The Never Ending Circle of Debt

By Joe Sinagra | The Save Jersey Blog

circular-arrowA common argument offered by amnesty advocates posits that it would boost the U.S. economy and government revenues, too. 

With an aging population and the ‘boomers’ ready to retire, less people in the work force, lower wages, and a historic scarcity of jobs, our government will need to generate more income. Government doesn’t want to admit we are in a hole so deep it is impossible to climb out; revenues funded by taxes keep this boat afloat for a time to put off tough decision-making.

The federal deficit refers to the federal budget deficit which is simply the difference between the amounts of U.S. expenditures compared to the amount of U.S. tax revenue collected.

The federal or national debt is the amount of money the U.S. Government has borrowed from and owes to lenders.

Simply put, if the government ‘earns’ $2 trillion in taxes in one year, but spends $3 trillion, that’s a deficit of $1 trillion. In order to pay for the difference, the government has to borrow money from itself, American citizens, foreign countries and other sources. In other words, a constant federal deficit will increase the federal debt because it leads to additional government borrowing.

It took more than 200 years for the U.S. national debt to reach 1 trillion dollars. In 1986, the U.S. national debt reached 2 trillion dollars. In 1992, the U.S. national debt reached 4 trillion dollars. In 2005, the U.S. national debt doubled again and reached 8 trillion dollars. Now the U.S. national debt is about to cross the 16 trillion dollar mark.

Since Barack Obama entered the White House, the U.S. national debt has increased by an average of more than $64,000 per taxpayer, and he will become the first president to run deficits of more than a trillion dollars during each of his first four years in office.

During his administration the U.S. government has accumulated more new debt than it did from the time that George Washington became president to the time that William Jefferson Clinton became president.

U.S. households are now actually receiving more money directly from the U.S. government than they are paying to the government in taxes.

As the U.S. economy continues to limp along, even more Americans are going to become financially dependent on the federal government.

Spending on food stamps has doubled since 2008. Millions of Americans have lost their jobs and have needed some assistance from the government. Since Obama became president the number of Americans on food stamps has gone from 32 million to 46 million.

With that said, both parties are to blame. If the Republicans or Democrats really wanted to stop the federal government from running up all this debt, they could have done it.

Each talk about how the budget could be balanced, but it never happens. Our politicians continue to give us nothing but lip service and excuses.

In 1913 the Federal Reserve was created with the duty of preserving the dollar. One 20-dollar bill could buy one 20-dollar gold piece. Today, fifty 20-dollar bills are needed to buy one 20-dollar gold piece.

The U.S. was virtually debt-free before World War One with a national debt of just 2.7% of the economy in 1916. The surge in debt associated with World War One was financed largely by selling bonds to the US public and, in the aftermath, the U.S. hit a new record high debt-to-GDP of about 33%, with more than $25 billion in debt. It is 2014 and countries are still paying off debt from World War One.

Each year since 1969, Congress has spent more money than its income.

Since the government doesn’t make anything to generate a profit, from where do we suppose that income will come to pay down the National Debt? Government spent approximately 26% of their available tax revenue just to pay interest last year. As far as paying down the debt, I doubt very much that will ever happen.

When the government doesn’t have enough money to meet obligations and doesn’t want to, or can’t borrow money, it just prints some.

The negative effects impact everyone. Government debt causes higher prices, and reduces the value of your savings and investments. The inflation caused by printing money means that the money you’ve already saved buys fewer and fewer goods.

Government debt also makes it more expensive to borrow.

Government borrowing makes it more difficult for small business to borrow the money they need for expansion, making it harder for them to hire new employees.

Government debt never dies; any part of the debt that isn’t repaid in your lifetime will be passed on to your children.

Raising taxes on the wealthy will not be enough to pay down the debt. If you taxed income over $250,000, you’d raise $56 billion and only solve 5 percent of a $1 trillion dollar deficit.

The 2014 deficit was approximately $486 billion, with tax revenues of $2.75 trillion and spending or outlays of $3.45 trillion. The national debt is predicted to rise from $16 trillion in 2012 to $24.9 trillion by 2022, an increase of $8.9 trillion.

An “unfunded liability” is a promise that’s been made without the money to back it up. The unfunded liability is approximately four times larger than the federal deficit and amounts to about $200,000 per citizen. Social Security and Medicare are considered unfunded liabilities. The present value of unfunded obligations under Social Security alone was approximately $8.6 trillion over a 75-year forecast period (2012-2086).

The Treasury reckons the government’s total indebtedness at $51.3 trillion… five times that of the national debt.

The national security implications are profound. Public debt owned by foreigners has increased to approximately 50%, resulting in nearly 50% of the interest payments leaving the country, as compared to past years past when interest was paid to U.S. citizens holding the public debt. Interest expenses are projected to grow dramatically as the U.S. debt increases and interest rates rise.

Though many people may believe that “China owns our debt,” as of July 2013, China’s Treasury holdings amounted to about $1.28 trillion, or 7.6% of the total debt. China is, however, the United States’ largest overseas creditor, ahead of Japan, which holds more than $1.1 trillion in Treasuries. Every dollar’s worth of foreign claims on America is matched by 89 cents’ worth of U.S. claims on foreigners. And because foreigners tend to put their U.S. investments into safe, low-yield assets, America actually earns more from its assets abroad than it pays to foreign investors.

The monthly cost of interest on the debt for the average working American, currently averages anywhere from $240 to $300 per month.

Substitute the word ‘Taxpayer’ for Government Funded, Government Subsidized, Government Money, Government Grant . . . either way, it is all money from our pocket.

If you have a deficit every month, you keep borrowing and your debt grows. The higher the debt, the more you borrow, the lower the credit rating, the higher the interest, until the interest payment on the loan is bigger than all the other items in your budget. Eventually, all you can do is pay on the interest.

The private sector funds government debt, government will not curb its appetite for spending and the taxpayer will never climb out of the hole its own government has dug for them.

But defaulting on the debt is not an option; it would do significant damage to many pension funds, life insurance companies, banks, state, county and municipal governments, and foreign governments.

This is what the Associated Press had to say about Obama’s 2015 budget: “President Barack Obama’s estimate of total receipts, outlays, deficit, debt and gross domestic product in his budget proposal submitted to Congress on Tuesday for the 2015 fiscal year beginning Oct. 1. Figures are in billions of dollars.” That’s all they had to say in its entirety?

The world may not trust us politically, but if they can’t trust us financially, the impact on the world economy, and on our own, would be calamitous.

While the debt clock ticks, unsustainable debt would certainly mean the death knell of a nation’s economy along with its government.

The national debt is complicated in more ways than one can keep up with, and there is no easy answer. Unless something changes dramatically we can all agree on one thing: that the cost of borrowing to finance that debt will continue to rise.

Wishing everyone happiness in the coming year, because you’re going to need all the happiness you can get.

You can bet you won’t be getting any money, and will probably have another 20 million more people to share what little you have left with.