2012 Debt Crosses $Trillion$ Barrier

On November 1st, the U.S. national debt again smashed the $1 trillion debt growth barrier for the 4th consecutive calendar year. The national debt will grow between $1.1 and $1.2 trillion this year, slightly less than in the previous three years.

Congress is debating what to do about debt growth while speeding toward the fiscal cliff.  At this critical juncture it is important to review how we got here and what it means.

The Debt Trap

As of 11/19/2012 the national debt stood at: $16,281,329,916,599.63

It has grown $1.058 trillion so far this year. That is debt growth at a clip of $3.2 billion/day compared to $3.3 billion/day in 2011.

The federal government takes in revenues of around $2.5 trillion/yr. About 40¢ of every dollar spent by the feds is on credit. U.S. sovereign debt has ballooned to 72% of GDP, up 19% in just 4 years.

There are perfectly good reasons why the federal government is spending more than it takes in:

  • The Great Recession has reduced government income
  • Increased government spending is needed to fight the Great Recession
  • Increased spending is needed to help low-income Americans weather the Great Recession storm
  • Spending is needed for national security

During emergencies it is necessary for governments to spend more than they make.

Though necessary, every sane person realizes that unfunded spending cannot go on indefinitely. Once your debt gets too high then you have to stop spending and get it back under control. Ignore debt, as we have, and you do not have the luxury to pick and chose when that time comes.

A year and a half ago the federal government attempted to partially fix it’s long term debt problem by passing legislation for $1.2 trillion in spending cuts over 10 years.

Those spending cuts finally begin in January. In political doublespeak they are called “sequestration”. It is $100+ billion/yr in spending cuts set to start in 2013.

Now, Congress needs to back off that commitment in order to promote economic recovery and create jobs. That is a worthy short-term goal.

The problem with it is short-term economic relief is being exchanged for long-term unsustainable debt growth. We are caught in the debt trap.

How’d we get here?

Among the main reasons the U.S. federal government has fallen into the debt trap:

  • The Great Recession
  • Unfunded entitlement spending
  • Fiscal irresponsibility
  • Ignoring debt interest costs

You don’t acquire $16.2 trillion in debt, 6.5 times more than you take in a year, by making the right decisions. You do it by ignoring reality.

More than 1/3rd of that debt, $5.6 trillion, has been added just since President Obama assumed office less than 4 years ago.

The Impact of Debt

According to the U.S. Treasury, the federal government has spent $8.5 trillion in interest alone on the national debt since 1988. Yup… that’s right… $8.5 trillion!

That is half the total growth of the national debt.

That is 3 times the entire Social Security and Medicare trust funds combined. Think of all the good that money could have done to make those programs sustainable. Instead it was frittered away.

Conclusions

Now Congress stands 42 days away from the fiscal cliff… taking yet another vacation. At stake is short-term economic prosperity and job creation vs. long-term unsustainable debt growth.

The good news is that if we fall off the fiscal cliff then debt growth will be reduced considerably. The bad news is that if we go over the cliff, it will throw the economy back into a tailspin, killing the recovery and worsening debt in the long-term.

And therein lies the dilemma facing the United States.

Years of self-inflicted fiscal neglect puts Congress within a crushing vise grip. Now it is forced to make tough choices on how to deal with both issues simultaneously. That is not easy.

It is even harder when politics appears to be the only priority of the President and the Congress.

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About azleader

Learning to see life more clearly... one image at a time!

Posted on Nov 21, 2012, in Debt, economics, fiscal cliff, Life, news, Opinion, Politics, Taxes, Thoughts. Bookmark the permalink. Leave a comment.

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