- People don’t eat that last Twinkie because they know it might affect their waistline.
- People buy insurance for house, health, and so on because stuff happens, and it helps to be able to pay for repairs.
- We use some of our spare time to volunteer for worthy causes in our neighborhoods.
- The list goes on…
While we might
fully understand the right thing to do, we don’t always do it. That’s what it
means to be human. Last night I could not resist the urge to eat that last
slice of pepperoni pizza in the box.
So, it is easy
to understand why collectively we do the same thing. We cave to the moment and
we risk the future. We elect folks to create budgets for us. They decide how
much to tax us and then how to take those proceeds and spend them for us. We
want them to be prudent with our money. We want them to make good expenditures
for us. We understand that if we spend too much today that there might be
negative consequences in the future.
The government
budgets for fiscal years. FY 2019 was over as of the end of September 2019. The
numbers are in. Collectively, we spent a trillion dollars more than we collected
in taxes. Okay – the actual number was $984 billion but it is soooo much more
fun to call it a trillion. Even Scrooge McDuck cannot imagine spending that
much money.
As the table
below shows, in FY 2019 we collected $3.5 trillion in taxes and spent $4.5
trillion on various items like Social Security, Medicare, and so on. Yes, total
spending was $4.5 trillion but of that amount, $1 trillion had to come from
something other than taxes.
Where did it
come from? No, the government did not use the printing press to make a bunch
more Benjamins. What they did was borrow the $1 trillion. The government can
print bonds and notes – so they printed a bunch of bonds and notes and sold
them to Tuna, Nolan, and a bunch of banks. Yes, foreigners bought their share, too. The trillion dollars of bonds added to the trillions we already borrowed in
the past and have not yet repaid. The sum of all those bonds is called
the national debt. I won’t even write out that number. It is so big
it makes me cry. (You can look it up. Just Google “US national debt”.)
Who cares if the
government has a huge debt? It’s the government, right? Can’t they just abolish
the debt? Can’t they have the Fed buy all those bonds? Our country is large and
strong, can’t we just keep paying off the debt over time? Can't they cause
inflation and reduce the pain of the payoff over time?
True, the
government has a lot of options, but they aren’t very good ones. Like the list
above, you can always not buy insurance today or not save for retirement.
Honey, let’s go to Vegas with our kid's college account. We can put the money
back next year after I get that big raise. Yes, I have a case of JD you can buy
for a dollar.😊 Maybe I can sell you the Brooklyn Bridge?
Once you get a
large debt, your options get limited. Look in the table – the interest on the
national debt was $376 billion in FY 2019. Without a debt, we would have had
$376 billion more each year we could have used for education, infrastructure, and a lot of
other things.
But the worst
thing about that debt is what happens if confidence in the US economy sours.
What happens if we go into a recession? What happens if our recession is worse than recessions in other countries? What happens if investors at home and
abroad decide that the US government might do something drastic – perhaps not
pay all the interest on the debt? It’s called an investor stampede. As they
sell our bonds, stocks, and JD casks, it won’t be pretty. And as the prices of
all those things fall and our wealth decreases, then the depression spreads to
all kinds of goods and services we might have bought when we felt wealthier.
Having a
trillion dollar deficit and a growing national debt during relatively good days
is very risky. No, the worst has not happened yet. But we shouldn’t fool
ourselves. We have put ourselves in that place between the rock and the hard
place. Now is the time to loosen the rock. It won't be fun later to say "I
told you so."
Table FY 2019
Budget Figures
Income Tax
$1,718 billion
Corporate
Tax 230
Payroll
Tax 2,243
Estate Tax
17
Customs
Duties 71
Other
Revenues 184
Total Revenue $3,462
Social
Security $1,044
Medicare
651
Defense
Dept 688
Interest on
Debt 376
Other
1,688
Total Spending $4,447
Deficit
$
984
On a Finance conference call yesterday when this was discussed.Bottom line: "It's not a problem; until, of course, it is a problem".No one feeling good about current situation or future prospects. The notion that Washington is actively considering an additional tax cut, with no offsets, and no concern about either the paucity of capital spending from the last cut or how, or if, to pay down debt is depressing.
ReplyDeleteThanks Ed. It's like a bad movie with no off-switch and no popcorn.
DeleteDear LSD. Yes, I’m awash in U.S. govomit bonds—Mnuchin made me a deal I couldn’t turn down. He sed even if we enter recession he’d make shure my interest is paid—that the U.S. govomit always pays its debt service (and debt). He also smiled and sed the U.S. could tolerate higher debt as a percentage of GDP. When I asked, “What about total dollars and the amount owed by each person now at $62,000 plus?” He blinked, mouth twitched, rubbed his chinny chin chin ‘n sed, “Well, that’ll take time to pay down.” I sed, “Yeah, not in your life time.” He blinked ‘n twitched again. Therein lies the problema: No one in the Swamp has the guts to take a stand and say, “Enough is enough!” What a bunch of gutless wonders as Nick used to say!
ReplyDeleteMe thinks you need to stock up on JD casks, put yer feets up, turn on reruns of Leave It To Beaver, Hazel, Ft. Apache, Little Rascals, Ozzie and Harryhat, Gilligan’s Island, and Rin Tin Tin and don’t worry be happy—the debt-to-GDP percent has room to grow!
You left out the Lone Ranger. Shame on you.
DeleteNick would have those weenies running laps until the cows came in.
Our government is based on influence and favors...you scratch my back and I will scratch yours. The move favors one gets the more powerful one is. If things get too out of hand cut Medicare or SS. To win elections cut taxes for the powerful. They do not call it the swamp because they like crawdads. I really do not see a solution unless we change the participants. Meanwhile on every election the countries infrastructure is a item.
ReplyDeleteWe cannot change the participants unless voters show wisdom. Hmmm. So who is the cause of all this?
Delete