Taking Liberty: Dumber than a fifth-grader?
By Bill Woodruff —
If a family of four earned $57,000 a year and spent $100,000 a year, how long could they continue to pile up $43,000 a year on their credit cards at 18 percent interest only and nothing on principle?
After six years, they would owe more than $400,000 and the interest payment would exceed their total income. Of course they wouldn”t last six years unless they counterfeited money.
Now, if a country has revenues of $170 billion a month and spends $300 billion a month, how long can it continue to print fiat currency, issue bonds and make the interest payments?
Well, it depends on several factors. What is the total debt and what is the interest rate? Will the deficit continue to add to the debt or will Congress have the courage to balance the budget? Will the president do anything to balance the budget?
Currently, we are spending about $30 billion a month on interest on the debt. This is actually lower than the payments a few years ago due to historically low interest rates. However, this will not last long. Since there are few good places to park money in the world economy now, we”ve been able to attract investors in U.S. Treasury bills, since we have never defaulted on interest payments (so far).
As our national debt continues to skyrocket, confidence in our economy will dwindle and we will have to pay higher interest rates in order to attract investors. We will have to print even more money and issue more bonds. Once this cycle gets going we will follow the downward path of other countries that have amassed too much debt.
So, how long? At the current rate, the national debt will reach $24 trillion in about six years. Since interest rates rise and fall in cycles, it is inevitable they will rise again in the next few years. The Fed cannot artificially keep them low for long. Once they reach just half the rate they were in the Carter years, the total monthly interest payment will be equal to the total revenue of the federal government. That leaves very little for the entire federal expenses, even if revenues increase to more than $170 billion.
If that is not bleak enough for you, consider what will happen if the world economy does improve. If there were somewhere else to invest money other than T-bills that was safe and would give a good return on investment, how could we attract any investors unless we pay even higher interest rates?
So the bad news is, if the economy stays bad, we don”t have enough revenue to balance the budget, and if the economy improves, we won”t have enough revenue to balance the budget.
If we raised taxes on all the rich people and corporations in the country, we still would not have enough revenue to stop the deficit spending. So all politics aside, whether you believe in capitalism as I do, or you are a socialist, the numbers are the same. You can continue to live in denial, blame everyone but the big spenders and believe we are not going off a cliff on our current path, or you can face the facts and realize that there is only one way out of our dilemma: cut the government”s spending immediately.
We need to put a freeze on all budgets, not increase every department annually. Then every year, lower spending until the budget is balanced and the ratio of government to GNP is what it was 20 years ago. There is not one government agency that could not get by on a lower budget. The amount of waste is staggering. If we wait five more years to start cutting spending, it will be far too late. Do the math.
Bill Woodruff is a longtime Lake County resident and former business owner.
