I know that this title may seem on the surface like fiscal insanity but there is much that is hidden from us by our government and/or obfuscated to the point that understanding by us lay people is nearly impossible. Here are some of my thoughts below for your consideration.
I believe that a major point of confusion, albeit the confusion is becoming less and less as the public becomes more aware, is the difference between the national deficit and the national debt. The deficit number is a result of spending more in a year than we take in. Each year’s deficit adds to the national debt. If we had a budget surplus, we could reduce the national debt. The President’s current fiscal year (FY) 2013 budget has a projected deficit of $0.9 trillion. The big buzzwords are that this deficit is not as large as the FY 2012 deficit, that we are reducing the deficit. So, said in other words, we are adding less to our debt this year than we did last year. Please note, however, that we are still adding to our debt!
Now let’s look at the debt. For some enlightenment, please check out www.usdebtclock.org. Our current national debt is over $16 trillion and counting. That means that we owe folks, like China, who are financing our debt, $16 trillion. Plus, we pay them interest for their loan. Interest payments on our debt for FY 2012 amounted to around $0.36 trillion. Interest payments on our debt are part of each year’s budget. An analogy here, as an example, is that you have an interest only loan for your car or house. You make interest payments every month but you never pay down the principal or the money originally borrowed. Our government is making interest payments on the debt but cannot pay down the principal so long as we are running budget deficits. In fact, the budget deficits add to our debt principal and increase the interest payments which increase the budget deficits so long as we can’t balance the budget. It becomes a vicious downward spiral into bankruptcy.
I think all of us at one time or another has had to quit a bad habit. The bad habit was something that we enjoyed but we knew that it was not good for us in the long term. Our government’s spending habits are bad for us long term. Please refer to some of the CBO (Congressional Budget Office) documents on this issue. http://www.cbo.gov/sites/default/files/cbofiles/attachments/FiscalRestraint_0.pdf is a good one. The basic conclusion is that we need to do something drastic to keep this country alive and well for the years to come. We are currently the proud possessors of a dysfunctional congress on whom we are currently relying to get us out of this mess. If history is any indicator, our chances of congress helping us out of this mess through new legislation by the first of 2013, which is a requirement of the “Fiscal Cliff” legislation in order for us not to go over the “Fiscal Cliff”, are slim and none.
So, I have a proposal for congress. Please do that which you do so well and that is NOTHING. Going over the Fiscal Cliff is strong medicine but it will set us on a better course for future budget considerations. Even if we go over the “Fiscal Cliff”, the anticipated budget deficit for 2013 is reduced from $0.9 trillion to $0.56 trillion. There will still be a budget deficit adding to our debt—even with this strong medicine!! CBO data shows, at least to this novice reader, that even going over the “Fiscal Cliff” will require decades of prudent budget management to get our national debt under control. Not going over the “Fiscal Cliff” appears to me to be an even scarier ride.