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Dear Mr. Berko:

Dear R.S.:

Thanks for your three-page letter, which, as you can see, I’ve had to shorten a bit. I’ll try to give some “to the point” answers. First, you need to know that if the bloviating politicians in Congress really wanted to reduce the deficit, they have the power to do it. But they’d rather offer excuses that sound good to them or to their special interest groups about why they can’t do it. That’s why my dad used to say that politicians are like baby diapers: They must be changed often and for the same reason.

The president’s Council of Economic Advisers (CEA) is full of beans. This obvious farce is the public relations extension of the president’s policies and reports publicly what it’s told to report publicly. Professional and knowledgeable observers scoff, chuckle and dismiss the CEA’s numbers.

Goldman Sachs projects 1.5 percent to 2 percent growth beginning in mid 2010 and believes the deficit will grow by $1 trillion a year through 2019. I trust Goldman, not those freaks who warm their fannies on the swivel chairs at the CEA. The deficit outlook has changed dramatically in the last nine months for two reasons: the exponential explosion in government spending and the certainty of a weak economic recovery. The latter portends hugely lower tax revenues, the piling of enormous interest costs on the deficit and hugely higher national debt.

Dismiss a “modest” business recovery this year, next year or 2011. Consumer households, representing 72 percent of gross domestic product (GDP), are flat broke. Household assets have fallen 35 percent since the 2007 peak, and this drop began when household debt reached a lethal 135 percent of income, which is probably close to 150 percent today. Resultantly, households have reduced spending to reduce debt, which translates to less disposable income, lower consumer spending, lower GDP growth and lower corporate profits for years to come. Yes, for years to come.

The administration recognizes that the exploding deficit and debt complicate its universal health care pledge. The Congressional Budget Office suggests that universal health care would cost $100 billion a year (remember what Congress said about Medicare 25 years ago), and this new spending can be offset by reductions in Medicare, large reductions in our monthly Social Security benefits and a big “bump” in payroll taxes. Still, it’s perverse to destroy the current health insurance system and turn the whole enchilada into universal care because fewer than 12 percent of Americans lack health insurance.

This reduction in Social Security income will be catastrophic for young Americans. Larry Kotlikoff at Boston University, an economist whom the common man can understand, tells us that a typical male reaching 66 today will get a windfall of $71,000 during his remaining years. However, today’s 25-year-old working schmo can count on paying $322,000 more in payroll taxes than he will get back.

A 43-year-old self-employed reader wrote: “I must be retarded. Six days a week, I drive a truck to my office so I can pay for everyone else’s medical bills and retirement.”

The enormous size of the deficit and national debt cannot be reduced by cuts in defense, Medicaid, Medicare or other federal programs. Obama will go back on his pledge and increase taxes across the board. In fact, I’m told that Obama is considering a value-added tax that could eventually raise over a trillion dollars each year. Higher taxes reduce the consumers’ disposable income. When consumers have less to spend, that will presage a weak economy, and a weak economy presages lower employment. The trillions that have been added to the money supply will debase our dollar so it will take more greenbacks to pay for utilities, gasoline, cigarettes, bananas, veterinary care, beer, a car wash and an apartment rental. Get it? Got it? Good!

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, Fla. 33775 or e-mail him at mjberko@yahoo.com.