If anything will cause America’s economic collapse it will be its astronomical debt.
Although the leadership in Washington is in the preliminary process of negotiations regarding the debt ceiling, the United States federal government has already exceeded the debt limit of $16.39 trillion by more than $23 billion (at the time of this writing).
Officials in the Obama administration are frantically finding ways to buy the federal government some time, such as suspending investments of the Thrift Savings Plan G Fund and suspending the issuance of new State and Local Government Series (SLGS) securities. Other than that, there doesn’t seem to be any plan put forth by President Barack Obama or the Republican leadership in Congress.
With the national debt nearly half way to the $17 trillion mark, there are some that don’t expect the U.S. to ever pay down its debt due to several factors, including the inept public officials in both the Democratic and Republican parties. The Congressional Budget Office (CBO) already projects the debt to be more than $20 trillion by the end of 2016 and $26.25 trillion by the year 2020.
Here are seven reasons why the U.S. government will never pay off its enormous debt.
It’s rather difficult to grasp $1 trillion. Has anyone actually seen $1 trillion in cash? Most likely not (perhaps Federal Reserve Chairman Ben Bernanke), but that is what the government owes nearly 17 times. It’s hard to fathom as to how the government can pay off this chunk of change, especially considering how it can’t even balance the budget. The debt continues to balloon and each day the debt rises $1 million every 90 seconds.
Even when the government ran a surplus during the later years of the Clinton administration, it only paid down $30 billion of the national debt ($5.3 trillion at the time). If the government receives extra revenue, don’t expect it to even consider paying off its obligations.
With the Federal Reserve maintaining near-zero interest rates, the federal government hasn’t had to worry about skyrocketing interest on its national debt. Even though Washington has paid hundreds of billions of dollars of interest on its debt, those figures are relatively low compared to what it is expected to pay in the future when those rates increase. Eventually, projections suggest that the federal government will only be able to afford the interest on the debt and some entitlement programs.
In total, the U.S. has paid more than $3.3 trillion in interest (federal, state and local governments, financial institutions, business and households) in 2012, which accounts to $10,505 per citizen.
The federal budget includes $3.54 trillion worth of spending, but it only receives $2.46 trillion in tax revenue, which means the government is running a budget deficit of $1.07 trillion. It is true that the budget is on the decline, but it will surpass the $1 trillion mark again in 2015, according to CBO figures.
There have been four straight budget deficits and it doesn’t seem as if the Democrats or the Republicans have any real plan to address the deficit. One side wants to cut loopholes and deductions, while the other just wants to raise taxes. Neither plan will solve the issue at hand. Because the budget is so big, representatives need a chainsaw to tackle the budget not a “scalpel,” as President Obama noted.
No one has put forward a plan, apart from a handful of representatives and two presidential candidates (Gary Johnson and Ron Paul), and it seems no one is willing to cut anything. If someone initiates a comprehensive proposal then usually that person is demonized by the opposition and special interests across the country, which will lead to a couple of points below.
According to the latest statistics, the U.S. now borrows 46 cents out of every dollar it spends. Foreign holdings of Treasury securities stand at $5.46 trillion with China being the largest holder of government debt ($1.16 trillion) and Japan in second place ($1.13 trillion). Brazil is third with $267 billion.
If the government borrows nearly half of what it spends then that’s a guaranteed sign that there are no plans to lower the national debt, balance the budget and make substantial cuts to foreign and domestic spending.
What should be interesting to note is that the number keeps going up. For instance, in 2011, the U.S. borrowed 40 cents of every dollar it spent. In the year prior, the government borrowed 36 cents of every dollar.
Lack of Will (politicians)
Politicians seem as if they don’t want to find efficiencies, cut some fat from the budget and make some overhauls. Usually, if they do, they create panic among the unions, defense contractors, lobbyists and other politicians who receive campaign contributions from the aforementioned. How else would they sustain themselves if it weren’t for the taxpayer?
To show how inane the budget has become, Oklahoma Republican Senator Tom Coburn publishes an annual Waste Book that highlights how much government wastes on questionable projects. The latest one identified key programs that the taxpayers paid for:
– $516,000 video game called “Prom Week” that allows taxpayers to relive prom night.
– $300,000 to promote caviar consumption and awareness.
– Moroccan pottery classes as part of a $27 million grant to the U.S. Agency for International Development.
Indeed, it’s just a drop in the bucket, but even despite the outrage by the general public and members of Congress, nothing ever seems to change. The Waste Book has been published several times and yet Washington remains adamant in just spending, spending and spending.
Lack of Will (people)
The citizens are also to blame for the endless spending going on at 1600 Pennsylvania Avenue and Capitol Hill. Whether its entitlement programs, benefits or grants, the American people like when the government subsidizes their state or town, but still complain when other citizens want the same thing. They may claim to want to cut spending, but every time the person’s interest(s) may be slashed in funding, they protest and start yelling at their congressman or senator.
If the American people are serious about cutting spending then they have to make sacrifices too.
There have been countless terrible ideas submitted by both sides of the aisle. One of the latest schemes is to mint a $1 trillion platinum coin, which has actually garnered the support of mainstream liberals and has led to a White House petition that has generated 7,505 signatures.
Other suggestions include raising taxes on the country’s affluent. This won’t help, though, as past examples have proven futile and studies have shown that even if the government taxes 100 percent of the millionaires’ and billionaires’ incomes then it would only keep the doors open three or four months.
Another idea put forth by author Steve Landsburg is to not pay down the debt period.
“That’s because any additional revenue would be used to pay down the federal debt, which is a bad idea,” wrote Landsburg. “It was almost surely a mistake to run up this much debt in the first place, but now that we’ve got it, the best thing to do is to keep it forever.”
It seems the intellectuals in society are throwing every idea out there except the simplest one: cut spending.
You know you’re in a bad situation when you’re own leader doesn’t know how big the debt is.