national debt – TERRY THOMPSON

You didn’t hear a boom or see flashes in the sky, but on January 31, America’s national debt broke through the $30 trillion threshold. And there is no end in sight to government borrowing. This debt is owed by every American man, woman, and child. Each of us currently owes over $90,000. An average American household owes over $231,000. Let’s look at what this means to you personally.

Let’s imagine a man with the American average annual income of $53,000. This man has run up credit card debts totaling $69,000. He has been paying only interest on the debt for years with nothing going to principal. He has not even slowed his pace of borrowing for about anything he desires. He has no plans to get out of debt or even to reduce his balance. In fact, his plans are to make some extravagant purchases this year that will add more to his credit card than ever before.

This financial idiocy is precisely analogous to the American national fiscal situation. Our debt of $30 trillion is now 1.3 times our annual income (GDP) of $23 trillion. Since March 2020, the national debt has surged by 27% or $6.5 trillion. It has doubled in the last ten years. A basic macro-economic principle has long been that, when any nation’s debt exceeds its GDP, that nation’s economy is in trouble. Yet our congress and our presidential administration has ignored the debt for decades. As the chart above indicates, congress frequently legislates debt ceilings to curb spending. But their discipline lasts only a few months until they vote for the next item on their wish list that will require lifting the ceiling.

A trillion is an incomprehensible number. A trillion seconds is over 31,000 years ago. A trillion pennies stacked on top of each other would reach the moon and back and to the moon again. A trillion one-dollar bills laid side by side like floor tile would cover the states of Rhode Island and Delaware. If you spent $40 per second around the clock, it would take 23,775 years to spend the $30 trillion Americans collectively owe. Remember, the government has no money. It is our money…and our debt.

Recently President Biden’s $5 trillion Build Back Better Act passed in the House with all republicans voting no, and all democrats, except one, voting yes. It would have passed in the Senate had it not been for two democratic senators with some semblance of sanity. Now, the democrats are frantically breaking the bill into smaller pieces to get at least some of the excessive liberal spending passed before they lose their majority in the 2022 elections. Congressional democrats are determined to increase the debt even further.

The only answer to eventual national bankruptcy is to stop federal deficit spending. Contact your congressional representative and senators immediately. Tell them to stop dragging you into more debt. Tell them to vote “no” on any spending bill that exceeds tax revenues. Then tell them you want to see a strategy for reducing the current debt.

I welcome your comments.

stimulusmoney

Americans have received over $2 trillion from “the government” with more to come. Since the government doesn’t earn money, but rather just redistributes the people’s earnings, this windfall is taken from somewhere that involves us. How are they doing it, how is it paid back, and what does in mean for you…and your children?

Following what is happening with the federal government’s unprecedented infusion of vast and unimaginable amounts of money into businesses and individuals is like the proverbial herding of cats. It is essentially impossible to understand every aspect of how this works, but the bottom line is we are borrowing from our future selves.

On March 27, 2020, Congress approved the expenditure of $2 trillion for businesses and individuals. Then on April 23, 2020, they passed an additional $484 billion for business and disaster relief. With more on the horizon, we will soon be approaching $3 trillion in government assistance to victims of the pandemic. In fact, Pelosi’s Democrats have just floated a proposal for yet another $3 trillion for states and local governments and another wave of individual payments. Of course, that amount is ludicrous, but a big chunk of it will probably fly. The entire 2020 federal budget is $4.7 trillion, so the stimulus already equates to over half of the annual budget. By the way, the $4.7 trillion budget is supported by only $3.6 trillion in tax revenues resulting in a $1.1 trillion planned budget deficit to be added to our national debt.

Let’s pause here for perspective. Just what does $3 trillion dollars look like? Well, if you stacked $3 trillion in $1.00 bills, it would be over 203,000 miles high or almost to the moon. Laid flat, the stack would circle around the equator 7 1/2 times. If you spent $1.00 per second, it would take you 96,000 years to spend $3 trillion.

So, where is this $3 trillion, and very likely much more, coming from? It’s complicated, but let’s look at it in general terms. The federal government sells government bonds, or IOU’s, to banks which in turn sell them to individual and corporate investors. Since these bonds have the government backing them, along with a reasonable interest rate, there is a decent market for them, especially in these uncertain times. The government will just sell more bonds that they will later have to pay for plus interest.

Now, the question is how does the government pay back the investor in principal and interest that they haven’t budgeted for. Some pundits say the US Treasury will simply print more money. That is not exactly true, although there is some sleight-of-hand here. The Federal Reserve–the government bank–creates digital dollar credits that are as good as cash. These digital dollars will of course ultimately be called for by the bond holders, but, by that time, the government will hope to have enough revenues from taxes and future bond sales to pay the debt. Eventually, any shortfall in revenues to pay off the bonds will be paid by increasing the money supply, or literally printing more money. Unfortunately, printing more money lowers the value of the dollar and hurts the economy.

If you follow this cycle, it becomes obvious that all this stimulus spending will someday come back to haunt us and our future generations. Some of the stimulus money is in the form of loan guarantees that will not have to be spent. But the Congressional Budget Office estimates the bond obligations alone has added over $2 trillion to our national debt which bumped it up to over $25 trillion. Most economists agree that, when any nation’s debt exceeds its GDP–the sum of all annual production or spending in the economy–it should raise all kinds of red flags. Last year’s GDP was $21.7 trillion. Some financial analysts calculate the national debt as $19 trillion, since $6 trillion of it is what the government owes itself. Either way, we must ensure that our long-term position of debt is well below GDP.

I don’t disagree that the stimulus was absolutely necessary to rescue and resuscitate our economy. Perhaps some more is needed. The idiom, drastic times call for drastic measures, applies here. However, we must be very cautious about future stimulus packages and very conscious of the inevitable payback. I would like to see your thoughts on this.

Tag: national debt

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