Taking the National Debt Seriously

Continuing my theme of using the weekends to post some outside articles that I found during the course of the week, for today, I’m going to the Wall Street Journal for my source. A friend of mine found this article writtin by Larry Kadish in regards to the National Debt and the serious threat that it immediately poses to our financial well-being. Our country’s economic survival is, no doubt, at stake, and for every dollar these crooks in Washington spends into the red, the more financial Armageddon becomes a reality. My hope for the next election is that the American People will focus entirely on the corrupt spending practices of Washington, and how everyone of us is getting taken to the cleaners, all so these idiots can get re-elected and stay in power.

In 2009 about 40% of income taxes will go towards debt interest payments.

If you think those town hall meetings over health care were fierce, wait until Americans come to understand the threat to our national financial survival posed by the interest on the government’s credit card.

When the government spends more than its revenue, there is a budget deficit. These deficits are paid for by Washington selling interest bearing Treasury securities. If the government were ever to default on its promise to pay periodic interest payments or to repay the debt at maturity, the United States economy would plunge into a level of chaos that would make the Lehman bankruptcy look like a nonevent.

It is the interest on the national debt that makes our future unstable. The exploding size of that burden suggests that, short of devaluing the dollar and taking a large bite out of the middle class through inflation and taxation, there is no way to ever pay down that bill.

As of Sept. 30, 2009, the national debt was almost $12 trillion and interest on that debt was $383 billion for the year, according to the Treasury Department’s Bureau of the Public Debt. The Congressional Budget Office on Oct. 7 estimated the 2009 budget deficit to be almost $1.4 trillion (about 10% of GDP). In August, the White House Office of Management and Budget (OMB) estimated total government revenues at about $2 trillion. The revenue estimate included $904 billion from individual income taxes. This means the cost of interest on the debt represented more than 40 cents of every dollar that came in from individual income taxes.

Click Here to Read the Rest of the Article.

Except for a few years in the late 1990s, for decades Washington has spent more than it has taken in each year and borrowed the rest. Taxpayer dollars that could have paid off debt each year have instead been spent on interest to finance debt. Unfortunately, that’s a vicious cycle that will likely only get worse.

The OMB projects deficits of about $9 trillion over the next 10 years. If that occurs, the national debt will be almost $21 trillion by 2019. However, the actual amount could be much higher. The OMB also optimistically projects $13.5 trillion of revenue increases over the next decade, while minimizing the inevitable rise in interest rates that will come with an expanding national debt.

During Jimmy Carter’s years in the White House, Treasury yields reached 15%. The 2009 average interest rate on the debt was only 3.2%. With our mounting national debt and budget deficits, it is reasonable to assume that in the near future interest rates on new and refinanced debt could double or triple.

In stark but simple terms, unless Americans are made aware of this financial crisis and demand accountability, the very fabric of our society will be destroyed. Interest rates and interest costs will soar and government revenues will be devoured by interest on the national debt. Eventually, most of what we spend on Social Security, Medicare, education, national defense and much more may have to come from new borrowing, if such funding can be obtained. Left unchecked, this destructive deficit-debt cycle will leave the White House and Congress with either having to default on the national debt or instruct the Treasury to run the printing presses into a policy of hyperinflation.

It is against this background that Washington is now debating whether to create social programs it can’t afford.

Steve Forbes recently commented that when it comes to the national deficit, voters will put things in order. I certainly hope so. However, it’s imprudent to rely just on “hope.” Americans need to take notice, stand up, and remind our elected officials that in a democracy the people can change bad leaders.