Ten point six one five trillion dollars is a pile of money I can't even imagine. Yet that is the amount of debt the U.S. Government has made legal this past week. As part of the housing bill, which was supposed to provide relief to struggling homeowners to the tune of $300 billion dollars, the national statutory debt limit was increased by 800 billion dollars. Next year, the projected deficit will be $490 billion, a record high. The actual contribution to the debt will be higher, since funding of the wars in Iraq and Afghanistan is not included in the budget (convenient, isn't it?) ([link edited for length]). The real deficit may be closer to $700 billion per year, going forward.
As of July 31, the actual current debt subject to the limit was $9.5 trillion (12 zeroes). Assuming that there are 300 million (just six zeroes) citizens in the U.S., each one of us now owes over $31,600, including the babies. That average is much higher if you divide the amount by just those who work for a living. The average amount is even greater if you consider those who have the savings to actually pay the debt, if it were demanded in full.
This past year, I've had to struggle to pay my credit cards, a car payment, and an old student loan, in addition to my hefty mortgage payment. My wife has a steady job, but mine went away in June. I landed on my feet, but at a slightly lower pay. I'm also financially responsible for four minor children (my messy personal life, oh well). If I got a bill for my “share” of the national debt, about $190,000, that would wipe out my retirement savings. In theory, I could pay it, but most Americans couldn't pay theirs.
As long as I owe money, I'm beholden to the wishes of my creditors. I don't have the security to walk away from my new job and hope for a better paying one, or have the luxury of not working. If I want to drive my truck, I need to put fuel in it. If I want to live in a warm home this winter, I have to pay the mortgage, taxes and fuel.
In all these transactions, everything that I do is affected by the belief in the value of the dollar. As long as I'm able to make the minimum payments, I can keep my car and my house. As long as I have a steady job, my employer provided healthcare can cover most of my medical emergencies. As long as I don't get falsely accused of a crime, I probably will stay out of jail, but I alone would have to pay for a lawyer to defend my innocence (which has happened in the past). Like most Americans, I sing the bastardized Snow White tune “I owe, I owe, so off to work I go.”
But apparently not the Federal Government. It borrows and spends endlessly. I resent that. During these crises, the few congressmen who asked the simple question, “how do we pay for it all?” were silenced by the overwhelming legislative battle cry “we have to do something!” What they did is make us all a little poorer.
Unlike you and me, who will get our stuff repossessed if we don't make payments, there are no repercussions for those in office, who keep on spending. On the contrary, they get reelected for “saving” homes and providing other forms of relief. They don't feel the pain of giving, so there is no point of stopping.
To go to war, Congress doesn't bother declaring it or issuing war bonds to pay for it. It just does it. You have two Senators, one of which will probably become the next president, who are ready to spend endlessly to save the polar bears by building wind mill farms in the mountains and solar cell farms across the dessert. We will probably see “free” medical care in our lifetime, because it's a great vote getter. All these schemes take money. It is money they don't have. And neither do you.
Half the national debt is financed by the government borrowing from itself. The other half comes by auctioning bonds and other debt instruments into the market. Much of these are taken by international banks and foreign governments who believe that the U.S. government has the ability to pay them back. So far, that belief system has worked. The Federal Government (meaning you and me) hasn't defaulted, yet.
In my neighborhood, I've seen the black-and-yellow “AUCTION” signs in front of houses this year. That happens when you can't pay your mortgage and the bank wants to get something, anything, for your house. It'll be too late when we see one of those signs planted firmly in front of the Capitol Building.
I exaggerate. Before the repo men start hauling away our tanks and aircraft carriers, the Treasury will try to auction more debt into the market. The Federal Reserve will ignore inflation risk, and keep the interest rates low, hoping the ghost of Keynes and memory of Arthur Laffer will save us all. Inflation will accelerate, regardless of actual capacity and rate of consumption (supply and demand), because the total supply of money used to pay for everything doesn't stop increasing. It's just that simple.Tweet