My next blog post will be in the spring. The book I’m writing will appear by then, so I’ll save any proposals to revive the U.S. economy for the book. But here are a few simple facts to consider when you’re wondering where this nation is headed.
The Bureau of the Public Debt (in the Treasury Department) is showing on its website (at 8:00 a.m. on December 30) “Total Public Debt Outstanding” as $15.125 trillion.
The Bureau of Economic Analysis (in the Commerce Department) issued its latest revision of third quarter 2011 Gross National Product on December 22; it is $15.176 trillion.
Yes, our national debt is now 99.7% of GDP. When Ronald Reagan was inaugurated as President in January of 1981, the debt was 30% of GDP.
In other words, over the past thirty years, while our economy grew about 5-fold, federal government borrowing grew more than 15-fold – three times as fast as the economy.
How much higher can the national debt go? We can expect action on the legal debt limit in the first days of 2012, thanks to the bizarre Budget Control Act of 2011, passed by Congress on August 1. It is an example of just how weird the nation’s legislative process has become.
When the Act was passed, the debt limit was $14.294 trillion, and the actual federal debt was $14.342 trillion (a few small government accounts are not subject to the debt limit). The Act called for an immediate increase in the limit to $14.694 trillion, which was implemented when President Obama signed the Act into law the next day.
The Act then called for an additional increase of $500 billion in the limit, unless Congress passed a joint resolution disapproving that second increase. (We say you can unless we say you can’t. You have a problem with that?) The Senate defeated a resolution of disapproval on September 8, and the limit was subsequently raised to $15.194 trillion. That is where it stands today.
So even with the two increases, we are today only $70 billion away from needing yet another debt limit increase. And here’s where the Budget Control Act goes manic.
The Act established a congressional Joint Select Committee on Deficit Reduction, whose recommendations, if the Committee made any, were to receive expedited consideration by Congress. The Act further called for a joint congressional resolution proposing a constitutional amendment that would mandate a balanced federal budget.
Both steps affect whether the current debt limit can be raised:
IF Congress sent to the states the balanced budget constitutional amendment, the Act said, the debt limit would be raised by an additional $1.5 trillion.
IF the Joint Select Committee recommended specific deficit reduction measures, and those measures were enacted into law, the debt limit would be raised by between $1.2 and $1.5 trillion, depending on the level of deficit reduction.
Wait, there’s one more IF, dependent on the other two: IF NEITHER OF THOSE APPLY, then the debt limit would be increased by $1.2 trillion. Is this a way to make decisions for a nation of more than 300 million souls?
So here we are. No balanced budget amendment proposed, and no Select Committee recommendations. (What was all that about, anyway?) The President will raise the debt limit by $1.2 trillion. Of course, the Act allows Congress to pass a joint resolution disapproving that final raise (advantage Congress?); but the President can veto the resolution (game over?).
Look for a $16.4 trillion debt limit very early in the New Year. Look for federal debt to continue to grow faster than the economy and to reach well over 100% of GDP. Look for the rest of the world to wonder what in blazes our government is up to. Next year is not going to be pretty.
But let’s forget it all for a few days. Have a Happy New Year!! Buy a bottle of good bubbly to drink with someone you love – then protect the rest of your savings.
12/30/11. Which part of “Total Public Debt Outstanding” do they not understand? 1 comment
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Scary stuff
Are our 300 million so daft that they dont recognize our debt crisis? I would think that watching riots in the streets of Greece and Italians bracing for severe austerity measures would command our people’s attention. What is the #1 issue in Obama goes toe to toe with Gingrich or Romney? We are fortunate as a nation to have fear mongering and wars in our rear view mirror. Of course the big focus will be on how to stimulate the economy. The conventional wisdom is that Obama wins if the economy continues to grow as it is at this very moment – he loses if our sluggish recovery falters. That is a remarkable short term prism for looking at our nation’s fundamental and systemic problems. Yes – economic growth is very important. But economies are cyclical. Always have been – always will be. While certain components of our national income statement are tied to where the economy sits across any calendar year – the vast majority of our balancing act is fixed. A huge part of that equation is out mounting national debt and the associated interest obligations. We cannot just keep raising the ceiling – that is lunacy and any one who is paying attention knows it. Heres hoping we get some fiery moderators who frame the right questions in the upcoming Presidential debates. We need real strategies to material reduce our federal debt. Now.
I have heard some proposals that would actually stem the tide.
For example – making Americans recognize the health insurance benefits provided by their employers as income would raise Billions. Running my own company – I am effectively already paying that tax. Fortunately – my 3 FTEs enjoy health coverage through their spouse’s employer. This proposal is just another tax and should not be one of our tactics.
Another proposal is to eliminate the write off for the interest portion of homeowner’s mortgage payments. Wow. One of the biggest current problems with our economy is the hangover from our residential housing boom. New home construction must recover to help create jobs and sustain our economic growth. Killing incentives for home ownership would be a big mistake.
None of the new taxes or austerity measures are pretty – but something must be done. Ignoring the problem only exacerbates it.
I realize this is an over simplification – but the root solution needs to be extending the retirement age. Productive workers need to quit daydreaming about 62 or even 70. Go to work as long as you have the mental and physical ability to do so – and stop using the word ‘entitlement’. Nobody in the world is entitled to anything anymore