The truth about US government debt and over-expenditure

Zero Hedge puts it in dire perspective.

At the current rate of debt increase the U.S. will pushing 130% of debt to real GDP by 2018.  This is, of course, not including the funding needs that will ultimately be required to support the increased costs of the entitlement programs of Social Security, Medicare and now the Affordable Care Act (ACA).  The reality is that debt needs will substantially increase as entitlement programs continue to consume ever larger chunks of the current budget.  By 2020 the current welfare programs alone are expected to require 75% of all federal revenues and this does not include the impact of the ACA.  This, of course, is unsustainable.

The next chart shows the current increases in Federal Debt and Real GDP beginning in 2008 and estimated through the end of 2013.

Government spending has long been believed to have a multiplier effect in the economy.  However, as the chart above shows, the reality is quite shocking.  Each dollar in debt only increased GDP by roughly $0.15.   In other words each $1 in government spending actually has a negative multiplier effect of 85% in the real economy. 

The point here is that the leaders in Washington need to start focusing on the real issues at hand.  While we toss around $100 billion here and there, as if it is left pocket change, the reality is that the rising debt levels will continue to drag on economic growth going forward.  Furthermore, the current social welfare programs continue to become increasingly more unsustainable over time as unfunded liabilities continue to amass.  Lastly, the onset of the ACA is not only going to dramatically increase real taxes on the economy, which will further detract from economic growth, but will ultimately compound itself into an additional entitlement liability that will consume ever more of a dwindling pool of tax payer dollars.

There's more at the link.  Bold, underlined print is my emphasis.

That's about the size of it.  Every dollar of borrowed money the government spends produces only 15c of economic growth - in other words, we're wasting or losing 85c in every dollar of the new debt incurred every day by the federal government.  Furthermore, the ever-growing debt is an albatross around the neck of the economy.  It'll have to be paid for out of future earnings - but those earnings are already too small to pay off our existing debt.  What do you think the government proposes to do about the new debt it continues to incur?  You and I know it'll never be repaid.  It's not possible.  It can't be repaid.  (If you doubt that, see what Karl Denninger had to say on Thursday.)

We're riding for a fall - and a bad one.  When we'll be able to get up from it, who knows?  All we can say for certain is that the United States, and the world, will be a very different place after the crash than it is now . . . almost certainly worse, and probably much worse.

Peter