“Whether they run a record company or a grocery store, every boss will tell you you’re in big trouble if you’re borrowing more than you can ever afford to pay back. Delaying the pain for future generations is suicidal. We’ve got to start getting the deficit down right now, not next year” ~ Simon Cowell
National debt and deficit are tossed around – often interchangeably – and confuse rather than clarify an understanding of the U.S.’s ‘national debt’ status. The reality is that the United States has a ‘national debt’ of over $14.3 trillion dollars. That is a difficult number to comprehend and even more difficult to resolve. The other reality is that the 2010 federal budget posted a $1.29 trillion deficit. In simplest terms, the federal budget is the amount of money set aside to finance the government’s operation for one fiscal year.
The budget can be viewed as a two column sheet. One column represents the revenue collected to finance the budget’s expenses. The second column represents the expenditures the government makes. Ideally, at the end of the year there should be more money left in the surplus column, or revenue exceeded expenditures. At the least, revenue should equal expenditures for a “balanced” budget. Unfortunately, during the past decade expenditures have exceeded revenue to create deficits.
A ‘national deficit’ or ‘budget deficit’ is considered part of the ‘national debt’ and is added to the debt each year that a deficit occurs. The effect is cumulative. The total ‘national debt’ is a combination of the debt held by the public or all federal securities held outside the government, and intergovernmental debt or treasury securities held in accounts and administered by the federal government.
One of the troubling aspects of the debt held by the public is that it includes debt owed to foreign countries; roughly 32% of the national debt. In essence, this borrowing from other countries’ governments is borrowing from their citizens to pay for programs for our citizens. The solution to reducing the growing ‘national debt’ is less spending and more revenue…
In the blog “Quantifying the National Debt-Just Facts” by James D. Agresti writes: As of August 12, 2010, the official debt of theUnited States government was $13.3 trillion ($13,317,048,837,517). This amounts to:
- $43,377 for every person living in theU.S.
- $113,645 for every household in theU.S.
- $284,113 for everyU.S.household that pays more in federal taxes than they receive in benefits from the federal government
- Publicly traded companies are legally required to account for “explicit” and “implicit” future obligations such as employee pensions and retirement benefits. The federal budget, which is the “federal government’s primary financial planning and control tool,” is not bound by this rule.
- As of September 30, 2009 (the end of the federal government’s fiscal year), the federal government had:
- $6.5 trillion ($6,544,700,000,000) in liabilities such as federal employee retirement and veterans’ benefits
- $18.5 trillion ($18,538,000,000,000) in projected shortfalls in the Social Security program
- $33.5 trillion ($33,467,000,000,000) in projected shortfalls in the Medicare program
- $140 billion ($140,000,000,000) in projected shortfalls in other “social insurance” programs
These shortfalls are referred to as “closed group present values” and are calculated in a manner that approximates how publicly traded companies are required to calculate their debts and obligations. Combining the figures above with the national debt and subtracting the value of federal assets, the federal government has $63.6 trillion ($63,604,500,000,000) in debt, liabilities, and unfunded obligations as ofSeptember 30, 2009.
This shortfall exceeds the combined net worth of all U.S. households ($53.5 trillion), which includes all assets in savings, real estate, corporate stocks, private businesses, nonprofit organizations, and consumer durable goods such as automobiles, televisions, and furniture. This shortfall equates to:
- $207,176 for every person living in the U.S.
- $542,789 for every household in the U.S.
- $1,356,971 for every U.S. household that pays more in federal taxes than they receive in benefits from the federal government.
- These figures do not account for future deficits implied by any federal programs outside of the “social insurance” programs.
- These figures depend upon the assumption that the government projections about future economic conditions are accurate (i.e., unemployment would average 5.6%).
- The total shortfall ($63.6 trillion) is immediately placed in investments that consistently yield about 2.97% above the rate of inflation.
In the article “The Effects Of Our National Debt” by Mark Anthony Cella writes: Currently the U.S. national debt is estimated at something more than $10 trillion, (in reality it’s more like $100 trillion, but $10 trillion is what the treasury tells us) taking into consideration all the money owed to all creditors around the world. More than half of this is public debt, which means that the government owes money to individuals, businesses and other countries that have loaned money by buying Treasury notes, bills, bonds, and so on.
The remainder is inter-governmental debt, money that the federal government owes to itself because it borrowed funds from a government agency such as Social Security. The $10.6 trillion that the United States government owes is the largest national debt of any on the planet. Some economists say they believe that it isn’t quite time to be concerned about the effects of the national debt because the U.S. economy overall is so massive.
