Category Archives: US National Debt

The National Debt of the United States is $22T and climbing. CBO and OMB long term projections show that our debt will continue growing unabated for as long as the government can project it. This future is unsustainable, and America must chart a course to a balanced budget before time runs out.

America’s Federal Spending Future In Pictures

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CBO Projected Spending: The Budget and Economic Outlook

CBO Projected Spending Feb 2014: The Budget and Economic Outlook

The series of slides in this blog are modified from the Congressional Budget Office’s (CBO) February 2014 report “The Budget and Economic Outlook: 2014 to 2024”. The above slide shows federal spending broken out by major spending category. Note the vertical red dotted line showing where we are today.

CBO Projected Spending Net Interest

Explosive Interest Growth – American Taxpayers On The Hook

The above slide highlights the growth in Net Interest, an increase of 1.9% of our GDP vs current spending levels. This is the largest area of growth projected in the budget, and is like the interest you pay on you credit card. America’s interest payments are just starting to accelerate, having been masked the last few years by historically low interest rates. If the actual interest rates exceed what CBO projects, roughly 5%, the costs of Net Interest will grow.

CBO Projected Spending Other Mandatory

Other Mandatory Spending – Only “Mandatory” Spending Projected To Decrease

Other Mandatory Spending decreases relative to GDP by -0.3%, and is the only Mandatory Spending category that isn’t protected to consume even greater portions of the GDP.

CBO Projected Spending Non Defense Discretionary

Nondefense Discretionary Shrinks Relative To GDP

Non-defense discretionary decreases by nearly 1% relative to GDP. This category, minus the Defense Department, includes most of the federal government’s agencies such as the Department of Homeland Security, NASA, National Science Foundation, Environmental Protection Agency, Departments of Justice, Labor, Agriculture, State, Transportation, Interior, HUD, Commerce…

Slide1

Defense Shrinks Dramatically vs GDP To Levels Not Seen Since The Interwar Years Of The 1930’s

Defense Discretionary, partly due to reductions instituted by Secretary Gates, and partly due to Sequestration, is projected to continue it’s decline relative to GDP. It is projected to drop to levels not seen since the 1930s, and as shown by the red circle and arrow, is projected to drop below interest spending by 2021. Interest spending is projected to begin dwarfing defense spending there on out. The increased cost of interest, along with health care and social security will dominate federal spending.

CBO Projected Spending SS

Social Security If Projected To Continue Eating Ever More Of The Federal Budget – And Cause Ever More Borrowing

Social Security, now that the baby boomer retirements are well underway, continues to swell. Reforming it, in order to save the program from pending collapse, is essential. Despite it’s growth of 0.7% relative to GDP, that increase comes in third behind Interest and Health Care spending.

CBO Projected Spending Maj Health Care

Major Health Care Programs Constitute The Largest Part Of The Federal Budget, Eclipsing Social Security In 2014.

Major Health Care Spending, thanks to the passing of Obama Care, or the “Affordable Care Act” is now the largest part of the federal budget, and is projected to eat an additional 1.3% of America’s GDP by 2024. Combined with Social Security, Interest and Other Mandatory Spending, they are projected to eat 17.2% of GDP. The rest of the federal budget gets the scraps.

Eight CBO Forecasts On America’s Future

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Liberty loving Americans standing against reckless government spending.

Liberty loving Americans standing against reckless government spending.

In July, 2014 the Congressional Budget Office released its latest annual forecast on America’s economic future, “The 2014 Long Term Budget Outlook“.

Some key assumptions foretelling how high future interest rates will be on money the federal government, really the American tax payers, must pay are less than inspiring, in fact they are all bad news. These assumptions add to previous depressing CBO assumptions.

Per the CBO, four factors that will REDUCE future interest rates on $ borrowed by the Federal Government (the lower the better):

– The labor force is projected to grow much more slowly than in the past (1990-2007). (Slow labor growth means America’s ability to grow its tax base is weakened).
– The share of total income going to high income households will remain higher in the future (i.e. Fewer will share in the “American Dream”).
– Total factor productivity will grow slightly more slowly than in the past. (Less productive workers means less products and services).
– The risk-premium will probably remain higher than in the last few decades (i.e. Investors will find US Treasuries more attractive since they will be afraid of higher risk investments).

