The US Economic Crisis – Spending, Debt and Possible Solutions

 

The US Economic Crisis – Spending, Debt and Possible Solutions

The US Economic Crisis – Spending, Debt and Possible Solutions

For the last couple of months, I have actually had to work, not only work to pay the bills but interesting work on doing research for an author friend’s upcoming book on the US economy.

In doing this research, I got to collect a lot of data on the US economy. I can tell you that it will scare you more then watching Paul Volcker getting brutally stabbed to death in a back alley of some Washington DC suburb.

The US economy (or any economy for that matter) is a very complex thing, and for people like me or politician trying to reduce it down to a simple statement doesn’t do it justice. I am writing this to simply summarize what I know about it, and try to set down my questions and look at some possible solutions.

I am writing this to try to bring some awareness to the issues that we are facing concerning our economy and our National Budget Deficit and National Debt.

Just the facts, ma’am

The Federal Government Debt is all the money that our government has borrowed from banks and other countries that it has not paid back. Everyday we pay some of the debt back, and everyday we borrow more money.

Today, our Total Federal Debt is: $13.2 trillion

You can find the actual number here: http://www.usdebtclock.org/

For a point of reference, in 2000, our Total Federal Debt was: $5.6 trillion

You can find the history of our Federal Government debt (or US National Debt as it is also referred to) here:

http://en.wikipedia.org/wiki/File:USDebt.png

US National Debt Chart - The US Economic Crisis – Spending, Debt and Possible Solutions

US National Debt Chart - The US Economic Crisis – Spending, Debt and Possible Solutions

$13.2 Trillion Dollars is what we as a Government owes the world.

It comes out to about $120,000 per taxpayer (there are only 101 million of us). If you want to feel better, you can simply say that it is $42,000 for every citizen of this country.

Every year, our Total Federal Debt goes up – why?

Living Like The Middle Class

Every year our government spends more then it gets in revenue – I simply call this ‘living like the middle class’.

Our Government gets money in the form of taxes, and this year it will receive $2.2 trillion of tax income.

If our government stopped spending any money, it would take it 6 years to pay off the Total Federal Debt our annual tax revenue didn’t change from the current level.

So, our government gets $2.2 trillion in revenue this year.

The problem is that our government will spend $3.5 trillion, which means we will have to borrow another paltry $1.3 trillion dollars to cover the difference.

So, next year, our Total Federal Debt will grow from $13.2 Trillion to $14.5 Trillion.

US Budget Deficit Chart - The US Economic Crisis – Spending, Debt and Possible Solutions

US Budget Decficit Chart - The US Economic Crisis – Spending, Debt and Possible Solutions

Bulk Bins

$3.5 trillion is a lot of money – so what the hell do we spend it all on?

The following are the big four items of our budget (these are the items that both moderate Republicans and Democrats say we can’t cut/touch):

Medicare/Medicaid

$785 billion

Social Security

$691 billion

Military

$676 billion

Interest Debt

$198 billion

Big Four Total = $2.35 trillion

That’s interesting; the big four actually cost more then all the tax revenue that the government gets from taxes.

In surveys of Americans (Republicans, tea party, conservatives, liberals right, left and Democrats) – most of them agree that we can not cut the big four.

But our government is actually going to spend an additional $1.15 trillion beyond the Big Four.

This includes: Education, science, transportation, pensions, earmarks (only a trivial $17 billion), and the cost of running the government.

So what have we learned here? Well, if you want to reduce the government to nothing more then Medicare, Social Security, the military and the obligatory interest payment on our debt – we still will need to borrow money.

Hare-brained

Let’s make an assumption based on what economists from around the world all agree on:

The Federal Deficit and National Debt is a BAD thing, and will damage an economy.

For this article, let’s just leave it at this assumption.

For more info on the effects of the Deficit, see this Congressional Budget Office (CBO) article ‘Federal Debt and the Risk of a Fiscal Crisis’:

http://www.cbo.gov/doc.cfm?index=11659

So, when Republicans say lower taxes and make government smaller, and Democrats say lets raise taxes to pay for the programs – I want to pull my hair out!!!!

None of it can possibly work. Our debt is too big, and year after year our budgets are much bigger then the tax base could ever be.

I mean, we would have to double our tax income to meet the current budgets and have a little left over to pay off a small faction of our National Debt!!

Doubling taxes would simply cause rioting in the streets and destroy our country and economy, so that isn’t going to happen. It is not a solution even though it would work to balance the budget and start to pay off the National Debt – the sacrifice would be too much for the current US population.

OK, we could try cutting our budget in half. That would allow for a budget that the tax income would cover, and leave about $500 billion to go for paying of the Debt (which at that rate would take 26 years to pay off).

