The interest on the national debt makes our future unstable. The exploding size of that burden suggests that, short of devaluing the dollar and taking a large bite out of the middle class through inflation and taxation, there is no way to ever pay down that bill, says Lawrence Kadish, a real estate investor and a trustee of the Claremont and Hudson institutes.
Consider:
- As of Sept. 30, 2009, the national debt was almost $12 trillion and interest on that debt was $383 billion for the year, according to the Treasury Department's Bureau of the Public Debt.
- The Congressional Budget Office on Oct. 7 estimated the 2009 budget deficit to be almost $1.4 trillion (about 10 percent of GDP).
- In August, the White House Office of Management and Budget (OMB) estimated total government revenues at about $2 trillion; the revenue estimate included $904 billion from individual income taxes.
- This means the cost of interest on the debt represented more than 40 cents of every dollar that came in from individual income taxes.
Except for a few years in the late 1990s, for decades Washington has spent more than it has taken in each year and borrowed the rest, says Kadish. Taxpayer dollars that could have paid off debt each year have instead been spent on interest to finance debt. Unfortunately, that's a vicious cycle that will likely only get worse, says Kadish:
- The OMB projects deficits of about $9 trillion over the next 10 years.
- If that occurs, the national debt will be almost $21 trillion by 2019, however, the actual amount could be much higher.
- The OMB also optimistically projects $13.5 trillion of revenue increases over the next decade, while minimizing the inevitable rise in interest rates that will come with an expanding national debt.
Left unchecked, this destructive deficit-debt cycle will leave the White House and Congress with either having to default on the national debt or instruct the Treasury to run the printing presses into a policy of hyperinflation. It is against this background that Washington is now debating whether to create social programs it can't afford, says Kadish.
Monday, October 19, 2009
TAKING THE NATIONAL DEBT SERIOUSLY
President Obama has a spending problem
President Obama has once again proposed more spending that will increase our countries debt. In recent news Mr. Obama has suggested a $13 billion plan to pay seniors since they will not get a raise in their social security. This equates to about $250 each for 50 million elderly citizens. The problem with this is that added on to other high cost programs out national deficit is skyrocketing out of control. Proposed healthcare reform, tax increase, possible troop increases and other proposed or ongoing government programs are spending money as if we had an unlimited supply.
Plunging greenback clouds US optimism
From Watoday.com.au
But the sense of relief has been clouded by growing fears about the future of the US dollar, as the massive growth in the US national debt fuels an exodus from the world's reserve currency.
The US dollar soared in the first months of the crisis, as investors flocked to what they saw as a safe haven. But since March it has fallen more than 10 per cent against other global currencies - and 30 per cent against the Australian dollar - as investors fear it will not remain safe.
As reported in Business Day yesterday, central banks globally added $US413 billion to foreign currency reserves in the June quarter, a six-year high. But 63 per cent of that growth was in euros and yen, and just 37 per cent in the US dollar.
High jobless rate adds billions to deficit
High unemployment means more unemployment checks and less tax revenue, costing the government roughly $100 billion annually, said Stan Collender, a former congressional budget aide. Those costs will persist for the next couple of years, if economists are correct in predicting the jobless rate will average more than 9 percent through 2011.
Unemployment compensation rose from $47 billion in fiscal 2008 to $120 billion in 2009, a 156 percent jump.
How the U.S. Economy Could Prosper Again
In order for our country to have a chance of prospering, we need the market
place and financial system to truly be free. Americans need the ability to
walk into any U.S. bank across the country and have an option of storing their
pay check in U.S. dollars, Canadian dollars, Australian dollars, Euros, Yen,
or any other currency in existence. There should be no foreign currency
transaction fees, it should be as simple as filling out a deposit slip and
checking off what percentages of your pay check you want to be deposited in
each currency. If you don't want a currency but instead you want real money,
you should be able to store your money at any U.S. bank in gold and silver.
You should also be able to withdraw any amount of any foreign currency, as
well as physical gold and silver, at any time from your bank with no questions
asked.
Monday, October 5, 2009
Trillions More in Debt with Nothing Good to Show for It
It is easy to get caught up in all the hype of the media pundits, Ben Bernanke, Joe Biden and Barack Obama that the economy is slowly but surely recovering from the worst recession since the 1930s. It’s not. And what is even worse is that we are deeper in debt with nothing good to show for it.
U.S. Begins Fiscal Year $11,776,112,848,656.17 in Debt
It was as if a fiscal tsunami struck and flooded the nation with red ink.
By the time the final numbers are in for the fiscal year just ended, the federal deficit will have hit an all-time high in the range of $1.580-trillion. That's 11.2 percent of the total economy (GDP). The previous year's deficit was – by today's standards – nearly inconsequential at $459-billion. That was only 3.2 percent of GDP.
Over the course of FY'09, the National Debt soared as well from $10.124-trillion on October 1, 2008 to $11,776,112,848,656.17 as of Tuesday, the latest figure from the Bureau of Public Debt. That's an increase of $1.652-trillion – the single largest increase ever in a fiscal year.
Poll: National Debt Hurting The Country
Most Americans -- 78 percent -- think the national debt is so large it is hurting the future of the country, including majorities of Democrats (64 percent), Republicans (92 percent) and independents (85 percent).
Moreover, nearly two-thirds (65 percent) think the Obama administration is proposing more government spending than Americans can afford. Some 29 percent disagree.
The political divide is striking: 90 percent of Republicans and 74 percent of independents think the Obama administration is proposing more spending than taxpayers can afford. Among Democrats, that number drops to 39 percent, while over half disagree (55 percent).
How bad is the U.S. budget deficit?
Well if this doesn't stop -- and I don't think it will -- we're going to discover that the rest of the world is going to want higher interest rates to lend money to the United States than it now is demanding. And a lot of this money that we're paying in interest basically leaves the country as opposed to, say, World War II -- where the deficits as a percent of the economy were much bigger, but we financed them pretty much inside the country so the interest payments that the government was making stayed inside the country and the money was recycled. And now it's going to leave. And that is not a good thing.
Thursday, October 1, 2009
Early retirements strain Social Security
From Examiner.com
In the latest sign the Social Security ticking time bomb is almost ready to explode, an unexpected spike in the number of early retirement claims will cause the entitlement program to run a deficit as early as 2010, nearly a decade ahead of earlier projections.
The system has suffered not only a 23% increase in early retirement applications, but the severe recession has resulted in the loss of 6.9 million jobs. In this negative feedback loop, older employees lose their jobs and thus stop paying into the system while applying for early retirement benefits when they are unable to secure a new job.