Per the CBO, four factors that will INCREASE future interest rates on $ borrowed by the Federal Government:

– Federal debt, unless things change, will be much larger relative to GDP than it was in the past. Click here for chart of America’s projected federal debt.
– Net inflows of capital will be less (i.e. There will be less foreign investment in the United States, which means less growth in businesses).
– The capital share of income will remain higher than historic averages (i.e. Those that have money to invest will keep more of the resulting income).
– The working population will get older, and have fewer people in their prime savings age (i.e. Less $ will be saved, and less $ will be available for investment).

This future isn’t set in stone, fixing it requires real leadership, a long-term commitment to smaller, less intrusive, and more effective government that stops excessive taxation of Americans. Upcoming posts will look at the details within CBO’s numbers.

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Marshmallows and Government Waste

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The US Forestry Service recently created, and published instructions for how Americans should roast marshmallows. They also spent time telling us how to make s’mores. It’s rather insulting, that after all this country has done in its history, we’ve devolved to the point where we need government assistance to figure out how to melt a marshmallow? We used to instinctively know things like this, but now the all intrusive nanny state saved us from ourselves giving us step by step roasting instructions.

I have some instructions for the Forestry Service. Find out which office in your department wasted taxpayer money to hire a contractor or pay a government employee to make these instructions up, and cut that funding from your budget. If you have this kind of money just sitting around, you have too much, and after trimming your topline, the American taxpayer would appreciate better use of what’s left!

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Behind the Curtain – Total US National Debt

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Projected US National Debt Based Upon Current Rates Of Spending

Projected US National Debt Based Upon Current Rates Of Spending

This graph tells a very scary story, and complements my last blog, “Global Warming vs the National Debt”, which compares the hoax of Man Made Global Warming with the stark reality of America’s National Debt. The data was derived from the White House’s own data (OMB supporting tables) from the “2013 Long Range Budget Outlook“.

The first critical element of this chart, which shows constant year 2013 dollars, provides a look at TOTAL US Debt, not oneobscured by debt to GDP ratios. As bad as the gap between the two lines looks, it is most likely optimistic. OMB data assumes a constant 3% interest rate on America’s debt, basically forever. The more that America borrows, however, the greater the risk that our credit rating will get downgraded again, and force those rates up. Just a small increase would be devastating. America also faces the real risk that it becomes a bad credit risk. Nobody knows when that will happen, but every year that we stay on this clearly unsustainable path, increases the odds that America hits the borrowing cliff.

The chart’s second critical element is the decreasing number of years needed to add $10 Trillion blocks to the debt. Each $10 Trillion takes considerably less time to accumulate and is proof of how dire America’s fiscal situation is. Spread the word, pass this chart around, elect fiscal conservatives to Congress, and hound your representatives to balance the budget. Time is running out!

 

Global Warming vs The National Debt

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Weatherman Al Roker interviewed President Obama on Tuesday in response to the recently released National Climate Assessment Report. During the interview Obama said

“But the truth of the matter is that if we don’t do more, we’re going to have bigger problems, more risk of … extreme weather events that can result in people losing their lives or losing their properties or businesses. And we’ve got to have the public understand this is an issue that is going to impact our kids and our grandkids unless we do something about it.”

It’s a real tragedy that he is so fixated on global warming when he should make precisely the same warning about our national debt. Let’s look at the reality of the mounting debt, as opposed to the invented 100 year global warming crisis.

1. “If we don’t do more, we’re going to have bigger problems.”

Yes Mr. President, you got that right. In a few short years at your current rate of dangerous spending, debt interest payments alone will exceed a Trillion dollars each year. That’s far greater than the defense budget, and billions of that interest will go to China, so that they can build up their military as we dismantle ours.

2. “Events that can result in people losing their lives or losing their properties or businesses.”

Right again Mr. President. The massive debt will result in rapidly rising interest rates, and is unsustainable according to the Congressional Budget Office. Businesses will go under, and Americans will lose their jobs, properties and homes when they can’t pay their mortgages due runaway interest rates and rampant inflation bound to come. Long before the ocean swallows New York City, our debt will swallow America.

3. “And we’ve got to have the public understand this is an issue that is going to impact our kids and our grandkids unless we do something about it.”

