Days of Change

Day 1232 – Ryan 2 Obama 0

March 20, 2012

Paul Ryan has proposed another budget, while the White House has chosen to pass piecemeal proposals and large spending packages. Ending Medicare as we know it has entered the conversation again, even though Obamacare will do the same thing. The timing for this is interesting, however. This point, 3 years an 2  months in, marks where the national debt has increased the same amount as Bush had in 8 years. While not everyone is a deficit hawk, the amazing lack of return on that spending is apparent as well. If the administration were to put a budget on paper, it would include more spending, ineffective tax increases and larger debt.

We are somewhere above being over 100% of GDP in debt now. That may be just a number, but a person whose credit card debt was equal to their annual income would have a hard time digging out. At least the federal government only has to pay 4.5% interest on their debt. This is an important number, since at 100% GDP, everything the government spends also has a 4.5% surtax from everything we currently owe. If we spend like we did last year and have a budget about 140% of actual revenue, For every dollar we spend, 40 cents go to out creditors and another 5 cents goes to paying off our creditors.

Now, let’s look at the baseline. This is the 10 year projection the CBO uses to justify expenditures, usually by painting a rosier economic future. This year’s budget will cost us $70 billion over the next decade in interest alone. That does nothing to pay down the debt and does not even account for the total accumulated debt over the next decade. If we balanced the budget next year and only spent about $2.1 trillion, the projected interest would eat 3% of that.

We may not have to adopt the Ryan plan, but it’s the only game in town while the Democrats avoid the issue. Even though the US has good credit now, we can only leverage ourselves so far before we become a riskier investment. George Washington never envisioned us as a super power or what used to be called an empire. Not only have we gotten involved with the rest of the world, they have gotten involved with us. That economic entanglement gave us the luxury to borrow unbelievable amounts of money. If we’re not careful, it could also be our undoing.

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