Silver Lining on a Very Black Cloud
Nobody cares who told the most or biggest whoppers in Wednesday’s first presidential debate. Nobody cares which candidate won or lost. Most ordinary folks have already forgotten it.
Collectively, voters only care about jobs and the economy. Everything else candidates say is just noise.
Here is something real affecting job creation. Excessive Federal spending has reached crisis proportions. It’s benefits for stimulating economic growth are being stunted by a massive debt that will hang like an economic millstone around our descendent’s necks for generations to come.
The Federal budget year ended on September 30th. Budget year 2013 has just begun.
Now is a proper time to take stock of federal spending in fiscal year 2012 and contemplate its meaning.
Forget About Budget Deficits
Ignore the deficit. It doesn’t make much sense to talk about a budget deficit, anyway, when there wasn’t an official budget in the first place.
But more important than that, when cornered, Washington politicians limit talk to the budget deficit. They do so because the deficit doesn’t include interest payments made to service the national debt.
That is akin to you and I planning our yearly budget without including mortgage interest costs.
National debt interest payments have evolved into a BIG yearly expenditure.
2012 Interest Paid on the National Debt
Last fiscal year, the federal government spent $343,095,816,634.42 in interest costs to service the national debt. That is about 15% of total revenues taken in during 2012.
That is more than the amount spent on all these government departments… COMBINED!
- Department of Homeland Security
- Social Security Administration
- Department of Energy
- Department of Transportation
- Department of Justice
- Department of Agriculture
- Department of Labor
- Department of Commerce
- Department of the Treasury
- Department of the Interior
- Army Corps of Engineers
- Department of Housing and Urban Development (HUD)
- National Aeronautics and Space Administration (NASA)
- Environmental Protection Agency (EPA)
- National Science Foundation
- Small Business Administration
Think of how much more government could do to stimulate economic growth without that cost!
Here is the shocking news… this is the silver lining on the black cloud that is federal debt!!
Contrary to common belief, we are not borrowing more money from China to finance government anymore. China sold off -$165 billion of its $1.3 trillion holdings of U.S. debt last year.
Smart countries with stronger economies – like China, Germany and Sweden – can see the writing on the wall. They are getting rid of their U.S. debt holdings.
Countries in serious economic turmoil, on the other hand, are buying up U.S. debt like its candy. They are desperate. Buying U.S. debt hedges against their own depressed economies.Those countries include Japan, France, Spain, Italy and Ireland.
Japan bought +$232 billion in U.S. debt last year, increasing its holdings to $1.1 trillion. Japan is on the doorstep of replacing China as the United States’ largest creditor nation.
$343 billion spent on national debt interest last year was a bargain. It is only 2.1% interest paid on the entire $16 trillion debt. That is about the rate of inflation.
In essence, the federal government held our enormous debt and it didn’t cost taxpayers hardly anything. Mortgage holders would kill for an interest rate that low.
However, in fiscal year 2011, interest paid on the national debt was a whopping $454 billion. 2012’s interest cost was the lowest paid by the government since 2004! Back then the national debt was ‘only’ $7.4 trillion, less than half it is now.
The last three fiscal years, under Obama, the USA has averaged $1.1 trillion/year in debt growth. The CBO forecasts trillion dollar debt growth for as far as the eye can see.
Exceptionally low interest costs, due to a depressed economy, has masked a ticking, slow-motion thermonuclear debt bomb.
Ironically, as the economy sparks back to life, modest inflation will return. It will set off the debt bomb.
Soon enough, if ignored, interest paid on the national debt will exceed the total cost of ALL federal departments combined.