Mr. President, no more accurate statement could be made than that we are foisting an impossible debt burden upon our kids and our grandkids. Their future America will be crippled by the excessive spending you, your administration and reckless Democrats and Republicans created. You will go down in history as the greatest debt creator in all of human history.

Given his statement on saving American’s future, however wrong global warming is, it’s clear that President Obama can think strategically, with an eye on the future. Why, why, why then can’t he use the same foresight to address our debt? Why aren’t there democrats screaming with a global warming-like fervor to stop the destruction of our economy? Why indeed?

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It’s No Fantasy – Spending Is The Problem

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Small Snail FantasyThe federal government and the American people are 17 1/2 trillion dollars in debt (updated now to nearly $20 trillion), and climbing. This fact is behind Congressman Paul Ryan’s effort to balance the budget over 10 years and avert a inevitable disaster that will fall on America if the budget mess isn’t solved. Much controversy exists over whether he’s balancing the budget the correct way. Progressive democrats always argue for more taxes, which they call “revenue”. Conservatives contend that the government doesn’t have a taxation problem it suffers from a gross overspending problem. A few common examples prove that the conservative position is precisely right.

Most Americans live with a modest income; as of June 2013 the median household income in the US was $52,000 a year. Somehow they balance their budgets on that salary. There are many examples however of highly successful people making far more money and yet they end up bankrupt. A short list includes: Sir Elton John, Warren Sapp, Willie Nelson, Gary Busey, MC Hammer, and Mike Tyson. How is it possible that these people who each earned millions of dollars in some cases hundreds of millions of dollars could end up penniless?

One has only to look at Americans who live happy and blessed lives on modest incomes to realize it’s not how much they earn that’s the problem. They quite simply spent more money than they earned. If you earn $50 million per year, but spend $70 million a year, you will go under. That same spending mentality would exist if that same person raised their income to $70 million a year, because they would also increase their spending and would likely spend $90 million a year. The United States behaves the same way. We still have a massive deficit this year despite the record tax revenues the IRS is raking in.

We have a federal government, and politicians who run it that would overspend any amount of money that they get their hands on. We do not have “revenue” problems anymore than Elton John or Mike Tyson had revenue problems. Our country is bankrupt, and they declared bankruptcy, because of gross over spending. It’s that simple!

Frightening CBO Forecasts from THE BUDGET AND ECONOMIC OUTLOOK: 2014 TO 2024

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The following quotes were taken from the CBO’s own report, found here. They tell the very frightening story that if our country doesn’t change the fiscal path that it’s on under the Democrat’s tax and spend policies, our country is headed for a disaster. We need to stand up, get vocal, vote out the spenders and force our elected officials to balance the federal budget, before the mounting trillions that we owe dooms us!

  • “Beyond 2017, CBO expects that economic growth will diminish to a pace that is well below the average seen over the past several decades.”
  • “Such large and growing federal debt could have serious negative consequences, including eventually increasing the risk of a fiscal crisis (in which investors would demand high interest rates to buy the government’s debt).”
  • “Interest rates on Treasury securities, which have been exceptionally low since the recession, are projected to increase in the next few years as the economy strengthens”
  • “Deficits Are Projected to Decline Through 2015 but Rise Thereafter, Further Boosting Federal Debt”
  • “In addition, changes in people’s economic incentives caused by federal tax and spending policies set in current law are expected to keep hours worked and potential output during the next 10 years lower than they would be otherwise.”
  • “Over the next decade, debt held by the public will be significantly greater relative to GDP than at any time since just after World War II. With debt so large, federal spending on interest payments will increase substantially”

In the below chart, also from the OMB report, note that the discretionary items in the budget get squashed by mandatory spending of interest, social security, and major health programs.

OMB Figure 1-2

OMB Figure 1-2

 

What Our Government Won’t Show Regarding The Debt

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The Congressional Budget Office released a report in September 2-13 (updated in Oct) called the 2013 Long Term Budget Outlook. http://www.cbo.gov/publication/44521

Both Republicans and Democrats heavily quoted the report. Republicans were quick to reference that the report concluded that America can’t sustain the debt path we are currently on. Democrats used a very slight near term improvement to the annual Debt to GDP ratio as great evidence that President Obama and the Democrats in Congress were improving the economy and the US debt picture. As often occurs, the Democrats are stretching the truth to the breaking point. The comparison of spending to GDP, used everywhere in the report, is camouflage for what’s really happening. See a couple of the report’s GDP comparisons by clicking here. Nowhere does the report show the debt in actual dollars. The two charts below expose the truth, extrapolating from the report’s supporting data tables, and proves that fundamentally the US is on a disastrous spending path.

