rate.  An accelerated level of deficit spending, except in times of a major war (such as World War II), is indicative of a lack of fiscal discipline and tax revenues sufficient to finance those expenditures.  These revenues can come about only from a growing economy and near-full employment.  When high deficits are coupled with a dramatic increase in unemployment for more than two or three years in a row, that country has embarked on a dangerous road that will lead to insolvency if not addressed quickly.

Some governments run extremely large annual deficits which place an even greater emphasis on raising revenues for ideological reasons, while others simply do not wish to confront reality and reduce spending for political gain. The knee-jerk, but erroneous, solution is to increase the tax burden and pay out ever-increasing unemployment and social benefits, thus stifling economic growth.  This is the start of a death spiral unless spending is dramatically curtailed and the GDP grows, creating more jobs and thus tax revenues.

If a nation wishes to maintain its solvency and continue to expand its economy, it should not experience deficits higher than 3% of its GDP and, in today's quasi-welfare societies, unemployment rates above 6% to 7%.  On an aggregate basis, a combination of these factors should always remain below 10.  The higher the index above 10, the greater the problems that country is experiencing, and viable solutions for these dilemmas will be increasingly difficult to enact -- particularly if the index remains above 10 for a prolonged period of time.

When viewed on this basis, the "Solvency Index" (a combination of the budget deficit as a percent of GDP and the unemployment rate) of various nations in Europe and the United States would be as follows over the past four years: 

























United States





Sources: U.S. Bureau of Labor Statistics (U-4 Unemployment rate--unemployed plus discouraged workers); CIA World Book;;; Wall Street Journal; Investor's Business Daily

Other notable U.S. historical Index highlights:

1983 (the peak of the last major recession and the previous highest index since 1947):15.5

The Bush Years (2001-2008): 7.4

The Obama Years (2009-2012): 19.6

From 1947 through 2008, the U.S. experienced only three individual years with an index above 12.2.  The average index of the 61 years prior to 2009 was 6.9; it was during this period that America experienced the greatest era of wealth-creation in the history of mankind.

Per the House Budget Committee's analysis of the Obama budget as submitted in February, the index never falls below 12.5 over the next ten years and averages 13.7.  The reality will be much worse, as the Obama budget calls for significant tax increases and no real spending cuts, and it assumes unreasonable GDP growth rates.

Barack Obama has nearly succeeded in remaking the country into the worst of European socialist states.  With deficits that will total over $5.3 trillion from 2009 through the end of 2012 coupled with high unemployment over such a prolonged period, the United States is facing insolvency -- a word that is being more frequently bandied about in various international financial circles, particularly as the Obama administration and the Democrats show no inclination toward promoting policies to stimulate economic growth as a means of job-creation and deficit-reduction and are obstinate in their refusal to initiate significant spending reductions while demanding higher taxes.

Thus, the Obama re-election team, with the active assistance of the mainstream media, must do all they can to distract the American public from the disaster that is the economy and the long-term implications thereof.  Expect Mitt Romney to be accused of most anything and the lies and demagoguery to increase by geometric proportions.  But none of this will hide the reality that the United States is technically insolvent and well on the road to becoming the next Greece or Spain unless Barack Obama and the Democrats in Congress are dispatched in November.