It would take a $500 Billion Surpluses PER Year for 50 Years to Erase IT!!!
June 20, 2010: “G-20 Agrees to Cut Debt” is the leading headline of the Wall Street Journal. Does this mean that the G-20 countries will really cut the yearly budget deficits in half by 2013? While the White House said that debt would be at an acceptable level by Sept 30, 2015!
Premise: Neither America, nor any government, can borrow indefinitely and without limit! The cost of the debt load increases until it ultimately is simply unaffordable or unmanageable. When do the current budget deficits of the United States of America become unaffordable? What can you do about it? These are good questions asked by many today.
Each household asks this question of itself too. When is my debt load beyond my ability to repay? Is it when my house is under water? Is it when I must cut back to the essentials and spend no more? Or is it when I must pay a huge sum back every month for the entire life of my mortgage or any other loan such that I am a slave to my debt forever? Answer: When you become a slave to your debt! That amount varies for each household and for each country!
Right now The United States of America has a debt of $13.1 trillion and growing at a $ 1.5 trillion dollar rate per year. The United States of America has unfunded liabilities of about 110 trillion dollars per the Debt Clock. If you have never visited this web site, it is worth the visit!
Assume America brings the yearly budget deficit under control, i. e. a balanced budget at either the 15 or 20 trillion dollar debt level. Then assume that the debt is likened to a mortgage on America that lenders demand to pay back, much like a home mortgage. Table 1 below shows various scenarios over a 50 year time period in which said mortgage would be repaid.
Table 1: Federal Debt as a Home Mortgage
| National Debt (Trillions) | Interest rate (%) | Years to Pay | Total Yearly Payment (Billions) | Total Interest Paid (Trillions) | Ratio Total Interest to Principle |
| 15 Trillion | 5 | 50 | 817 | 25.8 | 1.7248 |
| 4 | 50 | 694 | 19.7 | 1.314642 | |
| 3 | 50 | 580 | 14 | 0.931864667 | |
| 2 | 50 | 478 | 8.74 | 0.582744 | |
| 20 Trillion | 5 | 50 | 1090 | 34.5 | 1.7248325 |
| 4 | 50 | 925 | 26.3 | 1.314242 | |
| 3 | 50 | 773 | 18.6 | 0.93187 | |
| 2 | 50 | 633 | 11.6 | 0.58225 |
In the case of a 15 trillion dollar starting debt, repayment at 2 – 5 % interest over 50 years would amount to paying from nearly 9 to nearly 26 trillion dollars interest over that time period. This requires a budget surplus of from just short of $500 billion per year to over $800 billion per year to pay down the debt, depending on the interest rate. This level of repayment must be in place year after year after year after year for a total of 50 years, not the 50-minute repayment mentality in Washington these days.
Has the government ever had budget surpluses for extended periods? Actually, in each year of the decade of the 1920’s the USA ran a budget surplus. However, this analogy would mean that the budget surpluses would start in say 2012 and run for 50 years until 2062. How likely is it that all the elected Senators and Representatives over that extended time would have the fiscal restraint to keep to the plan?
What are the likely government scenarios to transition from 1.5 trillion dollar budget deficits to 500 billion budget surpluses to pay off the debt in 50 years? A great question! The answers include: increased growth, decreased spending, increased taxation, increased monetization of the debt (inflation) or a combination of these and lastly repudiation of all debt (start over). Increased growth is anemic coming out of this recession. In the past after severe downturns, there were several quarters of 8-10 % GDP growth per quarter. This recession has evidenced only a 2.7 % GDP growth a few quarters after the recession. This growth rate is not even robust enough to keep up with new entrants into the job market.
Unfortunately, the fortitude to reduce spending does not appear to be apparent anywhere in government. To cut spending, Glenn Beck presented several programs on this topic recently where he identified substantial spending cuts. Further, there is a web site {republicanwhip.house.gov/YouCut/YourIdea.htm} where you can submit your own idea/opinion on what spending to cut.
Increased taxation is coming but this alone will not erase the deficit and incur a 500 billion surplus. It is even doubtful that both decreased spending and increased taxes together could address the 2 trillion dollar turnaround needed to run the 500 Billion surpluses in the federal budget to eradicate the debt in 50 years. Moreover, why should the government raise taxes when they are the profligate and foolish spenders who caused the budget deficit?
Inflation! This way the government pays off past debt with cheaper dollars. The Federal Reserve was founded in 1913. At that time, the debt of the USA was around 3 billion dollars. Today it is 13.1 trillion thanks to repeated use of Keynesian economics. The value of the dollar has fallen by 97% since 1913. The path of least resistance for the government is inflation and lots of it. It is in their interest to do so. However, it is not in the interest of the average American citizen. Inflation is tantamount in significance to legalized government thievery!
Finally, debt repudiation would only be used in the direst of circumstances.
None of these paint a pretty picture of paying off the budget deficit.
What should you do about it? Obviously writing letters to your congressperson has not helped! You must take action. Your very liberty and freedom are at stake. Here is a list of plausible actions to take.
1) Get out of debt. Why? You will no longer be a slave to it.
2) Do not take on any more debt. Live within your means.
3) Invest in things that the government can not inflate or confiscate.
4) Tell others so they can be educated and self-sufficient.
Then vote out of office the profligate spenders and those who do not honor their oath of office, which is to uphold the US Constitution. Isn’t it about time that “we the people” reign and put government into the constraints of the US Constitution thus giving all Americans liberty and freedom?
We shall find out how serious we are in November 2010.
**About the Author: William J Michie, Jr has a BS and MS degree in Chemical Engineering from Drexel Univeristy and an MBA degree from Rutgers University. He has had a 32.5 year career in Polyethylene Product Development with Union Carbide and Dow Chemical Corp. and is the holder of a number of patents.**
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After hearing my grandfather saying union is bankrupting america many years ago, I really did not know what union really does to the economy untill I see all the good labor going overseas. Man after working 40 years, I realized how greedy the union and politics are. I say it is time to clean house and bring on the flat tax of 13%. Moral values have gone down and nobody cares for others…… sad world.
If you politics really wanted to stimulate the economy. Give every true american over 50, a million dollars. But you must 1) retire from your job so the younger generation can learn the ropes. (takes care of the unemployment) 2) Pay off your house or buy one of your choice. (simulates the economy) 3) Buy yourself a new american car of your choice (support the non-union autoworker) 4) Find a good church of your choice and enjoy charity work.
Union has nothing better than what I have earned in 35 years and I don't expect to get paid for everything. Some thing were meant to support our country like our forfathers taught us.
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