The Problem With Debt
July 28, 2016 at 4:25 p.m.
By Gary [email protected]
I was upset because he had run up a budget deficit of $450 billion during fiscal 2008. At that same time, the national debt hit $10 trillion for the first time.
I remember thinking how insane those numbers were. Wow. How naive was I?
The reason this came to mind this week was because I noticed that the U.S. debt hit a new milestone last week – $18 trillion.
For some perspective, if you wanted to blow $18 trillion, you would have to spend $1 million per day for 4,931 years and six months.
Under President Barack Obama, the U.S. national debt has increased by roughly 70 percent, from $10.6 trillion on his first day in office to the aforementioned $18 trillion last week.
The bottom line is the U.S. is in a debt crisis. And the weird thing about it is that nobody is really talking about it. You don’t hear about it in the news these days, even though the consequences, in my view, could be grave.
To make matters worse, the news of soaring national debt must be coupled with the fact that the Federal Reserve is set to raise interest rates for the first time since 2006.
Anthony Mirhaydari, writing in The Fiscal Times:
The Fed's ultra-low interest rate policy has helped limit the pain for the ongoing budget deficit and growing national debt by limiting the damage from interest expenses. But with monetary policy on track to normalize, amid a strengthening in the economy and a tightening job market, the costs of carrying so much debt are about rise...”
That means at some point, the cost to the U.S. government of interest on all that debt will become unmanageable.
Frankly, I think that point may already be here. Some economists are more optimistic.
By unmanageable, I mean it will consume so much of the government’s budget, there will be little left to fund anything.
According to the Congressional Budget Office’s own projections – which I believe to be wildly optimistic – 75 years from now, all of the U.S.’s tax revenue will cover only health care spending and interest on the debt.
The only way to fund everything else – defense, environment, transportation, education, et. al. – is more debt.
Higher taxes can’t solve this problem. We’re way beyond that point.
In fact, revenue isn’t the problem at all. Year over year, the government collects record amounts of tax revenue.
But it spends it all, and then some, running up higher and higher deficits.
Just last month, the government started fiscal 2015 by setting another revenue record. October was the first year of the fiscal year, and the government took in $212.7 billion and spent, the most ever in October. Problem is, the government spent $334.4 billion – a $122 billion deficit.
The big deficit, according to treasury officials, was attributed to calendar adjustments, like $41 billion in benefit payments that normally would have been made in November. These had to be made in October because Nov. 1 fell on a Saturday. OK, so the one-month deficit should have been a lousy $81 billion. There, that’s better.
Of course, this is nothing new. In fiscal 2014, the government collected $3.02 trillion – a record annual amount – and spent $3.5 trillion and change, running up a deficit of more than $483 billion.
Make no mistake. Our government is drowning in debt and there really seems to be no relief insight. The debt is growing faster than the economy and gobbling up huge chunks of our nation’s wealth.
You might ask, “So what?”
Well, I believe that the national debt may well be the number one threat to the security of our nation.
I don’t agree with everything Kentucky Senator Rand Paul says, but I agree with his take on the national debt:
“Washington has spent this country into oblivion and the continuation of borrowing from other countries is only going to hurt future generations of Americans.
Our rising debt undoubtedly poses a national security threat, and in order to secure our national interests, we must rebuild our economic structure by cutting the federal deficit. We must act now by rebuilding a sustainable economy, and we cannot find solvency if we continue forward with such impractical spending and borrowing habits. Real spending cuts – not small reductions in proposed increases – are needed to solve this national crisis ...
Government is not spending your money wisely. Often it isn't even accounted for. ... Our debt is largely owned by foreign countries, such as China, making us very vulnerable to foreign manipulation and angst. ...
Uncontrolled national debt directly contributes to national security concerns, such as a defective economy, social disorder, revolutions, bankruptcy, famine and war.“
Some economists believe a debt-triggered financial meltdown is imminent – devaluation of the dollar, a 70- to 80-percent stock market decline, hyperinflation, social unrest as millions watch their life savings evaporate.
Conversely, economists like Nobel Prize winner Paul Krugman think I – and others who worry about debt – are looney alarmists.
He writes a column for the New York Times. Throughout the current recession he has eschewed the notion that debt is a problem and has called for increased government spending: “We need more, not less, government spending to get us out of our unemployment trap. And the wrongheaded, ill-informed obsession with debt is standing in the way,” he wrote in 2013. In July, flatly, he wrote, “We don’t have a debt crisis, and never did. Why did everyone important seem to think otherwise?”
Now I don’t pretend to be an expert on these things, but I don’t believe our government will ever be able to pay down the $18 trillion in debt it’s wracked up.