Chart 1 below throws the Debt to GDP ratio away and provides raw constant year 2013 dollars for both Total US National Debt and GDP. Democrats trumpet the minuscule dip of the debt (Red Curve) below the GDP (Green Curve) in the 2018 time-frame as great news. Despite the fact that it was caused by the Republican House, it’s so insignificant that you can barely see it. Unless we control the reckless federal spending tidal wave, the red curve (US real debt) will grow exponentially vs our GDP. US debt will pass $30 Trillion by 2030. At some point in the not so distant future, we’ll cross the point of no return, a cataclysmic debt “event horizon”. The responsible answer involves cutting federal spending.

Government Debt Projections Exposed

Government Debt Projections Exposed

Chart 2 shows two potential futures from CBO’s report. A $2T reduction across ten years reduces the debt growth to the green curve. A further reduction to $4T across ten years dramatically (purple curve) cuts the debt’s growth more, but it does not yet cut the debt. Additional reductions (beyond $400B/yr), along with pro-growth economic policies are critical to balancing, and perhaps dare I say, paying it off.

Only Immediate and Deep Cuts Stabilize Budget Future

Only Immediate and Deep Cuts Stabilize Budget Future

For comparison purposes, the Debt to GDP ratio was added to Chart 2 (dotted blue line). Notice that the Democrat’s touted reduction in Debt to GDP clearly happens at the same time that the Debt itself explodes.

BOTTOM LINE: Significant cuts are essential and need to happen yesterday.

NOTE: Comparisons to GDP are useful to assess one time in history to another. However, our goliath government created a new paradigm that makes the debt to GDP ratio a poor future comparison and pundit “feel good” conclusions based upon them grossly misleading. Why?

Past spending spikes were more “single year” events as opposed to spending baked into the Federal baseline as they are today:

  1. Huge spikes in past Annual Debt to GDP were largely due to military wartime spending, easily reduced after wars ended to return to sustainable spending. See below chart.
  2. Today’s spending, which drives each year’s budget deficit, is increasingly caused by sources that can’t be easily eliminated (unlike the case with wartime spending).
    1. Interest on the national debt. The interest avalanche grows each year, as shown here, and must be paid or the US Government defaults on its obligations. Even Progressives admit that’s a bad thing.
    2. Social welfare programs are the third rail of politics. Democrats use them to buy votes, and bludgeon anybody who suggests responsibly reforming them.

Interest and social welfare programs, which now include Obama Care’s massive costs, will consume the budget, pushing all else aside. That “all else” includes what our Constitution mandates the Federal Government actually do.

From CBO's "The 2013 Long-Term Budget Outlook"

From CBO’s “The 2013 Long-Term Budget Outlook”

US Government’s Spending Spree Timeline

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US Federal spending over the last ten years went through a dramatic shift from borrowing around $140B/year to consistently borrowing over $1T/yr (or a nearly a ten fold increase). How did this happen? The following three charts cast light on that spending spree timeline.

Each chart shows total Federal Outlays (or spending) in red, and total Federal Receipts (money coming in through taxes) in green. The gap between the lower green line and the upper red line is the money borrowed by our government to pay its bills. Long-range OMB projections, going out beyond 2050 never forecast those two lines to cross. Said another way, we will drown in debt unless we change course and balance our budgets.

Chart 1 highlights a few key points during the Bush administration.

  1. President Bush cut taxes early on. Despite an initial decline in federal revenue, as is the case every time that it’s tried, revenue grew rapidly and was closing on federal spending, despite the added cost of the Global War on Terrorism.
  2. Democrats took over the House of Representatives and Senate in January 2009, electing Nancy Pelosi Speaker and Harry Reid Majority Leader. Spending began to accelerate as soon as they took control.
  3. At the end of the Bush Administration, the housing bubble (created by Progressive/Liberal Social Wealth Redistribution Mortgage Policies started in the Carter Administration) burst and brought on nearly $450B in TARP spending (then Senator Obama voted for it).
Chart 1

Chart 1

Chart 2 highlights a few key points in President Obama’s first term.