In this argument, the economists point to the fact that the national debt was 125% of GDP (gross domestic product) after the Second World War. By comparison, the debt has been between 40% and 70% since that time. However, these same observers of the economic scene note that even though we aren’t alarmed just yet; people should be concerned that so much of the GDP goes to pay interest rather than being used for social services, infrastructure and other uses….
In the article “70% Say Default is Bad for Economy, 56% Say Failure to Cut Spending is Worse” by Rasmussen writes: A ‘Rasmussen Report’ national telephone survey finds that 70% of ‘Likely U.S. Voters’ think it would be bad for the economy if the debt ceiling is not raised and the federal government defaults on some of its loan obligations. Just 7% disagree and think it would be good for the economy. Eleven percent (11%) feels a government default will have no impact, and another 11% are not sure.
But 56% of voters see more short-term economic danger in failing to significantly cut federal spending than in a government default on the federal debt. Thirty-four percent (34%) disagree and believe a default is worse. Looking to the longer-term, 63% say failure to significantly cut spending is more dangerous than defaulting on the federal debt. Just 28% hold the opposite view. The formal debt ceiling currently allows the federal government to borrow just over $14 trillion. To fund the current operations of government will require raising that limit to just over $16 trillion.
The debt ceiling comprises only a small portion of the actual liabilities of the federal government. Unfunded liabilities for a variety of programs bring the total government debt to over $100 trillion. There is little partisan disagreement that the government defaulting on its debt would be bad for the economy. But sizable majorities of both groups agree that a failure to make major cuts in federal spending is the greater long-term threat…
In the article “Does Exceeding the Debt Limit Impact Government Operations?” by Ed O’Keefe and Eric Yoder write: What happens if Congress and the White House can’t reach an agreement? Simply put, exceeding the debt limit isn’t likely to bring the government to a screeching halt the way a government shutdown would. Employees wouldn’t be sent packing, and paychecks would still be issued. But hitting the debt limit would likely delay the government’s payment of financial obligations and might disrupt the flow of other normal government operations.
The Treasury Department has yet to face a situation in which it was unable to pay its obligations as a result of reaching the debt limit, according to Congressional Research Service (CRS). But it has taken “extraordinary actions” during previous debt limit debates in order to meet the government’s financial obligations. If it gets close to the limit, “the federal government implicitly would be required to use some sort of decision-making rule about whether to pay obligations in the order they are received, or, alternatively, to prioritize which obligations to pay, while other obligations would go into an unpaid queue,” CRS wrote in a February report.
In other words, “the federal government’s inability to borrow or use other means of financing implies that payment of some or all bills or obligations would be delayed.” Treasury officials believe they don’t have the legal authority to prioritize which payments to make, meaning the government would have to pay its obligations as they come due, CRS said.
Earlier this year, Standard & Poor’s cut the outlook on the U.S.’s long-term credit rating from stable to negative for the first time since World War II. If we don’t change course soon, the next shot won’t be across our bow, but at our hull. While our impasse is frustrating, it is important to understand that the real hurdles are more political than philosophical.
Raising the federal debt limit without first agreeing to a sweeping plan to reduce the $14.2 trillion national debt is irresponsible. The debt limit now stands at $14.29 trillion. With federal government piling up debt at the appalling rate of $4 billion a day, the debt ceiling will be breached within weeks. If Congress doesn’t agree to raise the ceiling soon, the government will lose the ability to issue debt… There is a practically unanimous consensus that the deficit, and the more-worrisome national debt, must be solved.
According to the ‘Government Accountability Office’, the United States’ unrestrained spending “will ultimately affect every citizen in the nation.” In his testimony before Congress, ‘Congressional Budget Office’ director Peter Orszag seconded this opinion, noting that “under any plausible scenario, the federal budget is on an unsustainable path—that is, the federal debt will grow much faster than the economy over the long run.” Therefore, though the decisions will be difficult, the deficit and the debt cannot continue to grow uninhibited. From an economic standpoint, time simply is running out, and to continue to borrow 40 cents of every dollar to pay debt is “utterly unsustainable.”
“Congress must end the rise in the debt-to-GDP ratio and keep our growth in obligations in line with our growth in resources. With government expenditures now running 185 percent of receipts, truly major changes in both taxes and outlays will be required. A revived economy can’t come close to bridging that sort of gap” ~ Warren Buffet