And – meltdown or no meltdown – it seems to me that can’t be a good thing.[[In-content Ad]]
I was upset because he had run up a budget deficit of $450 billion during fiscal 2008. At that same time, the national debt hit $10 trillion for the first time.
I remember thinking how insane those numbers were. Wow. How naive was I?
The reason this came to mind this week was because I noticed that the U.S. debt hit a new milestone last week – $18 trillion.
For some perspective, if you wanted to blow $18 trillion, you would have to spend $1 million per day for 4,931 years and six months.
Under President Barack Obama, the U.S. national debt has increased by roughly 70 percent, from $10.6 trillion on his first day in office to the aforementioned $18 trillion last week.
The bottom line is the U.S. is in a debt crisis. And the weird thing about it is that nobody is really talking about it. You don’t hear about it in the news these days, even though the consequences, in my view, could be grave.
To make matters worse, the news of soaring national debt must be coupled with the fact that the Federal Reserve is set to raise interest rates for the first time since 2006.
Anthony Mirhaydari, writing in The Fiscal Times:
The Fed's ultra-low interest rate policy has helped limit the pain for the ongoing budget deficit and growing national debt by limiting the damage from interest expenses. But with monetary policy on track to normalize, amid a strengthening in the economy and a tightening job market, the costs of carrying so much debt are about rise...”
That means at some point, the cost to the U.S. government of interest on all that debt will become unmanageable.
Frankly, I think that point may already be here. Some economists are more optimistic.
By unmanageable, I mean it will consume so much of the government’s budget, there will be little left to fund anything.
According to the Congressional Budget Office’s own projections – which I believe to be wildly optimistic – 75 years from now, all of the U.S.’s tax revenue will cover only health care spending and interest on the debt.
The only way to fund everything else – defense, environment, transportation, education, et. al. – is more debt.
Higher taxes can’t solve this problem. We’re way beyond that point.
In fact, revenue isn’t the problem at all. Year over year, the government collects record amounts of tax revenue.
But it spends it all, and then some, running up higher and higher deficits.
Just last month, the government started fiscal 2015 by setting another revenue record. October was the first year of the fiscal year, and the government took in $212.7 billion and spent, the most ever in October. Problem is, the government spent $334.4 billion – a $122 billion deficit.
The big deficit, according to treasury officials, was attributed to calendar adjustments, like $41 billion in benefit payments that normally would have been made in November. These had to be made in October because Nov. 1 fell on a Saturday. OK, so the one-month deficit should have been a lousy $81 billion. There, that’s better.
Of course, this is nothing new. In fiscal 2014, the government collected $3.02 trillion – a record annual amount – and spent $3.5 trillion and change, running up a deficit of more than $483 billion.
Make no mistake. Our government is drowning in debt and there really seems to be no relief insight. The debt is growing faster than the economy and gobbling up huge chunks of our nation’s wealth.
You might ask, “So what?”
Well, I believe that the national debt may well be the number one threat to the security of our nation.
I don’t agree with everything Kentucky Senator Rand Paul says, but I agree with his take on the national debt:
“Washington has spent this country into oblivion and the continuation of borrowing from other countries is only going to hurt future generations of Americans.
Our rising debt undoubtedly poses a national security threat, and in order to secure our national interests, we must rebuild our economic structure by cutting the federal deficit. We must act now by rebuilding a sustainable economy, and we cannot find solvency if we continue forward with such impractical spending and borrowing habits. Real spending cuts – not small reductions in proposed increases – are needed to solve this national crisis ...
Government is not spending your money wisely. Often it isn't even accounted for. ... Our debt is largely owned by foreign countries, such as China, making us very vulnerable to foreign manipulation and angst. ...
Uncontrolled national debt directly contributes to national security concerns, such as a defective economy, social disorder, revolutions, bankruptcy, famine and war.“
Some economists believe a debt-triggered financial meltdown is imminent – devaluation of the dollar, a 70- to 80-percent stock market decline, hyperinflation, social unrest as millions watch their life savings evaporate.
Conversely, economists like Nobel Prize winner Paul Krugman think I – and others who worry about debt – are looney alarmists.
He writes a column for the New York Times. Throughout the current recession he has eschewed the notion that debt is a problem and has called for increased government spending: “We need more, not less, government spending to get us out of our unemployment trap. And the wrongheaded, ill-informed obsession with debt is standing in the way,” he wrote in 2013. In July, flatly, he wrote, “We don’t have a debt crisis, and never did. Why did everyone important seem to think otherwise?”
Now I don’t pretend to be an expert on these things, but I don’t believe our government will ever be able to pay down the $18 trillion in debt it’s wracked up.
And – meltdown or no meltdown – it seems to me that can’t be a good thing.[[In-content Ad]]
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