In Fiscal Year 2007, the U.S. federal government’s revenue was $2.57 trillion, but it spent $2.73 trillion.\u00a0 This means that the federal government had to go into a debt of $160 billion just for 2007.\u00a0 Now, spending more than taking in is not a new phenomenon with our federal government, this has been going on for many, many years.\u00a0 If we look at the Gross Federal Debt (or National Debt), we see that except for a few minor exceptions, it has continued to grow every year since 1940.[1]<\/a>\u00a0 The exception years were 1947, 1948, 1951, 1956, 1957, and 1969.\u00a0<\/p>\n Taking on more debt every year is not necessarily a problem if the U.S.’s economy is growing faster than the rate of rise of the debt, because a rapidly growing economy can absorb or pay back the debt as long as the debt is not growing too fast.\u00a0 Therefore, a better measure is the Gross Federal Debt as a percentage of the Gross Domestic Product (GDP).\u00a0 Indeed, the problem is not necessarily that bad.\u00a0 Since 1940, there were 35 years (about half of the time) in which the ratio of (Debt\/GDP) actually decreased.\u00a0 Unfortunately, most of those years occurred before 1980.\u00a0 As a matter of fact, only six of those 35 years occurred since 1980.\u00a0 They were 1981, 1997, 1998, 1999, 2000, and 2001.\u00a0 There was none after 2001.\u00a0 The ratio (Debt\/GDP) reached a low of 32.6% in 1981, and gradually rose to about 65-70% in recent years.<\/p>\n <\/p>\n How significant are these numbers?\u00a0 In absolute terms, the U.S. government’s National Debt today is around $9.3 trillion.\u00a0 With a population of about 304 million, each person’s share is about $30,600!\u00a0 The National Debt is increasing an average of $1.46 billion per day since September 29, 2006!\u00a0 In Fiscal Year 2007, the federal government spent $2.73 trillion.\u00a0 More than 52% (or $1.427 trillion) of this spending was for mandatory spending, primarily Social Security, Medicare, and Medicaid payments.\u00a0 Almost nine percent (or $238 billion) of this spending was to pay for the interest associated with the National Debt!\u00a0 This means that only about 39% (or $1.065 trillion) remained for discretionary spending.\u00a0 Of this $1.065 trillion of discretionary spending, about 53.5% (or $570 billion) was directed to defense spending.\u00a0 That left only $495 billion for non-defense discretionary spending.\u00a0 This means that our interest payment of $238 billion was almost half of the total federal government’s non-defense discretionary spending!<\/p>\n If the above trend (rising debt and huge defense spending) continues, there surely will not be enough to fund all the necessary domestic programs.\u00a0 Before we continue to discuss the implications of this rising huge National Debt on America’s future, I want to sidetrack and point out that a similar situation is also occurring with many state governments.\u00a0 In March 2008, the Asbury Park Press (APP) ran a series of four weekly articles on the New Jersey state government spending.\u00a0 The APP pointed out that the state debt increased from $13 Billion in 1997 to $38 billion in 2007.\u00a0 The debt as a percentage of personal income doubled in 10 years, from 3.8% in 1997 to 7.6% in 2007.\u00a0 Compounding the problem was two additional major unfunded or under-funded obligations.\u00a0 From fiscal 1997 to 2005, no state money was put into the state’s Public Employees’ Retirement System, and from fiscal 2000 through 2005, no state money were provided to the Teachers’ Pension and Annuity Fund, which is the second-largest pension system in NJ.\u00a0 This means that when more and more public employees and teachers retire, more and more money will be needed from the state budget to pay for these under-funded obligations, and therefore less and less money will be available to pay for all the other needed state programs. \u00a0Taking these two under-funded programs into account, the APP estimated that the long-term obligations of NJ is about $121 billion, or more than three times larger than the state debt of $38 billion as of 2007!<\/p>\n How did this happen and how could this happen? \u00a0Politicians are notoriously short-sighted.\u00a0 They are short-sighted not because they cannot see the long-term consequences, but because it is good near-term politics.\u00a0 Politicians prefer to take the easy way out and protect or enhance their near-term political positions by over-promising or over-giving.\u00a0 For over a decade, NJ’s government from both sides of the political aisle has borrowed money to boost pensions, pay for tax cuts, and in at least one instance, balance the state budget, all without asking voters to pay higher taxes.\u00a0 One could also argue that President Bush’s tax rebate in 2008 is also an action to gain near-term political advantage for his party, but has long-term adverse consequences since it just adds to the debt of the federal government.\u00a0 That was why Mayor Bloomberg of New York criticized this action with the remark “that is like giving an alcoholic another drink.”<\/p>\n We will now return to discuss the economic implications for America’s future from the huge and rising National Debt of the federal government (actually most of the implications are also applicable for the state government).\u00a0 There are at least four major economic implications.<\/p>\n \tThe problem of rising National Debt is compounded when the federal government creates programs that are under-funded and sometimes even worse when they are unfunded.\u00a0 In the discussion of the NJ government, we already mentioned some NJ state programs in this category.\u00a0 For the federal government, I think the War in Iraq can be considered to be such an example, in the sense that money to support the war is taken from money to support other foreign and domestic programs.<\/li>\n \tAn analogy is that if A borrows money from B.\u00a0 At first B is willing to lend the money to A because A owns a house, one or more cars, furniture and appliances in the house, some money or equity investments, and perhaps even a business, i.e., A has collaterals that B can take if A forfeits the loan.