Yes, there are some savings on the margin; but the only way you really cut costs is to ration health care, especially health care in the last year of life - which is about 30% of health-care expenses. That’s going to be very tough in the US. But when faced with a real budget crisis, the choices are going to be stark. And that crisis is coming if we don’t control spending.

You cannot propose massive increases in spending without creating crushing debt that the markets simply won’t allow, pushing interest rates much higher and really slowing growth and hurting the economy. It’s a simple fact that you cannot increase the debt-to-GDP ratio without limit.

We found the limit on personal and corporate debt this past year. We pushed the limits until the system crashed. And now the US government wants to basically do the same thing. They’re planning to see where the limits on government debt-to-GDP will be. Unless cooler and more rational heads in the Democratic Party prevail, this isn’t going to be pretty. Sometime in the middle of the next decade we’ll hit the wall, and it will make the current crisis pale in comparison.

The only way to solve the problem is to grow GDP more rapidly than debt. And for that to happen, you have to have policies that are shaped for the growth of the economy, or massive savings by consumers. And right now, we have neither. Cap and trade is hugely anti-growth. So are high corporate taxes, and Obama is proposing to effectively raise corporate taxes by closing loopholes for income earned outside the US. Much better would be to lower the overall corporate level to a competitive world rate and then require the offshore income to be taxed. A lower rate would actually increase tax revenues.

Looming protectionism worldwide is a problem (see the article here.) Towns in Ontario, Canada with a population totaling 500,000, have effectively barred US contractors from doing business with them, in retaliation for job losses stemming from US protectionism in the stimulus plan. That movement is spreading. A US steel mill with 600 union jobs will have to close down because its owners are not US-based, and thus it’s not technically a US supplier. They’re losing jobs to US-owned mills - but those are US jobs. The insanity goes on and on. As I have written for many years, the one thing that really gets me worried is protectionism. That can make this very significant recession into a depression quicker than you can imagine. Bad ideas have bad consequences.

All in all, we face some very difficult decisions - not just in the US but all over the developed world. Ironically, the less-developed nations will have fewer problems, and on a relative basis, will likely grow much faster than the developed world. But, multi-trillion-dollar deficits and massive new programs are not the right answer.

Obama is right: The debt load is unsustainable. Let's hope he’ll do more than talk, and show some budget restraint.

Woody Brock has given me permission to pass on to you his recent notes on this very topic of what we have to do to get out of this crisis. It will soon be an Outside the Box. Read it. It is a very sobering and thought-provoking piece.

It’s time to hit the send button. I’ll close by wishing you a very healthy week.