The health care crisis is NOT about simple reform or that a new administration suddenly cares about you. The truth is that the political powers that be (both Republican and Democrat) did not want to touch this political hot potato till it could no longer be hidden in the cellar.

Fifteen years ago, two major economists had calculated that the government obligations from Social Security and Medicare (off balance sheet obligations) were at the $72 trillion level! Six years later by 2000, with the tech boom going strong, all the stock and bond markets in the world were estimated to only be about $67 trillion. Thus, fifteen years ago, our politicians knew that our government owed us from these two programs alone, more than all the money in the entire world’s stock and bond markets.

By May of 2008, Richard Fisher, President of the Federal Reserve Bank of Dallas, noted that to cover the future uncovered liability of the Medicare Program, we are stuck with an $85.6 trillion dollar bill which is six times more than the annual output of the entire US economy! This is a moving target that is getting worse each year. Since then, with the first of about 75 million baby boomers now starting to retire, these “Ponzi” plans have grown to where no “cellar” can hold them. If each of the upcoming retiring 75 million boomers got only $1000 a month in Social Security and Medicare benefits, that is an additional $75 billion a month for our government to come up with. From where? Every year the government has been taking the surplus in Social Security to meet current needs and replacing it with IOUs (Treasuries). Not only is the cupboard bare, but also as of 2013, just like Medicare, Social Security will become a net claimant on the Treasury (meaning deficits that each year will get larger and larger).

Our government’s answer to the current economic crisis has been to “spend” our way out of it. Regrettably, it is doing so with money that it does not have. In the summer of 2008, it was estimated that the federal deficit would become a huge unheard of $482 billion for 2009 because of the prior programs that Bush had left in place. Well, thanks to the efforts of our current administration, that figure is now at about the $1.6 trillion level with a cumulative deficit expected to rise to over $9 trillion over the next decade!

There are only three ways to meet such crazy deficits: raise taxes, borrow money, or print it. Taxes for everyone are going up, but will never even get close to what is needed. As to printing it, which is what our country has been doing, such excesses have always led to hyperinflation (1930s Germany where a wheel barrel full of money was needed to buy a loaf of bread). That leads us to our third solution which is our next problem escaping the cellar.

We have already borrowed amounts that stagger the imagination from the rest of the world. The US has borrowed from foreign governments and financial institutions during our first 42 presidents from Washington to Clinton (1789-2000) a combined total of $1.01 trillion. Along comes President Bush and from 2000-2005 we borrowed $1.05 trillion - more than all the previous administrations combined! It gets worse. As the percentage of the world’s central banks currency reserves, the dollar is currently held at about a 65% level. On Sept. 6, 2009 the Wall Street Journal reported that the Fed’s printing of money to buy treasury debt is threatening to set off a serious decline of the dollar (now occurring) and is compelling China to redesign its foreign reserve policy. These are the guys already holding over $1 trillion in US government assets. The big danger here is not only will other countries no longer come to our rescue by buying treasuries, but might even try to unload their current dollar denominated holdings. Oops… there can go our economy. At best, expect a serious inflationary trend as well as the dollar falling hard in the next 2-3 years.

The links between politicians in power and big businessmen are staying strong so there has been no accountability, or punishment for major transgressions. In fact outrageous rewards for politically connected firms and individuals continue openly. Take for instance the BofA deal that the SEC regulators tried to settle for “peanuts” until an honest judge said “no way.” In the settlement, BofA was to be “punished” for lying to their shareholders in regard to the situation where $5.8 billion of Merrill exec bonuses for retention (although they took their bonuses and left in droves!) were paid. The SEC punishment was to be a lousy $33 million fine that, by the way, was to be paid by the victims - the BofA shareholders.

Or take the billions spent for the rescue of the auto industry after years of their business stupidity. Look at the facts: between 1985 and the end of 1994, General Motors earned in total approximately $17.92 a share. Yet, they paid out in dividends about $20.62 a share! Worse, they spent $102.34 on capital improvements. Where did that money come from? You guessed it, credit. When their lack of sales left them eventually with empty pockets, they now continue to exist only because an uncle with your taxpayer dollars came calling. Even then, their political connections are such that they had no shame in asking for help as they arrived on their private planes in DC.

Lastly, the Baby Boomer generation is about to retire and the majority of these 75 million Americans have no real money or savings. Real pensions like defined benefits no longer exist for the vast majority. Instead, they have 401(K)s and IRAs which are not pensions BUT saving plans that in many cases have been borrowed from or whose investments have done awful with numerous crashes. With the current economy and massive unemployment, it is said that most Americans do not even have resources to outlast a 3-6 month situation without income coming in. In fact, we are a nation of debtors that had one of the lowest saving rates in the world prior to this recession. Before the current recession, a USA Today article had indicated that 80% of Americans do not have adequate savings to see them through their retirement.

If you add all these up, it seems clear that America’s future might not be as rosy as we might like. Like the character Clubber Lang said in the Rocky movie when asked for his prediction of the upcoming fight, he answered, “Pain.” To this, we have the answer of Howard Pyle to fall back on. Mr. Pyle was an aide to President Dwight Eisenhower who made an interesting comment concerning the then unemployment situation in Detroit. He said that, “the right to suffer is one of the joys of a free economy.” Enjoy your freedom.

PS - The Sunday New York Post business section on September 20, 2009 starts with an article billed the “Rally is for Suckers” calling it unsustainable without profits and jobs.

">Philip Hochstein is the CEO of CAPS Interactive and has been the Master Consultant for both venture capital and commercial real estate funding with the American Cash Flow Association. He has been involved in private venture capital funding for 25 years, is a member of the NAIOP national subcommittee for tax and finance and holds the government affairs chair for the New York City NAIOP chapter. Caps Interactive serves business clients who have funding needs of several million dollars and up. For more information on CAPS Interactive, call (212) 971 9771, visit the website at http://www.capsinteractive.com, or send email to info@capsinteractive.com.