National debt crisis

To put the burden of the national debt into perspective, the U.S. put $38 billion toward paying the interest on our national debt in September, the most recent month for which data is available, not even the cost of running the government. That’s more than 15% of individual income tax dollars generated that month. The hope that the debt will magically fall is nil.

The rising debt has real implications. About 10 years ago, Standard & Poor’s (S&P) had the temerity to reduce the bond rating of the United States, outrageously stating that the risk of debt goes up as the amount of debt increases. The idea is that the risk increases as an entity keeps borrowing and never pays the money back. As I recall, one politician had the gall to question the patriotism of S&P for doing so. I suppose it’s patriotic to keep spending us into a mountain of debt without any heed to physics. Last year, Fitch Ratings lowered our debt rating from AAA to AA+. I’d say the teacher is actually lenient in his/her grading policy.

Think of a business or even a person. If a business takes in $1 million in revenue and spends $2 million each year forever, who would continue to lend money to that business? Would you? If a person is making $100,000 a year and is spending $120,000 a year in perpetuity, what is the result? Bankruptcy. This is not just basic economics, it’s common sense.

At some point, people will stop lending us money; they will stop buying our debt, and we will have no means to pay back what we owe. This is where it gets interesting. Some PhDs who live in the abstract world of spreadsheets and models say we don’t have to worry about our debt because the dollar is the basis for currency and exchange in the world. Others say the debt needs to be measured only as compared to GDP. These ideas argue against a phenomenon as simple as gravity: an entity that keeps borrowing and never reduces its debt cannot survive.

Cutting expenses

The solution is not complicated. We need to cut our expenses. I don’t know about you, but I would not lend money to someone unless they proved they had a modicum of fiscal restraint. As anyone with a budget knows, it is difficult to reduce expenses. It takes discipline.

And I do mean lower expenses. Politicians have a funny definition of “cutting expenses.” If you were spending $100 a year in household expenses, and I asked you to cut them, you might think I meant to reduce expenses to, say, $99 or less. In Washington, their definition is a reduction in the rate of increase. Using the previous example, this means that if you were spending $100 a year (and could not afford that) and you planned on spending $105 next year, and you agree to only spend $104, this is a cut of $1. Using logic like that, it is no wonder we are virtually bankrupt. Only in Washington does math like that get applied.

Cutting expenses is almost impossible to do in Washington D.C. with our current crop of legislators because it would require the unthinkable—telling lobbyists and constituents “no” once in a while. The formation of this department is a step in the right direction. The country must get its fiscal house in order because it’s a matter of time before someone says rightly that the emperor has no clothes and has been naked for a long time. If people stop lending us money, it would be catastrophic.

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