The National Debt

Santa left a very special present for us this past Christmas Eve. Our line of credit, as a country, was increased by $290 billion to a total of $12.4 trillion. If that wasn’t enough (and it wasn’t) the Ground Hog added another $1.9 trillion increase just six weeks later. Our new credit limit is now a whopping $14.3 trillion. Should we be concerned? At what point should we be? What happens if we can’t pay it back? Can I get one, too?

This reminds me of my first credit card that I received while in college. For some reason, that I never asked myself at the time, there were credit card applications left lying around in one of my classrooms. They had tale of some sort of free trip – to the Bahamas, I think. I applied for one and, to my amazement and delight, received a shiny new Visa with a $350 credit limit. Well, long story short (one new VCR and a couple of nights out with my fraternity brothers), it was maxed out. The first (minimum) payment that I made was for some absurdly small amount, like $19 or $29 – I can’t remember exactly, but it was one of the few that I actually made on time. What really surprised me was that after having the card for only just a couple of months, I asked for and received a credit limit increase to $500. Now, short story long, I had asked someone else a much different question the day earlier and she had said “yes.” Surprised at that answer as well, I found myself absolutely broke and unable to take her out. Not wanting to risk the embarrassment of having my credit card declined on our first date, I called the bank to determine my available balance… $4. After some quick math, I knew things didn’t look good. With nothing else to lose, I decided to “press ‘4’ to speak with a customer representative.” It only took a few minutes and an excellent presentation of the “facts” by me, I might add, and it was done. I had another $154 to blow. Eventually, that card (and that girl) got me in a bit of trouble and I learned a valuable lesson or two.

When will we as a nation learn our lesson? How much can we safely borrow?

Let’s get a few things straight. I am not against borrowing money. Obviously, circumstances will require you, your town, or your country to spend more money than it takes in over a given period of time. That’s how life is. Most people earn their money at a steady pace but are faced with outlays that are varied or even unpredictable – car repairs, buying a new home or new furniture, college tuition, illness, etc. Governments, like people, have the same financial woes in the terms of sometimes having to spend more than they take in. The key word in that last sentence is “sometimes.” Obviously, we can’t spend more than we take in all of the time, right? That would be crazy, wouldn’t it? I think the nice lady at the bank card company would catch on after a while.

But this is exactly what our country is doing. With the exception of a small few, the USA is spending more money that it takes in practically EVERY year. We are making the minimum payment (the interest) and then piling on more, year after year after year. By the way, this “piling on” is the called the national debt. Now just so people won’t get confused – and believe me, some people want you to be confused – let’s explain a few basic things. Each year, the government receives a certain amount of revenue from taxes and other sources. And every year, the government spends money on programs and services for its citizens, like a good little government should. Now whenever the government spends more money that it receives in a given year, it is called a budget “deficit.” Likewise, if for some reason we don’t spend all of it in that year, then it is called a budget “surplus”. The terms deficit and surplus only apply to a single year. The balance of all past years is called the national debt. So, back to my credit card analogy – if I charged $100 on the card this month, and only made a $75 payment, then I ran a monthly deficit of $25 (plus interest). My credit card balance grew larger, which is also called my credit card debt.

Anytime I hear people talking about reducing the deficit, I laugh. It’s like saying we’re still falling off of this cliff, but the good news is that we are falling slower. That’s the logic that my wife uses when she buys a new dress, albeit “on sale.” – “I ‘saved’ you $200!”

Come to find out, there’s a document available from the White House and the Budget Office (and probably about a dozen other government sites) that has some cold hard facts about our nation’s financial position. I downloaded a copy of the “Budget of the US Government” for fiscal year 2011, which contains a supplement entitled “Historical Tables.” In it, you can find the annual revenues and expenses for our nation, dating back to 1789. Section 7 contains an alarming table, which lists the national debt balances for each year. It is alarming in the sense that somewhere in the list you would expect to see the balance declining, but those instances are very rare. In fact, looking back 70 years, there have only been 6 years when the federal debt has gone down since 1940. The last time that happened was in 1969. In 1969, we actually lowered the national debt by $2.9 billion. But to keep this in perspective, in the year before, we had added $28 billion and another $12 billion the year before that. All said, in the two years before and the two years after 1969, we added a total of $82 billion – so it was hardly a significant offset.

