Monday, August 10, 2015

National Debt Is Exploding!

In November of 2014 the national debt was poised to pass the 18 trillion mark. As we approach the middle of August 2015 the National Debt Clock shows more than 340 billion dollars has been added to the total and the amount owed continues to grow. This appears to be raising no red flags as we continue to hear from the media how robust economic growth has helped push the U.S. budget deficit down to the lowest level since 2008. Claims of the sharpest turnaround in the government’s fiscal position in at least 46 years are targeted at reassuring American that Washington has got our back. A trick used to confuse the issue and muddy the waters is which administration or President is used to dump the massive 2009 deficit on. Bush left office with the economy in the sewer but the resulting deficit occurred on Obama's watch.  The the last few years the Obama administration has touted how the deficit is dropping and the economy is on the mend. This has led some Americans into thinking the worst of our problems are now in the rear view mirror.

Charts are often very misleading
Charts can be very deceiving, little things like the scale or how they are colored often blur how we interpret their message. The chart on the right sends a clear signal that Bush was the problem even as it confirms the Obama deficits have been larger. Only upon looking back decades do we see just how large this problem has grown. To the American people the crossing of several red-lines in the sand without dire consequences has given us a false sense of security. One thing is crystal clear, running up debt is far easier than paying it off.

According to figures released by the U.S. Treasury, the federal government has officially run a deficit of 589 billion dollars for the first 11 months of fiscal year 2014.  We should remember this number is for public consumption and it relies on accounting tricks which massively understate how much debt is really being accumulated.  If you want to know what the real budget deficit is, all you have to do is go to a U.S. Treasury website which calculates the U.S. national debt. On November 1, 2013 the U.S. national debt was sitting at  $17,108,598955,343 just a year later on October 31, 2014 the number has risen to $17,937,160,394,872 . That means that the U.S. national debt actually grew by 829 billion in less than 12 months. With the artificially low interest rates of today many people seem to have little desire to cut spending. We are literally gorging on debt, and most Americans seem to think that it is just fine and dandy to wildly run up debt as if there is no tomorrow.

Total Debt Is Leaping The Off Chart   
The myth that  and a scenario of growth coupled with a falling deficit will allow us to outgrow many of the problems we face brings with it a false optimism and hope. I have ran into more than one person who touts the fact the deficit is coming down and interprets this as proof everything will be alright. Negotiating the financial cliff and muddling through what was described as a draconian sequestration has emboldened many Americans and left them feeling immune to economic reality, this is the foundation of a financial  disaster. Sadly, the reality is we continue to run up massive record deficits and are merely kicking the day of reckoning down the road. Projections made by the government or any group predicting budgets based on events that may or may not happen at some future date are simply that, projections or predictions and not fact. This means that such numbers are totally unreliable.

Data compiled by Bloomberg using Commerce Department figures would lead a person to think things are getting better. They tout a shortfall of only $483.4 billion in the 12 months ended Sept. 30th, 2013 noting it was only 2.8 percent of the nation’s gross domestic product of $17.2 trillion. The ratio peaked at 10.1 percent of GDP in December 2009. Data shows the fourth quarter of 2008 was the last time the deficit-to-GDP share reached 2.8 percent was in April 2005. “That’s what happens when the government is holding itself back on spending and the economy is improving,” said George Goncalves, head of  interest-rate strategy at Nomura Holdings Inc. in New York. “The question is, is that as good as it gets or will the deficit continue to shrink?” A major concern for this writer is that in 2017 entitlements are poised to balloon causing a massive spike in government spending. 

Some people forget or did not notice the Bureau of Economic Analysis (BEA) has made a significant change on how they calculate the GDP.  They changed how they classified and recorded expenditures for R&D and for entertainment, literary, and artistic originals. An announcement of this change was made by the BEA during February of 2013, this resulted in an increase in the GDP. This kind of "bump" means that a gain of 2% today is in reality less than a gain of 2% years ago. This means we are comparing apples to oranges. The narrowing budget deficit has bought time for lawmakers to solve some of the long-term threats to the economy such as the cost of retirement benefits, but even the "false fiscal relief" before us may be short lived as austerity-weary lawmakers may boost spending on defense and other programs. Some people are concerned that even as the Republicans take over congress we might see the beginnings of a pendulum shift away from fiscal restraint.

The Congressional Budget Office predicted the deficit will shrink further this fiscal year, to 2.6 percent of GDP, before rising to 2.9 percent in the presidential election year of 2016. After that unless entitlements are reformed, spending on Medicare, Medicaid, and Social Security will drive deficits to catastrophic levels. We have seen deficits reach unprecedented levels and the deficits in our future will be dramatically worse. The ugly truth many people choose to ignore is that starting in 2017 entitlements will become the driving force and carry the deficit further into the nosebleed territory. Any claim that the Obama administration has the budget deficit back under control is a total lie. We are mired in the mist of the greatest government debt bubble in the history of the world. By our actions or lack of action we are destroying the future of this nation. Only when we use the massive 2009 deficit as a baseline are we given the impression the budget is back under control, it is clear that 2009 was an unplanned budget disaster and should never be used as our reference point. 

Footnote; If you found this post about how the American government deficit and debt is growing informative please view other related articles that may be found in my blog archive, thanks for reading, your comments are encouraged.

Footnote #2;  If you happen to visit the link to the National Debt Clock that is given in the lead paragraph please note boxes on the top line to access the World  or State Debt clocks plus some other options. 

 Footnote #3;  With all the games that are played in Washington their is little positive payback for being responsible. It again appears the Republicans would be silly to take the heat for trying to contain an exploding national debt by allowing the government to shut down after the heat they took last time.

No comments:

Post a Comment