Once again, Congress and the White House are at odds. Their fight over spending has carried over into a decision about raising the debt ceiling. If they don’t agree to put the nation in more debt by early November, then the U.S. risks missing essential payments such as interest on our bonds.
The entire episode is a wasted opportunity.
They’re focused on what to spend, when that’s already been decided.
They should be talking about how much we spend, which is what the national debt is all about.
Congress consistently votes to spend more than the government receives in taxes and fees. So, the country issues more debt every year to keep the government running.
This seems pretty basic – if you spend more than your income, the extra funds must come from somewhere. If you don’t have savings, then debt is the logical answer.
The problem is that the vote on borrowing more money is separate from the vote on how much to spend. So even though Congress passes a budget – or at least a continued spending bill – it doesn’t necessarily agree on more debt at the same time.
This mismatch of what to spend versus what to borrow leads to situations like we have today. Congress already committed to the cost of operations, but now some members are delaying the actual process of spending.
The absurd part is that the congressmen opposed to raising the debt ceiling aren’t complaining about the amount of debt we have. They’re arguing about where the funds should go.
I don’t have a problem with lawmakers raising a stink over how the government spends money. That’s part of their job.
But that fight belongs in the budget negotiations. Maybe if they spent more time on developing an actual budget – where income and spending are equal – then we wouldn’t have to worry about the debt ceiling, but that’s not the case today.
The conversation about raising the debt limit should be a foregone conclusion. They’ve already agreed to spend the money.
It does, however, give us a chance to examine a festering problem that we’ve all grown accustomed to overlooking.
The U.S. government is hopelessly insolvent.
The fiscal year just ended on September 30. For the year, the U.S. budget deficit dropped by $44 billion to a mere $439 billion. Some members of Congress and the administration are crowing about how small the deficit has become, which now represents only 2.5% of GDP.
That’s the wrong way to look at it.
While the latest shortfall is a lot less than the $1 trillion-plus deficits of 2009 and 2010, it still means we’re borrowing roughly half a trillion dollars a year to keep up our spending habit.
And since the government doesn’t collect total GDP in taxes, looking at the deficit as a percentage of GDP misses the point. The government collected $3.249 trillion last year and spent $3.688 trillion.
The deficit was 13.5% the government’s income. That’s completely different from GDP, and the more appropriate perspective.
The cumulative U.S. debt stands at $18.4 trillion, more than 560% of what the government collected in taxes and fees last year. Chunks of this are held in inter-governmental holdings and at the Fed, but the point remains that we’ve borrowed wildly more than we take in.
The forecast of future deficits isn’t encouraging. The Congressional Budget Office (CBO) estimates we will hit $20 trillion in debt in two years, and $25 trillion in less than 10 years.
Of course, the CBO forecasts that GDP will grow by more than 4% next year, and then average 4% in the years that follow. We’re skeptical. If economic growth falls short, then so will tax receipts, which could push the deficits, and debt, even higher.
How much debt is too much? When is the debt burden too high? More debt ultimately means higher interest rates to repay the debt, which would cause the currency to fall, thereby forcing down our standard of living.
So far that hasn’t happened. In the next several years, we don’t think this will occur, but only because the U.S. will be stronger than its monetary rivals. After that, who knows?
We shouldn’t wait to find out the consequences. We should use this time of low interest rates and seemingly endless funds chasing U.S. Treasurys to tame our spending habits. That way, when the bill finally comes due, we’ll at least have a head start on cutting what we owe.
But I don’t expect that to happen. Instead, during the current battle over the debt ceiling, we’ll get endless debates over where the money goes, without so much as a mention of how much we owe. It will be another in a long list of opportunities squandered.
Follow me on Twitter @RJHSDent
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