You would have to go back to 1947 and 1948 to see what I’d consider meaningful reductions. Looking at this table, $436 billion in 1972 looks good compared to the current $12.4 trillion or estimated $13.8 trillion by the end of this year (2010).

Can one even fathom how much money $13.8 trillion is? It is about $126,000 per taxpaying citizen. Please add that amount to line 75 of Form 1040 the next time you file your taxes. $13.8 trillion is enough money to carpet the entire state of New York with $1 bills. If you were to stack them up (flat on top of each other, not end to end or side to side), they would be 935,644 miles high – almost enough to reach the moon and back, TWICE! If you were standing beside this stack of $1 bills and were to shine a flashlight on it, it would take the light over 5 seconds to reach the top. Even if we used $100 bills, the stack would still be taller than the Earth itself.

Okay, Okay. I know what you are saying. It’s a lot of cash, but we are a big country. Are we really that big? Let’s see, our Gross Domestic Product (GDP) last year was $14.3 trillion. At the end of 2009, our debt was 83.4% of our annual GDP. This year it will be 94% of GDP, and almost 100% by 2011.

Still not concerned? Our government basically uses “cash” accounting. Our deficit, and therefore debt, is calculated on an actual basis, in other words, actual expenses paid out less actual revenues collected. It doesn’t consider our future obligations or revenues. It’s the same way that you use to balance your checkbook. So, if you were to look at your checking account balance of, say $40,000, you might think that you’re doing pretty well. But, if you factor in that you have to pay your twin daughters’ college tuitions next month, things aren’t so hunky-dory. The U.S. has future obligations in terms of benefits for programs such as social security and Medicare. Until now, these programs have been taking in more money than their expenditures. Of course, all of the surpluses from past years (about $2.5 trillion in total) was immediately borrowed by the federal government and is included in the national debt figures above. This year, both Social Security and Medicare will have to pay out more than they take in, which means those programs will be calling in their markers. Most of these programs are going to burn through that $2.5 trillion nest-egg (which we scrambled and ate long ago) very quickly. First, we are going to have to borrow another $2.5 trillion from somebody else just to repay these programs. But after that, these programs will be completely broke (just like the rest of us) and the federal government will be expected to pick up the slack, so to speak. We refer to these as “unfunded liabilities” and their outlook is really scary to the tune of $100 trillion.

Why am I saying all of this? It’s simple. This country needs to hit the reset button. We cannot continue on this reckless course. We have got to get on some sort of “payment plan” that gets us out from under this huge debt. Changes, unpopular changes, will have to be made to Social Security and to Medicare. Congress will have to pass (and abide by) a “surplus budget act”, where we can begin to pay down this albatross that we have securely shackled around our children’s necks.

Sources
http://www.whitehouse.gov/omb/budget/fy2011/assets/hist.pdf

About John Cox

I'm a 47 year old software engineer and father of four.
This entry was posted in deficit, fiscal responsibility, national debt. Bookmark the permalink.

4 Responses to The National Debt

  1. clinicalthinker says:

    Great piece!

    Now if a majority of "we the people" would read, believe, wrap their mind around it and take action … things would start to be solved :)

  2. Anonymous says:

    Money does not exist in nature. It has been created by government and is based on (in this case) other governments faith in our government. If other governments have so much faith in our government they want to give us goods for "free" because they trust we will pay them back at some point, why should'nt we take the goods? You relate the governments debt to an individuals debt, which is in fact a fallacy. When the music stops, we will be ahead still. Why is this bad that we are getting free goods from other governments again?

  3. John Cox says:

    My dear friend, I can see that a simple answer will do little to address your misguided notions, so I posted a longer response here:

    http://spotonjohn.blogspot.com/2010/03/my-response-to-anonymous-on-national.html

    Please feel free to continue the discussion in that thread.

  4. Charles Edwin Shipp says:

    Thanks! I'm linking from RushEcho.org

Leave a Reply

Your email address will not be published. Required fields are marked *

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>