There’s a certainty to increasing debt and compounding interest: eventually they must end. Either the debt is repaid or repudiated. From Bob Luddy at spectator.org:
Economic growth won’t save us, not without serious cuts in government spending.
The most important issue facing America today is the national debt and increasing federal deficits. Our national debt now exceeds yearly gross domestic product (GDP).
The U.S is the wealthiest country in the world, but our government has the largest spending deficits and national debt in recorded history.
The budget deficit in FY 2018 was $800 billion, but the debt increased by $1,300 trillion, and is now $21,500 trillion dollars. Government accounting (oxymoron) allows for spending and loans outside of the budget. The practice of underreporting deficits is fraud and is not legal in the private market.
Note the US Debt Clock (here).
In simple terms, the national debt consistently increases more than the federal deficit, which will cause a devaluation of the dollar and eventually, a major financial crisis.
In FY 2019, the federal budget projects the following:
- Total revenue $3,422 trillion or 17% of GDP
- Total spending $4,407 trillion or 21% of GDP
In the best of times, regardless of tax rates, the federal revenue rarely exceeds 18% of GDP. This means based on projected spending, we cannot grow or tax our way out of the deficit because spending is projected at 22% of GDP.
To balance the federal budget in FY 2019, it would be necessary to cut all spending by 22%.
Yes, this means Social Security, Medicare, defense, food stamps and college loans. A cut of 22% would be devastating to our economy, which means we must begin now to reduce federal spending and debt as a national priority.
During the last major recession in 2008, we had a national debt of $10 trillion. Now, in 2018 we have a debt of $21,500 trillion. On average the debt is increasing at 1 trillion per year, but last year it increased by $1,300 trillion.
Virtually every American knows we cannot sustain federal deficits and debt, but since 2000, our Presidents and Congress have ignored this critical issue, which is a looming crisis.
Federal deficits are the same as increasing your standard of living with credit cards. It is fun while it lasts, but it leads to bankruptcy.
Some of the worst outcomes from the reckless spending are as follows:
- The Social Security system is moving toward insolvency, which means the national retirement program will be at risk.
- Colleges and universities have increased tuition to unsustainable levels, trapping our youth with heavy debt, which adversely impacts family life.
- Social welfare spending in the trillions has undermined families and has not improved poverty. We now have an extreme poverty of skills and fewer stable families. Today’s poverty rate is about 15%, which is higher than in 1970.
- Forty years after the creation of the Department of Education, our K-12 schools have declined in quality. We have spent trillions of federal dollars on education to make it worse. K-12 is now a national disgrace.
The massive, regulating bureaucracy has reduced our GDP growth and suppressed entrepreneurial creativity, A.K.A. American Exceptionalism.
The solution will require sacrifice by every American to insure the long-term financial stability of our country — including the following:
- The growth of Social Security payments must be 1/2 of one percent lower than CPI, a small price to pay for a guaranteed income for life. Social Security will be insolvent as early as 2024.
- Medicare and Medicaid will require private sector free market solutions to cut costs and improve outcomes. Spending for health care can, and should be cut from 18 to 16% of GDP with improved quality. Remember, free market entrepreneurs drive down costs and improve quality to attract users. Governments drive up cost and reduce quality outcomes. “Think of the USPS versus FedEx.”
- Federal college loans should be phased out over three years, with all future loans made by private sources. This change will improve academic outcomes and dramatically lower costs. The cost of college (circa 1965) was affordable before the massive federal loan program.
- Domestic spending needs to be reduced by 5% a year, until the deficit is ended.
- Foreign aid and the military must be rationalized based on national security, eliminating endless interventions and nation building.
Reducing federal spending and interventions will ultimately improve the lives of every American as follows:
Education: K-12 and colleges will perform at high levels, once the wasteful bureaucracies are downsized. Educating students requires excellent teachers, not massive bureaucracies.
GDP will grow faster when entrepreneurs are allowed to create and grow the economy, rather than be restrained by mindless federal bureaucrats. Think of dishwashers that take hours to run — thanks to the Department of Energy, purportedly to save energy.
Most importantly, Americans will focus on self-reliance, family, and community support, rather than federal largesse.
New Zealand adopted this type of approach in the 1980s, and today, has a low debt-to-GDP of 43%, versus the U.S. of 105%.
More importantly, New Zealand has first-world incomes, and is a leading exporter of products produced by its free market economy.
This is a clarion call for America to return to its traditional values of education, families, prudential use of resources, with families and communities supporting each other, solving problems locally.