Clearly, we have a national debt problem. Clearly, the federal government continues to spend and borrow, and borrow and spend. A budget deficit continues to haunt us, and it grows larger on a daily basis. The real problem here, however, is not the debt itself (which is still a major issue), but the interest that has accumulated in the process.
I agree with the article “Taking the National Debt Seriously”, by Lawrence Kadish, as he stated that this will be the major factor in driving the value of the dollar ever-downward. The most frightening statistic that was shared in the article is the fact that in this year, “40% of individual income taxes will go toward debt interest payments.” I have seen firsthand the difficulty that interest can cause in an individual’s life, as my parents are still making payments on their student loans 30 years after they have finished school, not because they don’t make the payments, but because the interest has accumulated beyond reason, and because of limited income, accompanied by bad financial decision, the amount of money that they have to available to make other payments and have a comfortable lifestyle continues to diminish. They tried to avoid this by refinancing their debts, and for a while it worked alright for our family, but because of the national debt and the accompanying interest, the interest rate on this loan, my parent’s credit cards, and other the house payment has increased. Hence, we see this national debt issue taking toll on each of us personally. (So much for the Democrats being the poor man’s party.)
What we are seeing happen in our on a public level right now is not much different. The liberal democrats in congress and in the White House have this notion that more deficit spending will help to boost the economy, and they continue to stand by it. There is serious evidence otherwise, however, as we watch the national debt surmount. There is only so much GDP, and with the current recession, we have watched it continue to decline. For the first time in months, it has climbed to a point where it is finally to the point of being higher than the national debt. This will not stay the case for long, though, because the debt continues to move the inflation up on a daily basis.
The article states that “Interest rates and interest costs will soar, and government revenues will be devoured by interest on the national debt.” With the current administration’s policy, they will continue raise taxes on business and the wealthy, and trying to fill this gap in the Aggregate Demand curve that will consequently occur, and it will become a cycle, because higher taxes cause people to limit their spending or go farther into debt, and they will spend less, and unemployment will begin to rise. This “crowding out” is already taking place, and the American people need to wake up and realize that the results of this will be dire, and the affects will reach not just the rich or the big businesses, but all of us, because of the multiplier effect, meaning that the same money moves through the economy, and no new money can be created to
Rudolph G. Penner, a writer for taxpolicycenter.org, writes the following on the subject:
“Given that the … large programs are growing considerably faster than tax revenues, the arithmetic of the long-run problem becomes pretty obvious. If the total tax burden remains constant at its 50-year average of slightly more than 18 percent of GDP and if we devote the same fraction of GDP to defense, nondefense spending, and other entitlements and if Social Security, Medicare and Medicaid are not reformed, deficits are bound to soar. Eventually, they explode because the national debt begins to rise so rapidly that the interest bill on that debt starts to dominate total spending. We begin to borrow to pay interest and we’ll end up borrowing to pay interest on the interest. At that point, total spending, the deficit and the national debt begin to go straight up (Congressional Budget Office 2007).
“Analysts make such long-run projections to show that they cannot happen. Obviously, foreign and domestic public and private investors will stop buying our debt long before deficits explode. Therefore, something has to give—hopefully before there is a crisis in international capital markets. The three rapidly growing programs must be reformed; all other activities of government must be cut to the bone; or tax burdens must rise.
“Before the 2008–09 recession, the situation was already serious, but it seemed that we had a good amount of time to deal with it. Official projections then showed that spending growth would begin to accelerate toward the end of the next decade as more and more baby boomers entered Social Security and Medicare and that we would enter this difficult period with deficits around 3 percent of GDP and a debt to GDP ratio of
about 40 percent.
“However, the recession has depressed tax revenues greatly and increased spending on safety net programs. The stimulus program passed in early 2009 cut tax burdens further and has added mightily to spending. The Congressional Budget Office (2009) has estimated that if President Obama’s budget for 2010 is implemented in every detail, the deficit will be close to 6 percent of GDP by 2019 and the debt to GDP ratio will then exceed 80 percent. The long-run budget problem has become very much more urgent in a very short amount of time.” (2)
In order to overcome this, taxes need to be lowered for all sectors and spending needs to be limited and unnecessary programs eliminated. Then, “crowding in”, or expansion of the private sector, could be possible. The current practices of deficit spending, however will not lead to this. Congress and the President need to wake up and fix the hole that they are digging. “How?” you might ask. They are really just paying off credit with other credit, right now, so to solve this massive issue, we need to change these “leaders,” who are more interested in their Pork Barrel agendas.
We need to elect leaders who will use fiscal restraint, and adjust the structural methods of spending, who will eliminate worthless and pork-barrel programs, and wake up and realize that revenue increases only when the government removes their hands from the market, and allowing the invisible hand to take effect, with simple programs that have a minimal amount of spending.
Paying off the national debt would be the ultimate goal of this kind of fiscal restraint. If not, the federal government will have no choice but to default, abandoning the bonds and other national debts that are held and the bond holders will all lose their money, the foreign countries will lose trust in us, rendering the government unable to loan money between its own programs, and it will drive our economy even farther down the tubes than it already is.
Is it time for a new administration? I think so.
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