Sunday, June 8, 2014

CBO Graphics-Part 2: Federal Budget Overall, Deficits and Debt

Perceptive words for our PC Times, from
Man vs. Liver, Raleigh, NC
Whenever you start talking about cutting the federal budget, you inevitably get called 'insensitive'; a 'racist' or someone who 'hates women, old people and children and wants to throw them all into the street!'

Nothing could be further from the truth.

In fact, the argument can and should be made that the adults who want to make the tough decisions about how your tax dollars are spent each year are trying to make sure that 'women and children and old people are not the first ones thrown out into the streets along with millions of men when rampant hyperinflation takes root one day if we don't contain our deficits today!'

The old, the infirm, single poor women, the poor and the poor young are the first people to be adversely affected when inflation rears its ugly head. Rich people and people who are still working in a high inflation environment can find ways to make do and survive in such harsh times as recently experienced in American circa 1979-1982. Poor people, old people, single poor women and poor children can not.

We saw a poster recently that read, in essence: 'We don't want to pay for your (Sandra Fluke contraceptives, school loans, other Occupy issues) not because we are conservatives. It is because we are adults'

It is time for the adults in our society to take control of the federal government and return it to the sane, 'conservative', in the sense it is responsible and balanced, way it has been managed for most of American history. It has only been in the last 40 years or so that not balancing the federal budget was not seen as a horrendous public policy outcome.

Take a look at the second CBO graphic in our series below. (You may have to click on it and copy to a word document to see the full graphic. Or click on this link and find the screen titled 'The Federal Budget in 2013') 

In it, you will find some nuggets such as this pithy comment:
'The large budget deficits recorded in recent years substantially increased federal debt, and the amount of debt relative to the size of the economy is now very high by historical standards.
In 2013, federal debt reached 72% of GDP, the highest level in more than 60 years.
Such debt could have serious negative consequences, including restraining long-term economic growth, giving policymakers less flexibility to respond to unexpected challenges, and eventually increasing the risk of a fiscal crisis.'
See? Don't you feel better knowing that someone at least is looking out for your future like the guys and ladies at CBO? They have been saying virtually the same thing for the past 4 years...and yet no one in Washington from President Obama on down seems to be listening.

Here's a way to think about this if you are a global warming advocate: 'Ignoring the threat of burgeoning deficits and exploding national debts on our nation's economy and well-being is worse than ignoring global warming and we will all burn up one day!'

Here's a way to think about this if you are an education advocate: 'Ignoring the threat of burgeoning deficits and exploding national debts on our nation's economy and well-being is worse than not spending more on teachers and giving every school the resources they need because we will not have educated our future citizens!'

Here's a way to think about this if you are a defense hawk: 'Ignoring the threat of burgeoning deficits and exploding national debts on our nation's economy and well-being is worse than President Obama cutting back on defense spending and opening us up to more terrorist attacks in the future!'

Why is uncontrolled deficit spending and excessive national debt more dangerous to our future in the United States of America than any of these other major problems?

Because it is like carbon monoxide do not know the precise moment when it is becomes just too much. Thousands of prior republics, democracies, kingdoms, plutocracies, oligarchies, monarchies, dictatorships and even communist totalitarian rule have been done in by the collapse of their currency, rampant inflation and their inability to pay the interest on their national debt in a timely way, all of which was caused by reckless, irresponsible, and profligate national government spending.

And absolutely none of them saw it coming. Not the Roman Empire. Not the Ming Dynasty. Not the Soviet Union. Insolvency got every one of them before invaders did. The second followed the first in almost every case in history.

Federal Reserve Chairman Alan Greenspan once testified before the House Budget Committee and had this to say in response to a question about when would we know we had spent too much in deficit-spending and accumulated too much debt in the US:
'We will not know that point until it is too late to reverse it. Once we recognize it, there will not be anything we can do at the time to reverse it.'
That is why the prudential politician on both the left and the right and in the middle should put as their #1 priority the balancing of our budget and, #2, the steady retirement of our national debt over a reasonable amount of time, say the next 50 years.

Why take the chance that we go right up to the limit in our capacity to service our national debt in the first place? It is so dangerous that only a fool would tempt fate by doing so.

Which is what we have done as a nation for the past 14 years at least. Both President Bush 43 and President Obama and every Member of the US House and Senate are culpable for not taking stronger action to restrain the growth of spending, mostly in the entitlement areas.

In fact, President Obama and the Democrats who controlled Congress and the Senate from 2009-2010 deserve special mention because they added on another unpaid-for entitlement, Obamacare, on top of spending close to $5 trillion more than we took in in revenues since Obama took office in 2009.

Here's the skunk in the woodpile that no one wants to get close enough to smell or be sprayed by:
The US is about to enter a 'normalized' interest rate environment someday in the hopefully near future when we have an economy that starts expanding rapidly and hiring more workers hand-over-fist.
When that happens, interest rates on government t-bills and bonds will return to their 'normal' level of 5-6% per year instead of the abnormal absurdly low levels of 1-2% as they have been for the past 5 years.
When interest on the national debt triples or goes up five-fold, what will then happen to net interest costs on the national debt in the federal budget, class?

Correct. Annual actual net interest costs will rise from around $250 billion per year to $750 billion or perhaps $1 trillion per year. And that assumes that we don't keep adding on $500 billion+ per year deficits to the already historically very high national debt relative to GDP.

(Our current national debt levels are the highest ever in peace-time. The US National Debt has exceeded the GDP in amount and percentage in every major war since the Revolution including the Civil War and WWII)

Our budget in 2014 is expected to be around $3.7 trillion. Just try to imagine the squealing you will hear from everyone when 1/3rd of the federal budget starts to go towards servicing the interest one the national debt. 30% versus roughly 5% today.

That is almost 100% totally crazy and insane, yes?  Yet, it is totally avoidable. But you need to put pressure on your elected representatives and senators in Washington to get busy on reducing spending across-the-board in every line item but especially in entitlement spending.

It has got to be done. Soon.

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