The Devastating State Of Our National Debt... And A Ray Of Opportunity

Two articles recently came to my attention that reinforced how overwhelming bad our national debt situation has become and how devastating it will be if we do not get it under control very quickly. First a Tampa Tribune article from early June, written by Gretchen Hamel, executive director of Public Notice, put forth the following data:

• Government spending was less than 10% of the total national economy in 1940, it was 15.6% in 1950, it stayed below 20% for the past two decades but jumped to almost 25% in 2009.
• The Congressional Budget Office estimates that it will stay above 24% of the total economy for the next ten years. This high level of government expenditures as a percentage of the total economy requires more and more taxes to be funneled to government expenses, drying up capital in the private sector which is where real jobs are created. We are starting to see the beginning of this effect since, despite high levels of stimulus spending, the joblessness rate continues to be very, very high with no relief in sight. Small businesses cannot get loans because of a number of factors, not the least of which is capital going to government.
• Government spending per household has doubled during the past 10 years and is likely to double again in the next ten years. This will cause each American family's share of the national debt to rise from $115,000 today to $200,000 in ten years.
• By that time our national debt will be about $20 TRILLION and will require four times the amount of debt serving tax dollars than it does today.
• In ten years, interest payments on our debt and payments on Social Security and Medicare will consume 90% of the Federal budget's revenue. Thus, unless something else changes, all other government functions including the military, Cabinet departments, Congress, national parks, etc. will have to find a way to live on the remaining 10%. Obviously, this is not possible, meaning that either major functions are cut or taxes are raised significantly. Raising taxes reduces the freedom of every American to spend their wealth as they please and also restricts the growth of the private sector of the economy which reduces tax revenue, ... and the death spiral goes on and on.

Pretty scary stuff. But we are not done. Consider some information from an article by Veronique de Rugy in the August issue of Reason magazine:

• In 2007, the annual national budget deficit was 1.2% of total GDP. By 2010 it had grown to 10% of GDP, roughly $1.4 TRILLION that the American political class continues to spend without tax revenue to support it.
• A recent study by the International Monetary Fund concluded that the United States has one of the largest structural deficits in the world, almost as big as the deficit in Greece. We all got a taste of what that can become, with riots in the streets along with deaths.
• The Obama administration has promised to freeze discretionary spending in order to save $250 billion dollars over ten years. $250 billion on a total national debt of $20 TRILLION amounts to about a 1.25% reduction in the size of the national debt, a trifling amount. Thus, the scary thing to take away is that the White House apparently does not get it, i.e. understand how dire our country's financial situation is becoming, given how anemic Obama's plan is for budget reduction.
• Under the Republican's YouCut program, several non-essential, trivial budget cut proposals have been recommended by U.S. citizens and brought to the House of Representatives floor for consideration. All of them were voted down, mostly by Democrats. The average price tag of each proposed cut was $638 million, less than .02% of the Federal budget. Thus, the scary thing to take away is that Congress apparently also does not get it, i.e. understand how dire our country's financial situation is becoming, given how anemic their attempt was to cut out even non-essential programs.

Pretty depressing stuff. The numbers are outrageously bad but either the political will and/or political smarts of the political class is lacking. However, despite the politicians inability to deal with reality, reality does not change. As illustrated with our Snoopy and Peanuts analogy in an earlier June post, if the financial integrity of the country fails, everything else becomes meaningless. Clean air, clean water, retirement funds, freedom, everything becomes secondary once the financial backbone of the country collapses.

However, there is some hope. Ms. de Rugy reports on a new Goldman Sachs study by Ben Broadbent lays out the argument that budget cuts can be cut both economically and politically worthwhile, citing examples of significant budget reductions by foreign governments and the re-election of those politicians that enacted the budget cuts. A similar finding was arrived at in a 1998 Brookings Institute study. The Government Accountability Office found that overpayments by government agencies approaches almost $100 billion a year. Thus, tighter auditing and penalties for accounting mischief could save upwards of a TRILLION dollars by 2020. The Reason article cites a number of other countries, including Ireland, Sweden, Finland, Denmark, Belgium and Canada that made significant and necessary government budget cuts over the past few years, so it can be done. In the past few months, Lithuania cut government spending by 30% by slashing public sector wages and reducing pensions by 11%. If these other nations did it, why can't the United States is Ms. de Rugy's lament?

Let's not stop with the what of budget reduction discussed above, but move on to the how. The Cato Institute is in the midst of a huge undertaking, basically going through each Federal government Cabinet department and doing a detailed analysis of how to cut the Federal government down to size. They are done with five of the departments and are working their way through the last ten. Their findings and road maps on how to cut government down to size can be found at www.downsizing government.org. We will review some of their analyses and proposals in the coming months.

Thus, we now what has to be done , (cut down our government's size, spending, and national debt quickly and substantially), the Cato Institute and others are coming up with the how to do it, we know why we have to do (save our freedom and the democracy we should be living in), and we know the when (immediately). The only question left is the who. Current residents in the White House and Congress may not be the who. Their arrogance and stubbornness to reduce their power base and the size of government indicates that most of them sitting in Washington either 1) do not understand the magnitude of the problem, 2) do not know how to fix the problem, or 3) choose to ignore the problem for whatever reasons known only to them. Whatever the cause, it is unacceptable. Making the dumping of all incumbents in November critical to moving on to the how of the problem and getting this nation's financials in order as soon as possible. Snoopy would have it no other way.





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