The US is currently in the position of General Motors in about1970, splendid in its possession of a majority share of the USautomobile market and apparently invulnerable to competitive threat,yet in reality burdened with impossible welfare programs that a foolishmanagement had negotiated during the good years. For General Motors,the future after 1970 was one of steadily slipping market share, from60% of the US market to about 25%, of a steadily aging workforce, andof a retiree health benefit obligation that if valued appropriately istoday worth far more than the value of the company itself.

HadGM not undertaken its excessive pension and healthcare obligations, itwould have had more capital to compete effectively, would have beenless likely to lose oodles of money in every downturn, and might stillretain primacy in the world automobile market today, albeit by a lessermargin than in 1970.

For the US, the position is the same. Itsworkforce will be older than its competitors' and entitled to benefitsthat absorb an increasing share of the national income as its relativeearnings decline. Importing new younger workers, except at the very topof the skill pyramid, will worsen the problem because they too will byimmigrating obtain rights to excessive social and medical benefits.

Theextensive US welfare system will encourage early retirement andperiodic unemployment as solutions to individual workers' incomeproblems, rather than enabling a smooth transition to a lower wagelevel.

Both Medicare and Social Security's current assumptionsinclude a rise in the US workforce's real earnings at a steady ratebeyond 2050; if this does not happen the programs' actuarial deficitswill explode. Doubtless the government will attempt to solve theproblem by borrowing yet more money; it will be apparent only too latethat massive default lies at the end of that road.

In summary,like General Motors in 1970, the United States does not deserve its AAArating and its obligations, particularly those denominated in the local"Bernanke pesos" should be avoided.

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MartinHutchinson is the author of Great Conservatives (Academica Press, 2005)- details can be found at www.greatconservatives.com.