US 'drowning in debt'

That's the lead-in to an article on ABC News today.

American political and economic leaders have sounded the alarm for years about the red ink rising in reports on the federal government's fiscal health.

But now the problem of mounting national debt is worse than it ever has been before with -- potentially dire consequences for taxpayers, according to a report by the nonpartisan Peterson-Pew Commission on Budget Reform.

"It keeps me awake at night, looking at all that red ink," said President Obama in Nashua, N.H., on Feb. 2. "Most of it is structural and we inherited it. The only way that we are going to fix it is if both parties come together and start making some tough decisions about our long-term priorities."

Obama will sign an executive order tomorrow that establishes a bipartisan National Commission on Fiscal Responsibility and Reform to make recommendations on how to reduce the country's debt.

Over the past year alone, the amount the U.S. government owes its lenders has grown to more than half the country's entire economic output, or gross domestic product.

Even more alarming, experts say, is that those figures will climb to an unprecedented 200 percent of GDP by 2038 without a dramatic shift in course.

"Within 12 years…the largest item in the federal budget will be interest payments on the national debt," said former U.S. Comptroller General David Walker. "[They are] payments for which we get nothing."

Economic forecasters say future generations of Americans could have a substantially lower standard of living than their predecessors' for the first time in the country's history if the debt is not brought under control.

Government debt, which fuels the risk of inflation, could make everyday Americans' savings worth less. Higher interest rates would make it harder for consumers and businesses to borrow. Wages would remain stagnant and fewer jobs would be created. The government's ability to cut taxes or provide a safety net would also be weakened, economists say.

While much attention has been focused on the government's deficit-spending surge during the recession, many economists agree short-term budget overruns -- as ominous as they may seem -- are not particularly problematic.

"What threatens the ship are large, known and growing structural deficits," said Walker, a problem that few politicians seem eager and readily able to fix.

In a recent ABC News poll, 87 percent of Americans said they are concerned about the federal budget deficit and national debt, and most strongly disapprove of how their political leaders are handling the situation.

But public dissatisfaction has not proven enough to compel members of Congress or current and previous Administrations to set aside their partisan differences to achieve a balanced budget.

Most Republicans don't want to raise taxes; most Democrats don't want to cut spending. The result is a stalemate on how to put America back in the black.

There's more at the link.

To coin a phrase: well, doh! It's so simple a child can work it out. If you spend money you don't have, you must borrow that money from someone else. Sooner or later, that person is going to want his money back - with interest. You are legally and morally obliged to repay it; and so your 'debt service payments' are a liability you have to live with.

Trouble is, our politicians - on both sides of the party divide, both Republican and Democrat - have tried to ignore that reality while borrowing more and more money from more and more sources to fund ever-greater Government spending. For example, the 'Social Security nest-egg' doesn't exist, because all surplus Social Security funds, year after year, have been seized by the politicians to fund their ridiculous expenditure. What's left is an IOU from the Government to Social Security that will have to be repaid out of future income.

The same applies to Treasury sales of bonds. Those bonds are bought by investors, who want their money repaid, with interest. There are now so many bonds in circulation that some investors - for example, China - are seriously concerned that the US may not be able to repay them without causing massive instability in its economy. Let's face it: if current tax income must be diverted to pay those who bought our bonds in the past, it won't be available to pay for current Government expenditure. That will have to be financed either by increased taxes, or other sources - i.e. more bond sales, more borrowing, and so on.

President Obama is an out-and-out liar when he claims to be concerned about the deficit, as noted in the article above. Under his administration, the deficit has ballooned to hitherto unheard-of proportions. It's not sufficient for him to claim that he 'inherited' the problem of budget deficits. That he could tackle by reducing them. Instead, he's more than doubled them, and shows no signs of slowing down. I seriously question both his economic acumen and his political ideology. If he genuinely believes that his latest proposed measures will do anything to reduce the deficit, or US debt overall, he's deluded to the point of ludicrousness.

Our politicians have got us into this mess, but we share the blame, because we elected them, and let them get away with it. It's up to us now, both to hold our current politicians accountable for finding solutions, and to elect replacements for them if they won't listen.

Peter