|
|
|
 |
"I place economy among the
first and most important virtues, and public
debt as the greatest of dangers. To preserve our
independence, we must not let our rulers load us
with perpetual debt." Thomas Jefferson
Our great nation has a credit card which I call
“Credit Card USA”. It currently has a balance of
nearly $12,000,000,000,000. In 10 years it will
be $20 TRILLION.
The single greatest challenge
to this great nation is to repair our
government’s financial situation. It is
dangerous to assume that because we have made it
through past problems, that this one will pass
without any action by our leaders.
Congress is ultimately responsible for the
budget, both spending and revenues. The
President has influence by virtue of his ability
to sign a bill or to veto it which would
required both houses of Congress to pass it with
a 2/3s majority. But all bills are written by
our Representatives and Senators, hence, to
borrow the words of a great Democrat, Harry
Truman, the “Buck Stops Here”, e.g. in the hands
of our elected Representatives.
And they
have failed.
Let’s talk about some basic
math from our grade school days:
DEFICIT
= REVENUES - SPENDING
If the government
spends more than it collects, there is a
DEFICIT. The DEFICIT is added to the CURRENT
DEBT each year. We have to pay interest on that
DEBT. Very simple, very basic and apparently not
understood by our Congressmen in Washington DC.
CURRENT
DEBT ESTIMATE: $12,000,000,000,000 (12 trillion
dollars)
AVERAGE INTEREST ON DEBT: 3.3%
2008 INTEREST ON DEBT: $383,000,000,000 (0.4
trillion dollars)
BY 2018
2018 DEBT
ESTIMATE: $20,000,000,000,000 (20 trillion
dollars)
PROJECTED INTEREST ON DEBT: 6.0 %
2018 INTEREST ON DEBT: $1,200,000,000,000 (1.2
trillion dollars)
In all fairness, the
estimate of 6.0% average interest in 2018 is one
of many estimates, and the estimates vary
widely. But no economist that I have met
believes that it will be anywhere near our
current 3.3% average rate that we pay today. And
some economists are concerned that inflation
could get totally out of control with our
deficits, which makes these estimates
conservative. Why?
 With our government
borrowing so much money from the credit markets,
companies borrowing to expand their business
(hopefully this will happen), and the economy
only expanding slowly, it is inevitable that at
some point there will be competition for the
available money. This is basic supply – demand,
if the demand rises faster than the supply
available, the cost rises.
Foreign nations
have been financing our debt. They, especially
China, are becoming increasingly reluctant to
continue the financing since they understand
that if the debt grows faster than the economy,
eventually the house of cards falls. If foreign
nations stop buying US Government bonds and
debt, the supply of money to support the debt
drops, and the supply – demand equation kicks
in, hence interest rates rise.
Our balance
of trade continues to be a problem, annually we
import over $2/3 trillion more than we export.
More than half of that is oil (see the energy
section). This is draining money out of the
economy. Again supply – demand becomes a factor.
In addition, jobs are “exported” from America to
overseas.
WHAT DOES THIS REALLY MEAN TO
ME?
By 2018, at least 80% of the
government’s revenues will be used to pay
interest, social security and medical programs.
What remains for Defense? Homeland Security?
Agriculture? FBI? Roads? Parks? Research? Arts?
Etc...
WHAT DO WE DO ABOUT IT?
Decide what exactly do we want our federal
government doing. If they should not be doing
it, ELIMINATE the department!!
Consolidate
departments and reduce the “footprint” of the
government. For example, consolidate the
Departments of Energy, Agriculture and
Transportation into the Department of Commerce.
Consider consolidating the VA into the
Department of Defense to lead to join use of
military hospitals and facilities.
Identify, fund and implement cost effective
technologies to reduce costs and improve
service.
Bring in and empower professional
business people to examine every department to
eliminate waste and excess federal employees.
The average federal employee costs us about
$120,000 per year (per the Bureau of Economic
Analysis). We have 4.2 million federal
employees, of which less than 1.5 million are in
the uniformed (military) services. That is 2.7
million bureaucrats. For every 1% of the
civilian positions eliminated, $3.2 billion a
year can be saved. The goal should initially be
to reduce the federal bureaucracy by 10%, or $32
billion of annual savings.
