At the bottom of my blog, I have the National Debt. It is updated at a fast and furious pace. That number represents our liabilities. But what if I told you that that number is only a fraction of the overall debt? What about everything else (medicare, medicaid, etc, etc)?
Let's break down the numbers:
11,000,000,000,000 (Total Liabilities)
7,000,000,000,000 (unfunded promise of Social Security)
26,000,000,000,000 (unfunded promise of Medicare A,B)
8,000,000,000,000 (unfunded promise of Medicare D)
+ 1,000,000,000,000 (unfunded Misc Items)
__________________
53,000,000,000,000 Total
I just recently watched I.O.U.S.A. and have included the cliff notes (30 minute) version. If you watch one video from my blog, make it this one. This film boldly examines the rapidly growing national debt and its consequences for the United States and its citizens.
For more information on the organizations mentioned in the video, please visit the following:
-The Concord Coalition
-The Peter G. Peterson Foundation
I agree that there are times for balanced budgets. Around 2006, I was on the restart-PAYGO bandwagon because that was what we really needed. During Bush's administration, we had unrestrained deficit spending when the economy was in a bubble boom -- that is simply not prudent.
ReplyDeleteHOWEVER: When an economy is struggling -- as it is in the current recession -- then we need to increase government spending in any way possible to counteract the serious drops in investment. America's GDP-to-debt ratio is actually on par with many other industrialized nations and less than even some very strong economies (e.g. Japan).
It's a foolish line of thinking to compare the American federal budget to household budget because they are significantly and principally different animals. The two are unconnected. But this is what many politicians have been doing of late (in part because none of them have econ degrees). So, when our government makes a decision that defies our basic set of sound finance beliefs and expectations, the politicians tear their robes and the American public follows suit because they don't understand the complex under-purpose. So instead, they bite the helper's hand.
LOVE the comment!
ReplyDeleteTotally agree with you that the two (American budget/household budget)are unconnected.
Governments, such as ours, have monetary policy, taxes, gov't spending, transfer payments to "balance" the budget whereas households have personal spending (decrease), add more revenue streams (working more jobs, smarter investing), and have better fiscal responsibility (dont invest in cheap credit).
But the overall premise remains the same-don't spend more than you bring in.
I thought the movie (in its entirety) did a fabulous job showing a couple things:
1)that Americans as a whole spend waaaaay too much to a point where we have a NEGATIVE savings rate.
2)Trade deficit. America is NOT a leading exporter. We are however consuming China's imports exponentially. It was interesting to see how scrap metal leaves this country and goes to other places (China, India, etc)...who would've thought scrap metal would be the 3rd highest export. America (the richest country in the world) should really be a leading exporter. But we don't "make" anything anymore (see season 2 of The Wire)
3)Leadership deficit. Focused on the Bush years and how spending just got out of control.
4)Healthcare contributes the biggest piece to the national debt.
I wonder how the new healthcare bill will affect the National debt?
I find some of the recent mourning to be incredibly befuddling: politicians go to Detroit or Ohio and look at empty factory buildings and lament for yesteryears -- times when we "made stuff." However, these same politicians look at the factories in China and bemoan the environmental degradation and worker abuses. I would vomit if America were to adoptive an aggressive approach to restoring manufacturing in America. Service industries, the industries in which we now specialize, are safer, healthier, higher paying, and less subject to economic fluctuations. When the economy hits a tough spell, consumers will put off plans to buy a new fridge, but sure as hell won't stop paying their phone bills or car insurance.
ReplyDeleteBut the overall premise remains the same-don't spend more than you bring in.
No. No premise remains the same. The government can print money. That is completely unlike what a household can do. If it so pleased the Federal government, the US could end the deficit today by printing more money. If I tried to pay my student loans with the same method, I would most likely go to jail. Of course, printing more money can have some significant effects in the long run, so it's not a terribly wise idea.
Also not a terribly wise idea: clearing American debt. If we starting running surpluses and eventually cleared our debt, then the world's absolute safest assets -- the T-Note and T-Bill -- would disappear from existence. Our government debt does more than just finance our budget, it provides a secure place for foreign investors to put their money. If they don't have the T-Bill anymore, they will be forced to send their billions to the EU's (less safe) equivalent. What does this mean? Possibly a run on the dollar, a rapid depreciation in value. Suddenly, the USD to EU exchange rate balloons to 1 to 10 and we can't go to Canada any more because the exchange rate makes it prohibitive. After that, maybe we start exporting manufactured goods because of the significant difference in purchasing power parity. Eventually the EU starts to complain about its significant trading deficit with the US ("Hooray!" the politicians cry. "We did it! We're manufacturing again!"). Meanwhile, the Mississippi turns from a rich brown to a dull gray, and we make movies about the once beautiful coasts of California, now asphyxiating in smog and backwards-progress.