The US economy is forecast, according to US Debt Clock, to be over $15 Trillion dollars for 2012. We have been running Trillion dollar deficits, that is new debt for the last 4 years. So as you can see, almost one third of our GDP has been borrowed over the last 4 years. Our debt as a nation is over $16 Trillion, or more than we produce in a year. Of course, long term debt can some times exceed yearly income. In our personal lives, we may buy a house with borrowed money. To use myself as an example, we bought a house in 2005 for $200,000. My income is no where near that. The result is a mortgage, so in 2005, I spent more than my income, however since that time I have paid the morgage, not refinanced the debt.
While it is not necessarily a bad thing to spend more than your income, you still need to be sensible. You need to have a way to pay back the loan. In government's economy, they have tax revenues. But they haven't stayed within their means for many years. It would be like my family buying another house every year. It is unsustainable. Don't take my word for it, ask the Greeks, or the Italians, or the Spaniards.
During the campaign season, both candidates say "I have a plan". But what is that plan? Do you know? The Desmoines Register interviewed President Obama, and here is a quote from that transcript:
"Q: Great. Mr. President, we know that John Boehner and the House Republicans have not been easy to work with, and certainly you’ve had some obstacles in the Senate, even though it’s been controlled by the Democrats. At the time, whenever -- we talked a lot about, in 2008, hope and change. I’m curious about what you see your role is in terms of changing the tone and the perception that Washington is broken. But particularly, sir, if you were granted a second term, how do you implode this partisan gridlock that has gripped Washington and Congress and basically our entire political structure right now?
THE PRESIDENT: Well, Rick, let me answer you short term and long term. In the short term, the good news is that there’s going to be a forcing mechanism to deal with what is the central ideological argument in Washington right now, and that is: How much government do we have and how do we pay for it?
So when you combine the Bush tax cuts expiring, the sequester in place, the commitment of both myself and my opponent -- at least Governor Romney claims that he wants to reduce the deficit -- but we’re going to be in a position where I believe in the first six months we are going to solve that big piece of business.
It will probably be messy. It won’t be pleasant."*Desmoines Register
Let's look at the answer. "So when you combine the Bush tax cuts expiring, the sequester in place... I believe in the first six months we are going to solve that big piece of business." Hmm, seems that as tax payers, if the president is re-elected we can expect a huge tax hike, almost a half trillion dollars. And, the sequester calls for 1.2 Trillion dollars in automatic budget cuts, with defense getting hit with almost half that figure. Let's face it, we can not cut interest expense. There are certain things we also can do little about, like Social Security and Medicare, contrary to the political commercials I've seen. So where on Earth do we find the other cuts? Are you ready to give up your mortgage deduction? Health and Human Services, Housing and Urban Development and the Justice Department will all be slashed. It's nice that we hear we need more teachers, and police, but the reality is we will lose them with this plan.
When you add the Bush Era Tax Cuts (and I really don't like that title) and the Sequester, there will be just under $2 Trillion dollars ripped from the private sector. Or about 1/7 th of our national income (GDP). In the weak economy that we are enduring today, that would be devastating, not merely messy and unpleasant. At the same time, if you are a regular reader, medium income is down by $4,000 and health care costs are up by almost $3,000, and gas prices have doubled. And the rhetoric of tax the rich is not a solution. If you confiscate all their assets it would not run the government for one year, in fact much less. After that they would be broke, guess who's next?
Before we can heal this economy two things need to happen. First, Congress needs to receive a physcological examination, as to why they think they have no bottom to the pile of money coming in to Washington. And second, the President needs to accept that you can not grow an economy by taxing money away from the people. However, by growing the economy the pie will get larger. The excess in revenue collections should be pledged to paying down debt, not some ear mark or attempted vote buying scheme hatched by Washington insiders.
From 1981 until 2000 the economy was relatively good, few ups and downs, but overall good. Why during that time was the debt not paid? Why do we find ourselves over $50,000 in debt per person? Why haven't our politicians been better managers of the money sent to them in taxes? Let's hope that it is not too late for US to change our ways!
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