The problem is that even with this solution, we would be taking $1.79 trillion out of the economy in the form of salaries, government purchase of services and product, medical, welfare and education, etc. The result would be a significant lowering of tax revenue, and a crashing of the economy that would probably result in the tax income being less then the halved budget – which would be the same situation that we are currently in.

So, the extreme one sided solutions – only raising taxes significantly, or only cutting the budget significantly would create such social and economic unrest; that it would result in a much worse situation for all.

Treadmill from Hell

It seems that economically we are on a treadmill from Hell – it is though we will never be able to pay off our debt, and if we try our economy would suffer in the short term.

The deficit is another thing, for a brief time during the Clinton administration, the economy was doing OK and the government actually had a surplus of money that could be used for paying down the National Debt.

Then George Bush came along and spent the surplus and doubled our National Debt. Add to that the incompetence/greed in the financial sector and the government oversight; and in 2008 a new President was dealing with a US economic melt down. Obama decided to solve the problem by throwing a lot of money at it, and increasing both the Federal Deficit and National Debt.

History will judge whether throwing money at the financial crisis was really the best course of action, but I can say the direction things were going was really bad, and now the economy is somewhat stable and not bleeding all over the place.

The problem is that people are scared, and with unemployment near 10%, consumers are saving their money instead of spending it.

The bad part of that is that the state governments, who get much of their income from sales taxes, are suffering and asking the Federal Government to help them – which the feds do by increasing our National Debt.

Are There Any Solutions?

No, not in our lifetimes. Sorry.

I think the problem is now too big to be solved without changing the fabric of American life, and I don’t believe that Americans are willing to make such a sacrifice.

We have been trained to be the manipulated spending machine of the multi-national corporations. I mean seriously, American’s main social activity is to go shopping.

The real solution is to lower the standard of living by slashing the federal budget by 50% and freezing it at that level until the National Debt is paid off, increase taxes by 50%, let the economy hit bottom, deal with 20%+ unemployment and starving homeless people, balance the budget, pay off the National Debt, then start rebuilding the economy by slowly lowering taxes while maintaining a balanced budget. Probably could return America’s standard of living to something close to what we currently have in say…20-30 years.

Nope, Americans would not choose this path – it would involve making a sacrifice so our children could have a better life. The corporations would not allow us to make this choice, since it would result in their bottom lines being lowered.

So what can we do?

1) LOL when a politician says that they are going to cut taxes significantly and that will solve our economic situation, then vote for someone else

2) LOL when a politician says that they are going to cut government spending and that will solve our economic situation, then vote for someone else

3) If you are going to vote, find out which corporations are sponsoring which politician, then vote for one’s that are not sponsored by a corporation (if you can find one) then vote for them

4) Live your life simply. Pay off your debt, reduce spending and save money, you will need it later when our economy collapses under the weight of our National Debt

5) Go solar if you can – when our electric grid collapses from cyber attacks, lack of maintenance and/or increased demand from global climate change – you will still have some electricity

6) If you believe that America must cut the budget significantly and raise taxes significantly in order to make a secure future for it’s children – run for office on that platform and vote for people who do the same

7) If you believe that we can solve our economic problems, have a balanced budget and not have to raise taxes – go to the mall and spend all your money; and then borrow money in order to spend more – and see if that works

8 ) Wait for the economy to slowly improve (not a certainty) and reduce the Federal Budget slightly and raise taxes slightly and hope to have a balanced budget in the next 4-5 years. Then find a way to then increase taxes a little more to start slowly paying off some of the National debt

9) Go to the Congressional Budget Office (CBO) website and educate yourself on our Budget and National Debt: http://www.cbo.gov/doc.cfm?index=11579

10) Pray

Below is the best case and worst case scenario for the Budget/Debt situation.

Good Luck.

Revenue Spending CBO Projections

Revenue Spending CBO Projection

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5 thoughts on “The US Economic Crisis – Spending, Debt and Possible Solutions

  1. Pingback: Get the money out of politics with GetMoneyOut.com – Dylan Ratigan tries to do something to get money out of politics and solve the US Politician Whore Crisis. | From the Frogs Mouth

  2. Pingback: Dear Morons in Congress, here is a solution to the Debt Crisis 2011 « From the Frogs Mouth

  3. This article really scared me. I am really worried about the future of my children.

    At first I didn’t really believe it, but I checked all the numbers and went to all the links and it is true that this country is in bad shape and it will take a real sacrifice to turn the economic situation around. It seems that any politician is weak when it comes to this problem.

  4. Pingback: Top Boston University Economist Laurence Kotlikoff says the U.S. Is Bankrupt and should double taxes « From the Frogs Mouth

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