The National Debt

On June 7th 2011 the National Debt reached 14.3 Trillion Dollars, (According to the big debt clock.) As I tried to grasp this number and get an understanding of it, I could not. I then decided to reduced the numbers down to something that I could understand. The average household income for 2009 was $49,477 so I decided to see what an average household would look like financially compared to the U.S. Government.

If the government were the average household making $50,000 a year, it would be like a family living above their means and spending $83,000 a year with a debt load of $265,000. There may be some families that only make $50,000 and own a home with a mortgage of $265,000, but I don't know any. Spending $83,000 a year I believe is fairly common for someone that lives in quarter million dollar home. If one partner lost their job, then I could see where they could be in this situation. On the other hand for someone to live year after year spending more than they earn, accumulating debt at a $33,000 or more a year does not seem likely.

A family that finds them self in this mess, would not increase their spending, but look for ways to cut back and sell what ever they could to lower the debt.

The other alternative would be to get a higher paying job or a second job. For the average American, this may not be possible with the current unemployment levels. The Government on the other hand, could and more than likely will raise taxes to increase the level of income. Cap and trade is a good example and is forecasted by the government to produce 73 Billion a year starting in 2012. This is listed in the Proposed Budget by Category as Climate revenues.

Corporation income taxes are also projected to more than double by 2012 from the 2010 levels. But with most everything else increasing, the deficit is expected to remain well over $600 billion a year, adding to the National Debt.

Our family in the example would not able to extend their credit and would have to take drastic steps in order to survive. I am not so sure that our government is prepared to do the same.

On February 6, 2007, The director of OMB Robert Portman testified before the House of Representatives about the current trends of the National Debt not being sustainable.

He predicted that by 2040 discretionary spending, interest and mandatory spending will overcome all other spending for defense, homeland security and education. He stressed a balanced budget and reducing spending growth by $96 billion over five years.

Now four years later our 2011 National debt is $14.3 Trillion compared to $8.7 Trillion on the date of his testimony.

Suggestions for families and governments in debt.

First, cut back on spending, sell any asset that is costing money that is not required in order to survive. Government should get out of the mortgage market and sell Freddie and Fanny to private or public corporations. Medicare and Medicaid together take in $189 Billion and pay out $736 billion, turning this over to private insurance companies would reduce the Deficit by $547 Billion alone. Make major cuts in Non-defense discretionary spending. Currently the government is over budget for 2010 in the amount of $110 Billion with more estimated each year. Government just like families must learn to stay within their budgets.

The government owns vast amount of land and mineral rights, much of this could be sold and placed into productive use and the proceeds used to reduce the debt.

Second, don't bite the hand that feeds you. Corporate and Individual income taxes (including Social Security payroll taxes and Unemployment insurance), make up 84% of the income. Passing any laws that may reduce or harm the working force must be avoided. On the other hand passing laws that encourage Corporate growth will provide more jobs.

Third, turn Social Security over to private investment companies willing to bid on high rates of return. Investing with a return of only 6.5% would erase the deficit in 2010 for Social Security and provide growth in the fund in future years. Or allow individuals to invest their own Social Security funds.

The Social Security Trust Fund, (Old-Age and Survivors Insurance Trust Fund), is currently invested in Treasury authorized "special obligations" purchased exclusively by the trust fund. The rate of interest on special obligations is the average market yield on long-term U.S. obligations. The problem with this is that we are paying for this through the interest on the National Debt instead of private investments.

The gross Federal debt includes amounts owed to Federal trust funds, including the Social Security trust funds. New Treasury obligations cannot be issued to the trust funds if doing so would cause the debt limit to be exceeded. This limit is about to be reached, the time has come to start investing the trust fund in private investments.

The National Debt changes each day and may increase or decrease depending on securities that may come due. The debt to the penny on 7/7/2011 is $14,343,021,925,343.11. The treasury will also have to hold the debt down to the current limit of $14.294 Trillion until Congress approves a higher level of debt. They will be able to hold the debt down for a while by selling securities and moving funds around. However as pressure builds Congress will be forced to increase the limit again.

It does not take a Phd to see how big of a mess we are in. If I can look at this and see what is wrong, anyone should be able to.

Please visit my web page at: http://hubertcrowell.name/