Deficit reduction is likely to be the hottest, domestic, political topic this year so let me arm you with some facts according to the WSJ.
– The government is currently spending about $100 billion more a month then it is taking in, adding about $1.3 trillion to the federal debt per year.
– Right now the government only has $400 billion before it hits the $14.3 trillion ceiling. ( and there is really no way to avoid hitting it)
– I love this quote – “Today’s deficits are political problem, tomorrow’s economic threat.”
– Federal borrowing grew by $3.9 trillion between the end of 2007 and the third quarter of 2010. ( Why? to cushion the blow of the economic downturn)
– Every additional $100 billion borrowed this year adds $43 billion in interest over the next 10 years.
My comments to this – Scary. The numbers are extraordinary. When we raise the debt ceiling the federal debt will exceed our national GDP. This does not include state and local debt. You have likely been reading that there are HUGE issues in the muni area right now as bond holders are worried about the ability of many issuers to repay. This does not include mortgage debt, credit card debt, corporate debt, high yield debt…… We are an indebted nation and to a large extent that has been good, it has fueled growth, but at the end of the day it comes down to this. can the debt payments be made? No, for the subprime mortgage market and that is what contributed greatly to the financial crisis. Partial no for commercial real estate which has also caused big issues. So far yes for government, but at what cost to our future? The federal government can print money which is a good thing if you need to pay people. Printing does risk credibility and the credibility is reflected in both interest rates and exchange rates. Again so far ok because many other developed countries are in the same position and hey, we are the US, the world’s largest economy.
So where does that leave me? Worried, as i have been for some time. Worried for the economic future of our collective children. I teach my children to be financially responsible. I teach them to spend within their means and our nation’s capital is not exactly setting a good example.