Drunken Sailors: Part XIII - "Financial Collapse"

"Financial Collapse" - must this be a term of negative implications? Couldn't stifling and soul-wrenching, utter and complete "financial collapse" be a good thing? I looked up the definition of collapse and must admit the first 5 were a bit challenging to this logic, but the sixth was more promising: to fold down into a more compact shape. In our age of miniaturization, compact is the way to go. So yes then, this could be the sort of "financial collapse" of which the Comptroller of the U.S. was recently speaking.

U.S. Comptroller: Financial Collapse Looming

Ronald Reagan once said that Congress always finds a need for the money it gets.

In the past few years, Congress has been finding many needs.

Now the head of the General Accounting Office has pulled out the soapbox, climbed up and shouted "enough is enough."

David M. Walker, comptroller of the United States, writes in the latest edition of Business Week that limits are needed on both further tax cuts and government spending.

Comparing America to the last days of the Roman empire, Walker says that fiscal irresponsibility is pushing the U.S. closer to the same fate that befell the Romans in their heyday.

"Unfortunately, there is no question that both U.S. government spending and tax cuts are spiraling out of control," writes Walker. "Recent increases in federal budget deficits have far outpaced the cost of the global war on terrorism and incremental homeland security costs."

While Walker admits that the $319 billion fiscal deficit in 2005 is lower than it was last year, he maintains it's still high - especially if federal spending climbs at the same rates we're seeing today.

"The federal government's long-term liabilities and net commitments, such as those relating to Social Security and Medicare, have risen from just over $20 trillion in fiscal 2000 to more than $43 trillion in fiscal 2004, in large part because of the passage of the Medicare prescription drug bill in December 2003," says Walker.

"This translates into a burden of more than $150,000 per American and $350,000 per full-time worker, up from $72,000 and $165,000 in 2000, respectively."

Consequently, Walker says, it's time for the U.S. to get a grip on its finances - complete with government caps on spending and tax cuts, a serious re-evaluation of America's rampant consumer culture and a thorough review of every federal government program.

"Believe it or not, much of the government is on autopilot and based on economic, security, workforce and other conditions that existed in the 1950s and 1960s," Walker writes. "It is time to rationalize and modernize the mission, programs, policies and operations of the federal government to reflect the challenges and opportunities of the 21st century."

If that sounds like President Clinton's "smart spending" initiatives, it's no accident. Both Walker and the previous administration say that it's a disciplined approach - and not a wide-reaching scalpel - that will be key to limiting government spending.

"Indeed, without a more disciplined approach to our fiscal challenges, policymakers as a default will tend to resort to across-the-board spending cuts and other sweeping measures," he says.

"Such actions, even if used year after year and on a large scale, won't come near to closing our fiscal gap and will actually result in perverse incentives in some cases. For example, effective agencies and programs with reasonable budgets would be treated the same as ineffective ones with bloated budgets."

Walker closes by citing the nation's first president, George Washington, calling him a strong believer in fiscal discipline.

"In his 1796 farewell address, Washington admonished the nation to avoid 'not ungenerously throwing upon posterity the burden which we ourselves ought to bear.' Americans today would be wise to heed Washington's timeless wisdom."

Note: I went to BusinessWeek to get to the source material, but the site requires a subscription. Thus, the above quoted material is the direct analysis from MoneyNews.