The Bureau of
Economic Analysis estimates that federal
bureaucrats are paid almost double what private
industry pays when benefits are included. Their
average benefits are four times the average
private industry benefit package, most of it in
pensions. We need to bring the benefit costs
into line with what most of the rest of us
receive. If we reduced the average annual
benefit cost from $41,000 per employee to
$20,000, still about double the average of what
private industry pays, we could reduce spending
by another $46 billion annually.
Federal
employee pay raises averaged 51% from 2000-2009
while inflation was 24% and civilian average pay
was up 30% during the same period. While I have
great respect for our government employees, this
is ridiculous. Freeze the pay increases for two
years, then reduce the pay raises to 1% under
inflation for 3 years and by 2015, the savings
will be $19 billion per year, yet they will
still be paid well over what their private
enterprise counterparts are receiving.
The
military services need to be tailored to do the
job needed. After WWII, Truman asked his Chief
of Staff George Marshall “How large does the
Army have to be?” Marshall said “Mr. President,
you tell what you want to do with the Army, and
I will tell you how big it needs to be.” Good
advice, doing it that way could save tens of
billions of dollars.
Restructure military
pensions to focus on those who are in line units
where long hours, extended training periods and
difficult conditions prevail, as well as those
who are deployed to combat zones. Military
personnel in these positions should be rewarded
for the risks and their more arduous duties than
those with less challenging positions where the
“wear and tear” of combat risk and long training
hours are not considerable.
Governmental
departments continually demand more of YOUR
MONEY. If spending increases faster than the
economy grows, either higher taxes or
unmanageable deficits result.
NOTE: There
are two debt levels reported, the $12 trillion
debt is projected for the end of 2009 and
includes all debt for the US Government General
Fund.
However, Social Security and Medicare
have $2.5 trillion and $4.3 trillion of
surpluses respectively.
What does this
mean? The Social Security and Medicare trust
funds collect revenues through payroll taxes
that are saved for the future so that they are
available when you receive them in your later
years.
Since the era of President Johnson
when he needed money to fund his Great Society,
but he did not want to pay for it with tax
increases, these surpluses have been used by our
government to mask the full amount of the
deficit. The government “borrows” this money
each year and writes an IOU to the two trust
funds and pays interest, although at a low
interest rate.
In the future, as our
population ages, these trusts will need their
money, and the General Fund will have to repay
it, thus further driving up the government’s
annual shortfall of money. This is the big
“monster” looming the future.
Government
officials often like to say that the debt is
really “only” about half of the actual $12
trillion because they do not want to count what
is owed to the Social Security and Medicare
trusts for future care. It is an accounting
trick that could get a CFO of a private company
a prison sentence for misrepresentation and
fraud.
And interesting, the 2010 Obama
budget only allocated $164 billion for interest
on the national debt, a 1.4% interest rate. Why
is this so low when the interest incurred is
$383 billion? Our government does not pay the
interest to the Social Security and Medicare
trust funds, they simply accrue the interest for
the next generation to pay, i.e. they write an
IOU for the interest as well the money that they
borrow from the trust funds.
And by the
way, even paying only some of the interest, the
2010 budget is expected to show a deficit of
over $800 billion, and if the full interest were
paid, the deficit would exceed $1 trillion –
AGAIN!! AND AGAIN IN 2011…AND AGAIN IN
2012…AND…………
Either we act now, or our
actual democracy is at risk. Think of it. All of
the sacrifices made by those men and women who
died to give us freedom at Valley Forge,
Gettysburg, Normandy, Bataan, Pork Chop Hill,
Tet Offensive, Iraq, Afghanistan and all of the
other battles could be in vain because our
generation cannot put together a budget that
does not destroy the country.
One has to
wonder if we deserve the title “American”. Let’s
earn that title. Let’s fix our nation.
 back
|
|
|
|
|
Bendas
For Congress
