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The Economy

I’ve warned you before that I’m really, really not an economist. However, the absolutely horrible condition of our nation’s economy force me to pay attention to it. Indeed, the Prez has said that military pay and veterans benefits may well be cut if he doesn’t get a budget deal that he likes.

Here’s a quick summary some key issues from a very liberal newspaper, the Washington Post.
• We owe $14T in national debt.
• The biggest hunk – $5.7T (40%) – is owed to itself, money borrowed from the Medicare and Social Security trust funds to pay for current expenses.
• Foreign investors, hold $4.4T (19%). Of this China and Japan hold about half.
• In August the government is expected to take in $171B in revenue but owe $135B. Much of that is Social Security.
• Last year the government took in $7000 in revenue for every person in our nation. It then spent more than $11 thou per person. This $4000 deficit per person is covered by borrowing money. The $14T national debt works out to be $46,000 per person.

Having debt isn’t necessarily bad. Borrowing to finance long term improvements makes sense; I’ve done it each time I bought a house—occasionally when I bought a car. Borrowing just to meet day to day expenses makes zero sense.

A strong economy helps lot. A rise in interest rates hurts a lot. Every point rise in interest rates increases the annual debt service cost by $140B.

To balance our budget we need to fill a $4T gap. The current budget debate is not really about how to fill that gap. It’s truly about the calendar. Obama & Co want a single big deal now that will, in effect, take the deficit argument off the table for the coming election and give the Prez a big plus on the presidential scorecard. The Republicans want a smaller deal now and a series of subsequent deals. Obama holds the big chip: he can just veto any extension of the “Bush tax cuts” scheduled to expire in 2012. Will anything ever get better?—not if we Americans stay passive.

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Further reading

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