Please allow me to engage in a little political commentary for a moment while we await the response from Texas Wesleyan to my law school application. Political commentary was one of the reasons I originally intended to start blogging in the first place. Then I realized just how depressing it really is when you start analyzing the process to closely. It’s like learning how sausage is made.
Anyway, I pulled up Drudge Report this afternoon to reconnect briefly with what is happening out in the rest of the world since I’ve had my head stuck in the sand with computer issues at work and tying yellow ribbons around the oak tree in the front yard awaiting the return of my long lost law school application (can you tell I’m a bit fixated on the law school application decision thing? I’m sorry. This will pass.). I was greeted by a photo of Speaker of the House Boehner and the BOLD headline “WINNING”. Clicking on the link lead to an article that breathlessly reported on how Boehner “closed the deal” to avert a shutdown of the government at the last minute by getting agreement to a spending bill that cuts $38.5 billion dollars from the Federal government’s budget for the remainder of the year. Politico is calling it ‘a defining moment in his speakership” and that it “answered doubts from the conservative movement about whether he was a true believer.”
Now, I’ll be the first to admit that $38.5 billion is nothing to sneeze on an individual level. I could live extremely well for a very long time on that amount and never ever have to think about working again. On a national level, however, this is chump change. Allow me to put this number into perspective for you.
As of April 7, the national debt was $14.2624 trillion dollars representing a $653.4 billion increase since the beginning of FY 2010. Further, the Federal government’s fiscal year began on October 1, 2010. The proposed budget for FY 2010 as submitted by the president was $3.82 trillion of which only $2.17 trillion was covered by revenue leaving the highest budget deficit in history of $1.65 trillion (with approved credit from the Chinese apparently). This budget has not yet been passed by Congress even though it was submitted in February 2010. The government has been kept alive on seven “continuing resolutions” the last of which was passed on Friday with a supposed deal on a budget resolution with the much ballyhooed $38.5 billion in cuts to the budget. I say supposed because the mess still has to get passed the Democrat controlled Senate and be signed by the president. Harry Reid and the president are reported to be on board with this deal, but you can only trust a politician as far as their last vote.
I digress. I was trying to put this “deal” into perspective. $38.5 billion in cuts is $38.5 billion in deficit spending that won’t be added to the debt. Good on ya Mr. Boehner. Here’s your pat on the back. Now, get ready for the swift kick in the butt ‘cause here it comes. $38.5 billion dollars represents only 5.89% of the $653.4 billion the Federal government is ALREADY in the hole for FY 2010. When you factor in the projected, budgeted deficit for the entire FY 2010, you get a whopping 2.33% reduction in the overall hose job that you, me, every other American and everyone’s children and grandchildren are being stuck with until the end of time or when our creditors stop loaning us money (whichever comes first).
A 2.33% reduction is supposed to be a conservative “WIN!”?
WIN! my furry hide. This is business as usual. I am so underwhelmed.
Since it’s my Sabbath, please allow your humble Shepherd to quote the Bible for a moment. Proverbs 22:7 in the New King James Version reads: “The rich rules over the poor, And the borrower is servant to the lender.” The New International Version is even more harsh as it reads “slave” instead of “servant”. We are rapidly becoming slaves to those who own our national debt.
So, who owns us?
According to Financial Management Services “A Bureau of the United States Department of the Treasury”, the breakdown of our ownership is something like this as of the end of September 2010 when our national debt was a paltry $13.5616 trillion”
Federal Reserve and Intragovernmental Holdings: 5.3505 trillion
Depository Institutions: 337.5 billion
U.S. Savings Bonds: 188.7 billion
Private Pension Funds: 587.5 billion
State and Local Governments Pension Funds: 187.8 billion
Insurance Companies: 254.4 billion
Mutual Funds: 607.9 billion
State and Local Governments: 508.7 billion
Foreign and International: 4.2571 trillion
Other Investors: 1.2813 trillion
If you are still sober and still reading this, I’ll wait while you go get a beer or some other tasty adult beverage to calm your nerves. I know I need one.
Back with me? Okay, good. The number I want to focus on is the $4.2571 trillion in debt owned by foreign and international entities. That’s 31.39% of our national debt owned by individuals or governments who are, by definition, NOT AMERICANS. If the Unites States were a company, those foreign holders of our debt could righteously demand a seat (or several) on the board of directors. If we were a company instead of a nation, they’d be within spitting distance of having a controlling interest. Anyone want to take a guess as to why the United States has been conspicuously quiet on human rights in places like China? Anyone? Bueller?
Anyone want to take a guess as to how much more of our debt ANYONE is going to be willing to buy if we don’t start acting like we have a clue. How long can you run a deficit in your personal finances before Citibank or Chase or BOA finally cut you off? It’s about the moment you monthly minimum payments exceed the amount of money you make every month. Let’s think about how this plays out as a nation. According to the president’s FY 2010 budget, approximately $250.7 billion of the budget (about 6.85% of the total budget and 11.55% of revenue for those keeping track) is slated to be spent on interest payments. No payment on the principle amount. Just interest. And we are adding to the principle every single day.
Let’s take a peak into the future for a moment. We’ll have to make some assumptions to make the math easier. These assumptions will also lead to a “best case” scenario. Let’s assume that budget deficits continue running at about $1 trillion per year for the foreseeable future. We know our elected horse thieves are addicted to spending. It’s like crack, meth and heroin all rolled into one for them. So, we really can’t expect them to actually spend less money than they take in in revenue, and I’m actually giving them credit for having the intestinal and testicular fortitude to cut 1/3 from the current deficit levels. The current interest payments represent about 1.76% of the national debt. Setting aside the question of where I can find a mortgage lender offering that rate, let’s assume that the interest payment to principal ratio stay constant. Let’s also assume that the gross domestic product grows at a constant rate of $500 billion per year (it doesn’t), and let’s assume that total revenues remain constant at 15% of GDP (slightly higher than for 2010).
Year / GDP (trillion) / Revenue (tril.) / Debt (tril.) / Interest Payments (billion) / Int to Rev %
2011 / 14.66 / 2.17 / 14.262 / 250.7 / 11.55%
2012 / 15.16 / 2.274 / 15.262 / 274.9 / 12.09%
2013 / 15.66 / 2.349 / 16.262 / 286.2 / 12.18%
2014 / 16.16 / 2.424 / 17.262 / 303.8 / 12.53%
2015 / 16.66 / 2.499 / 18.262 / 321.4 / 12.86%
The trend doesn’t seem like much right now. Sticking with our assumptions though, in 30 years, interest payments on the debt will take up over 20% of the budget. In 60 years, almost half. However, remember, this is before the budget has to absorb “Obamacare” which will takeover approximately 20% of the economy depending on whose numbers you use and raise taxes and debt by as yet undetermined amounts. As I said, we are talking about a best case scenario here.
One word comes to mind: UNSUSTAINABLE.
Now, let’s get back to our boy Boehner here. I’m not going to waste my time busting his chops about whether or not he’s a conservative or not. He’s a lot more conservative than Nancy Pelosi. He’s also a politician playing the game by a set of rules that has no connection to reality as it applies to you and me.
I will say this though. A true, small government conservative would have put every last line item of the budget on the chopping block, opened up a copy of the Constitution, and sliced off every budget item that could not be constitutionally justified. He or she would never get reelected, but that’s what they’d do.