Special Report: America’s Debt Disaster
By Wes Keene | February 6, 2010 | In Category: Economy
Congress recently did what none of us could do. They bestowed upon themselves a massive credit line increase, $1.9 trillion to be precise. That raises our national credit limit to $14.3 trillion, in total. As of today, our outstanding national debt stands at $12.3 trillion. The remaining $2 trillion is allocated, but not yet spent. However, once money is allocated, it will definitely be spent.
As is typical with any financially irresponsible family, excuses are made for needing the credit line to be raised. Those familiar with families struggling with money management know the story all too well: The person in charge of the cash goes out and blows the whole paycheck on lottery tickets, dinners out, and a huge TV. Then when groceries need to be purchased, they will claim they “must” use the credit card because groceries are non-negotiable. Its the oldest trick in the book for the financially foolish.
This exact trick was employed last year when Congress blew threw $827billion for stimulus and about $825 billion between the bank bail out and the auto bailout. Unsurprisingly, that adds up to just under the new “credit line increase”. As expected, we blew money on things we didn’t need and won’t work, before we spent money on things we *do* need like paying our bills and protecting our land.
If every man, woman and child in the country paid an even share of the $14.3 trillion debt, we’d all pay $40,141.11 Considering that not everyone in the country is able to work, that number gets much worse.
Stated a different way; there are roughly 138.5 million people in the US work force. If you have a calculator that handles trillions, you can figure out how much we’ll have to pay to get out of this. It works out to a little over $89,000 per worker. $89,000! Think about that.
The median American salary as of 2007 stood at $50,233. That means if every US worker used every paycheck for the next 1.77 years and didn’t keep one dime for themselves, we’d be able paid off our back debt. Well, even that isn’t totally true, because the budget for FY2011 is $3.68 trillion. So over the 1.77 years you were busy paying our back debt, you would have racked up $3.68 trillion in more debt to pay. It’s a cycle that never ends, and sounds a lot like the situation a family is in right before they are forced to declare bankruptcy.
The news gets worse. While Obama has paid lip service to the idea of *deficit* reduction, via a 3 year freeze on certain discretionary non-defense spending, he hasn’t even announced a plan for reducing the debt. Keep in mind that even if we balanced the budget (a la Newt’s Contract with America), we still wouldn’t have done anything about the debt.
The way it out is horribly painful for almost everyone, and politically improbable. It will require massive social security and medicare cuts, and keeping tax rates right where they are. Trying to fix our national debt by freezing 17% of the budget is really ignoring the elephant in the room.
This is really not an optional process. We have only two legitimate choices: 1) The spending reforms outlined above, or 2) Wide scale monetizing of the debt, which will lead to abrupt, massive inflation. The scale of the problem dictates the scale of the solution. We can’t fix a debt problem equal to over 7 years of government revenues by tweaking a little here and there.
US debt has risen over the last 30 years
As a percentage of GDP (the total economic output of the country, of which Uncle Sam gets only a portion), the debt has taken a startling turn in the last year. The other obvious bump in the graphs happens during World War II. However, World War II was followed by a massive economic boom. There is no such boom on the horizon now, not even in Obama’s analysis, which expects a modest 4% growth over the next several years.
If giving banks a bail out is “like a root canal”, I wonder what colorful terms our President would use to describe the changes we need to reduce our debt. The good news for him, and the bad news for us and our children, is that he’d never do it.
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