\u00a0 If A borrows more and more money from B, after a while, when the amount of money owed is larger than A’s collaterals, then B will not want to continue lending money to A.\u00a0 <\/p>\n \tIn the case of federal governments, another way of saying this is that the U.S. is just printing more and more paper money when it issues more and more IOUs.\u00a0 When the U.S. economy is strong and there are enough collaterals to back up the loans, the paper money is worth its face value.\u00a0 When there are no longer sufficient collaterals to back up the paper money, the U.S. dollar will be devaluated.\u00a0 This is because if our collaterals are only worth x dollar bills, and now we have 2x dollar bills because we printed more dollar bills, then each dollar now is equivalent in worth to the previous 50 cents.\u00a0 The consequence is that lenders will not be willing to lend the U.S. more money, unless the interest rate is very large.<\/li>\n The just discussed adverse economic impacts on the U.S. will of course have adverse political and social impacts.\u00a0 America as a political power will diminish.\u00a0 Many domestic programs will have to be curtailed or eliminated, leading to public dissatisfaction and social unrest.\u00a0 There may be a brain drain to more prosperous foreign countries, resulting in a further deterioration of America’s creativity, productivity, and competitiveness.<\/p>\n This is not such a far-fetched scenario.\/span>\u00a0 As a matter of fact, one could say that the handwriting is already on the wall.\u00a0 To overcome this decline of America as an economic and political power, the mind set of the American political leaders and its citizens must make significant changes and sacrifices.\u00a0 We must responsibly manage our budgets.\u00a0 We must not ignore the long-term consequences and mortgage our future by taking actions that result in only short-term political advantages.[2]<\/a>\u00a0 We must be courageous to be willing to make the tough and perhaps even unpopular decisions.\u00a0 We must get rid of corruption and political patronages.\u00a0 Our political and business leaders must not allow big businesses and their executives from getting filthy rich on the backs of the ordinary workers.\u00a0 Our labor union leaders must not make unreasonable demands that could bring down the whole company or industry.\u00a0 We must figure out ways to increase our competitive productivity and decrease our trade deficits.\u00a0 In increasing our competitive productivity, it is not sufficient to increase it only on the creative phase, but also on the product development or manufacturing phase.\u00a0 WWe must pay more attention to “we-ism” and less attention to “me-ism.”<\/p>\n For many years our government (both federal and state) has been spending beyond its means.\/span>\u00a0 The debt that is being accumulated is getting too large and increasing at a rate faster than the growth of our GDP.\u00a0 We are already at a point where almost half of our non-defense discretionary spending is spent on paying interest on our National Debt.\u00a0 If such a trend continues, our debt will increase to an unmanageable level, our financial credit will decrease leading to higher interest rate for our loans, our U.S. dollar will get devaluated, resulting in a vicious cycle and ultimately no one being willing to lend us any more money and countries dumping the U.S. dollar.\u00a0 This will lead to dire economic, political, and social consequences for our country as a whole.&\u00a0<\/p>\n Americans are smart and hard-working people.\/span>\u00a0 We must attack the problems at their roots, and not try to divert people’s attention by creating scapegoats, or take actions that result in only short-term gains, while mortgaging our future.\u00a0 WWe must act courageously and unselfishly, and we must act quickly.<\/p>\n I am not an economist, and I am not an expert on the subject of this article.\/span>\u00a0 If the explanation can be made clearer or if there are inaccuracies in this article, I would appreciate getting that feedback.<\/p>\n [1]<\/a> \u00a0“Historical Tables of Budget of the United States Government \u2013 Fiscal Year 2006,” from the Office of Management and Budget.<\/p>\n [2]<\/a> \u00a0For a discussion of a slightly different nature of the need for long-term focus, see the article “Need for the Establishment of a Center for Future Studies”<\/a> in the “Archived-P\/S Commentary” page of this website.<\/p>\n","protected":false},"excerpt":{"rendered":" Some Statistics Regarding Government Spending In Fiscal Year 2007, the U.S. federal government’s revenue was $2.57 trillion, but it spent $2.73 trillion.\u00a0 This means that the federal government had to go into a debt of $160 billion just for 2007.\u00a0 Now, spending more than taking in is not a new phenomenon with our federal government, […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false}}},"categories":[6],"tags":[],"jetpack_publicize_connections":[],"jetpack_sharing_enabled":true,"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/www.dontow.com\/wp-json\/wp\/v2\/posts\/229"}],"collection":[{"href":"https:\/\/www.dontow.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.dontow.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.dontow.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.dontow.com\/wp-json\/wp\/v2\/comments?post=229"}],"version-history":[{"count":5,"href":"https:\/\/www.dontow.com\/wp-json\/wp\/v2\/posts\/229\/revisions"}],"predecessor-version":[{"id":1994,"href":"https:\/\/www.dontow.com\/wp-json\/wp\/v2\/posts\/229\/revisions\/1994"}],"wp:attachment":[{"href":"https:\/\/www.dontow.com\/wp-json\/wp\/v2\/media?parent=229"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.dontow.com\/wp-json\/wp\/v2\/categories?post=229"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.dontow.com\/wp-json\/wp\/v2\/tags?post=229"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Implications for America’s Future<\/h3>\n
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Additional Comments<\/h3>\n
Summary<\/h3>\n
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