Maxing Out America’s Credit Card

Creative Commons photo by Nick Webb

A national debt is a good thing; but not the national debt. That is, the current balance accrued by the central government is too high of a liability and too deep in the red to be regarded as “beneficial.” A profitable national debt is very lucrative, insofar as it provides for the common defense, promotes the general welfare, and incentivizes a healthy relationship between the US and allied nations. Whereas a deficient debt, such as our currently situation, defaults into acrimonious connections with foreign and domestic investors.

The US national debt currently sits at $19 trillion, and grows at a rate of nearly $10 thousand every second. The rate of debt per citizen is at nearly $60 thousand, though the rate per taxpayer is more than double that. Federal spending is at a high point of $3 trillion, and the budget deficit is at $577 billion.

America is insolvent, or incapable of paying off our commitments. We have issued such an insurmountable debt that we find ourselves now looking for ways to repay our investors at a much lower rate than was originally agreed upon. This is bad for fiscal relations both at home and abroad.

But where does the debt come from, and where is it going?

The national debt is accrued by “issuing debt.” The central government sells, what are called “Treasury Marketable Securities,” in the forms of Treasury Bills (T-Bills), NotesBonds and Treasury Inflation-Protected Securities (TIPS). Securities are sold to foreign governments, state actors, businesses, citizens, foreign investors, etc. Essentially, to whoever is willing to purchase securities, the government is ready issue its debt. The U.S. Treasury creates the debt, the Bureau of Fiscal Service manages the debt, Congress spends the debt, and the BFS attempts to repay the debt.

But why is the national debt so high? This is a question only a textbook response could answer in full. Suffice it to say that, at the moment, the national debt is the product of heightened government spending, and the inability to repay our investors.

So where does the money all go?

Let us focus our attention on three primary departments of immense monetary importance. Based on discretionary spending for fiscal year 2015, Social Security was granted 3%, Medicare/Medicate 6%, and National Defense 54% of the whole yearly budget. This means that if you were to add up all of the lesser-apportioned budgetary departments (Food & Agriculture, Transportation, Education, etc.), you would still not match the percentage of the Defense budget by itself.

But there is a difference between mandatory and discretionary spending; that is, what’s “budgetary” and what is “actual”.

The federal budget ensures Social Security $29 billion, Medicare/Medicaid $66 billion, and Military $600 billion in mandatory spending; a grand total $695 billion; where, combined, Defense accounts for 86% of the three most costly departments of the federal government. However, in actual discretionary spending, although Defense has kept to its budget of $600 billion, $900 billion is exhausted on Social Security and $1 trillion on Medicare/Medicaid. This is a difference of 48% between discretionary and mandatory spending for Social Security, while Medicare/Medicaid has grown a staggering 66%. The sum of the three mostly costly departments in actual-spending amounts to: two trillion, five-hundred billion dollars in government spending – Military accounting for a meager 24%.

So what needs to be done?

It would be easy to say that this is a matter for upper-level decision makers; that congress has to make a conscious decision to cut spending and decrease the yearly debt. Needless to say, there is no evidence that this will be happening anytime in the near future.

Presidential hopefuls Donald Trump and Hillary Clinton both propose a major increase in federal spending, especially in the field of infrastructure. While Clinton’s proposed plan would likely see an increase in the national debt from $19 trillion to about $30 trillion by 2026, Trump’s plan is expected to see an increase to nearly $40 trillion.

Of course, the power of the purse rests in Congress and not in the President. But, just as President Obama’s greatest legacy The Patient Protection and Affordable Care Act, better known as Obamacare, produced a major increase in Medicaid spending, so too could another high-cost Executive Branch-initiated program strike a damaging blow to United States national debt.

Political decision makers respond to the demands of their constituents. If we cannot expect Congress to make these decisions, perhaps it is our place to instruct those we have employed. A decrease in government spending is exactly what America needs right now. However, reaching a conclusion as to where that decrease must be seen will take a great deal of argument, and never-ending “red tape” the bureaucrats and lobbyists have to offer.

Leave a reply

Your email address will not be published. Required fields are marked *