  1. Democrats expanded their majority in the Senate, and kept Senator Reid as the majority leader.
  2. President Obama was sworn in Jan 09, and passed his stimulus in February 09.
  3. The last budget until fall of 2013 was passed in April 09.
  4. After the April 09 budget, continuing resolutions were used to fund the government. These CRs basically acted like copies of the April 09 spending. The stimulus, which had massively raised spending and was supposed to be a one time deal, got perpetuated every year through the CR process. Could that be the reason why Senator Reid refused to pass budgets each year?
Chart 2

Chart 2

Chart 3 highlights a few additional key points.

  1. The GOP regained the House majority, in a massive 2010 mid-term election.
  2. Republicans, with control of the House and with Speaker Boehner taking the gavel from Congresswoman Pelosi, were able to stop the rapid growth in federal spending. The growth in spending from 2007 to 2010 was now “baked” into the federal baseline, and repeated through CRs.
  3. Federal spending exceeds receipts forever. A good place to start in reducing the spending requires going back to 2007 spending levels in every department. Find the “one-time” funds and cut them out of the federal base budget.
Chart 3

Chart 3

Where’s The Money Going?

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Where is our money going when the federal government spends it?

Chart1 below, taken from OMB data, shows the all outlays, or spending buckets, as defined by the office of manpower and budget. Chart1 is organized from fiscal year 2000 out to fiscal year 2018. FY 2000 through 2012 data is actual budget data while FY13 through FY18 data is forecast. The important thing to note in this table is the red and green arrows. The red portion of the arrows shows the trend of upward spending and growth in spending where as the green portion of the arrows show a decline or leveling in spending.

Unfortunately our federal government’s spending is out of control, as clearly shown by the red arrows and the steepness of those arrows. There are very few green ones. Downward movement, with the exception of the Department of Defense, which took roughly an 18% decrease in two major cuts, is the exception to the high spending rule. The first cut happened under Sec. Gates when he reduced the Department of Defense budget buy $483 billion over 10 years. The second cut, a result of sequestration, equals nearly $500 billion over 10 years. The other buckets that you see with green arrows were also caused by sequestration.

Chart 1

Chart 1

Notice that the red arrows’ upward vectors are significantly greater than the leveling in the few buckets that the government reduced. It’s also important to notice the increasing vector in the far right bucket, which is interest on the federal debt.

The president of the United States and the Democrats in Congress continue to rack up nearly $1 trillion more in debt, in the names of our children every year, and they have no plan to ever balance our nation’s budget. The only slow down to the relentless spending spree was caused by the Republican Party attempting to arrest the disaster that reckless spending most certainly leads to.

Chart 2 is a blowup of the major outlay buckets shown in Chart 1. Chart 2 also adds fiscal year’s 19 and 20 to the total national defense in total net interest buckets. The increase in the total net interest is very likely optimistic, as it is based on a historically low 3% interest rate.

Fiscal Years 19 and 20, in the total national defense bucket, are likely excessive given that OMB calculated them before the impact of sequestration. What this chart shows is that soon after FY20, interest on the national debt will exceed the entire national defense budget. Interest on the debt is like interest being paid on a credit card. It comes back month after month eating up the family budget. There’s no option but to pay it or go bankrupt. Paying that much in interest every year in your personal budget means there is far less money left to pay for groceries, the mortgage, or save for the future.

The same is true for our nation as the magnitude of this interest bill will soon eat over $1 trillion a year!

Chart 2

Chart 2

Chart 3 adds two more columns to Chart 1.

  • Total outlays, which is the sum of all of the other buckets
  • Total receipts (taken from OMB table 1.1), which is essentially all the taxes collected by our government.

These two buckets look like massive skyscrapers, but the total outlays bucket is much taller. The difference between these two “skyscrapers” becomes debt piled upon the backs of the American people. The red arrow exceeds the green and the two never meet. This is an unsustainable, reckless, and eventually disastrous path created by both parties, but vastly accelerated by Nancy Pelosi, Harry Reid, Democrats in the House and Senate, and Pres. Obama.

The only responsible policy is to balance this budget, and it’s clear that the people who accelerated it are completely incapable of helping to fix the problem. They must be thrown out of office, marginalized if they can’t be replaced, and gone around to save our Nation’s future.

Chart 3

Chart 3