Friday, June 25, 2010

How Bad is the National Debt?

We have known for years that our debts and deficits have been out of hand, but the Congressional Budget Office (CBO) is painting a picture that is almost sci-fi in its proportions. It is the kind of picture that we would assume would come from the Third World or, at least, from Greece or Spain in the EU.

The founders of this republic designed a uniquely American political model that promised fiscal integrity. Simply put, the federal government was limited to 17 specific powers, none of which would cause the kind of financial strain our country faces today. Meanwhile, all other powers were left to the states, but the inability of those governments to print money made them fiscally healthy and naturally small. Because of this, it took almost 200 years for the federal debt to reach $1 trillion. Many found that alarming at the time, but since then we have arrived to the point that we add a $1 trillion to the debt every year.

The CBO is now arguing that the US is facing a crushing debt and this nation is being forced into the position of having to dramatically cut social spending in order to stay afloat. Other findings include that:

  • Federal spending will grow to 26 percent of gross domestic product (GDP) within the next ten years and reach highs of up to 35 percent by 2035.
  • Take growing health care costs and add an aging population and you have a significant increase in federal spending and the national debt that will grow worse unless there are serious policy changes.
  • The national debt is projected to grow as high as 87 percent of GDP in the next decade. To make matters worse, it will reach 109 percent by 2025 and could peak at 185 percent by 2035.
  • The CBO politely calls the long-term outlook of the budget as "daunting," and argues that growing costs will limit the choices policy makers have and force draconian cuts in spending.

There are huge debates on all sides of the political spectrum on how spending has grown out of control The political left argues that "expansionary" military policies have led to a costly "military-industrial complex" that has put us in this dire situation. The political right argues that it is the outrageous growth in domestic spending (which is more than 3 to 1 to defense spending) that has caused our financial crisis. Bottom line, our financial crisis is linked to the simple fact that our government seems to no longer be bound by the rule of law. Without Constitutional restraint, there is no fiscal restraint. Until the former is addressed, we can expect our financial situation to only get worse.


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