Have Any Interest In The Interest We Pay?

With the National Debt now over 14 trillion and still climbing it is a good time to reflect a bit on the amount of debt service the US must pay every year to simply keep rolling over the National Debt.  Every dollar we spend on the interest is a dollar that is not spent on defense, the war on terror, Medicare,
Social Security, Medicaid, and those hundreds of other Federal projects we have in place at the moment.  Of course our National Debt is composed of various types because we issue many different notes and bills, from the 30 day type all the way up to the 30 year notes.  The amount of interest on all that debt probably averages around 3.5% give or take at the moment.  Currently the estimates from the CBO are that we pay about $500 billion annually just to service the debt.

Debt and the use of credit in and  of itself is not a bad thing.  It depends a great deal on what you are using the money for that you borrow and how much you can afford to repay.  If we spend a billion for a new airport at least we have an airport for decades to come for that money.  Money we borrow to pay for food stamps or EPA studies is much harder to evaluate.  Many would question the “worth” of the various programs and institutions we support with borrowed money.  Regardless of worth however is the fact that there is a finite amount of money to pay the bills, at least it is finite in an accounting sense.   Our good friends at Government, Inc. can always resort to the printing press and simply print up more dollars which they have done recently with a passion.  It is a wonder the presses haven’t worn out.   The smart people also tell us that the amount of the interest payment on the debt is going to continue to grow alarmingly, not only in real dollar terms but as a percentage of the total US budget.  It now is about 20% and climbing.  Without restraint in borrowing at some point it will be near 50% of our entire annual budget. 

Japan is already in danger of getting a credit downgrade because its debt is about 87% of its annual GDP and we are heading in the same direction like a freight train on a downhill run.   This is not an ideological argument at the moment but simple math and financial planning.  We can’t afford that much debt and we can’t afford that much interest payments for much longer.  Soon the entire nation will be like that consumer with too much credit card debt and they can only pay off the interest each month and never reduce the principal.   Further we face the real dilemma that at some point our creditors will not be willing to extend us more credit.  Sure they will for a while.  China and Japan and the Middle East nations won’t cut off our credit line next week and even next year.  But they have accountants and economists too and they can do the math.  They have no desire to simply give us the money.  They expect to be repaid and with that interest without it being destroyed by inflationary printing press money.   You are urged to do some research of your own.  Surely the events in our economy of the last 18 months have taught you that those “smartest guys in the room” aren’t really that much more clever than Joe the Plumber.  They may spout off about metrics, fiscal imbalance, Keynesian theory or whatever but the math still remains pretty simple and most of us can add and subtract. 

Remember that the government is an economic parasite.  Again, that is not an ideological statement but one of economic fact.  The government depends on private enterprise and private citizens for its revenues.  We are the ones that produce value, not the government.  The government’s job should be to provide the best possible environment for markets and an economy and be a fair referee to assure compliance with the rules of commerce and contracts and even the few regulations that should be in place.   Everything it gets comes from us.  That National Debt is not only figuratively but literally ours.  The politicians are using our credit to finance the operations of government.   It is not the US credit but the collective credit of US citizens that is at risk.  Just as you decide carefully about how you use your credit Government, Inc. should be held to the same standard.  The current administration seems determined to destroy our great credit rating.  We collectively worked awfully hard over two hundred years to build that reputation of being very credit worthy.  It would be a shame and a disaster to see it destroyed in a matter of a decade.

Just as with your personal budget and your debts for a house or car and a few other items, it is fine to have some national debt and to have to pay some interest.  But the totals matter.  Size matters.  We might like to have all the things we think we can get with an enormous growth in our debt and thinning of our credit line but the fact is we can’t afford it.  We I can’t afford something I have to forego getting it just like you and just like our government should have to do.

Sadly, this discussion didn’t even cover all  the unfunded and off the books obligations of the US like Social Security or Medicare or the guarantees issued like  jelly beans to kids at a party over the last year for Fannie, Freddie, GM, and the banks.  Social Security and Medicare were mentioned only for their current impact on borrowings not for those huge off the books debts that they have.   www.olcranky.wordpress.com

“The sum of behavior is to retain a man’s own dignity, without intruding upon the liberty of others”  Francis Bacon

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