The U.S. welfare state has "run up against a brick wall" of economic reality and fiscal book-keeping and only a "true revolution" involving major entitlement overhaul will improve the economy, says former Fed Chairman Alan Greenspan.
In the United States, the rise of the tea party among Republicans coupled with the shift to the left of many Democrats have made it very difficult for the country's leaders to agree on policy.
Look at last year's debt-ceiling fiasco as an example.
"A political tsunami has emerged out of our past in the form of the Tea Party, with its ethos reminiscent of rugged individualism and self-reliance," Greenspan writes in a Financial Times op-ed piece.
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The tea party "has so altered the distribution of votes within Republican Party’s House caucus that the party's center has moved closer to the tea party."
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Compromise must ensue eventually, and that will likely include reform to entitlement programs like Medicare and Social Security, programs that have expanded without funding to match.
"The only viable long-term solution appears to be a shift in federal entitlements programs to defined contribution status," Greenspan writes.
That means more and more Americans will have to contribute more to their retirement plans, which Greenspan recognizes will be difficult.
"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."
One thing is for sure: the sweeping change is coming to the U.S. economy.
"We face a true revolution, not so much in the streets but in the fundamental choices the American people will have to make to secure our fiscal future," Greenspan writes.
"Arithmetic demands it."
A U.S. Treasury report finds that the government's net liabilities swelled by more than $1 trillion for 2011.
The Financial Report of the United States showed the government's liabilities exceeded assets by $14.785 trillion, up considerably from $13.473 trillion a year earlier, according to Reuters.
There was some good news: the government's net operating cost, or deficit, dropped to $1.313 trillion for the year ended Sept. 30 from $2.080 trillion the prior year, largely due to declines in expected future payments under government pension programs.
Tax hikes, it seems, might be unavoidable, the report finds, as a deficit remains a deficit even it narrows somewhat.
"Restoring fiscal $1.313 trillion sustainability will require substantial additional changes, including tax reforms to increase revenue and changes to make our entitlement programs sustainable over time," U.S. Treasury Secretary Timothy Geithner says in a letter accompanying the report, Reuters reports.
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