Politicians, even Mr. Trump, avoid honest economics like a bomb-laden jihadi avoids the airport x-ray machine. For very similar reasons. But the rest of us must live in economic reality, unlike the politicos.
Thus, politicians in Washington can accept budgets that spend more than the government actually collects from us, resulting in deficit spending. The deficits are the amounts spent that are not available to spend. No, that’s not a mistake, that’s the fact; government borrows the missing amount so that it can be spent. Since it is borrowed, it represents what we call the ‘national debt.’ Currently, it amounts to some $19 trillion.
Most of it is borrowed via Treasury bonds, so it is owed to all those who have purchased them. Owed then to individuals, other governments such as china, banks, corporations and just about everybody. When the bonds’ mature, the borrowed money must be repaid to the original lender, right? And interest too.
We hear folk warning of economic calamity resulting from our deficits and debt. Others brush off the warnings, especially those who see benefit in the spending. What’s the truth?
Well, we know that figures don’t lie, but liars can figure. The truth is simple: Every U.S. average taxpayer presently owes north of $150,000 of that national debt. Plus the interest due. So the question arises, how many taxpayers do you know who can repay that much money on top of their present taxes, plus that interest? And note that President Obama’s new budget substantially increases that debt. Let us hasten to remind readers that no president spends any money that is not first approved by Congress, presently in GOP hands. Republicans blast Democrats for spending, but it cannot occur unless enough of those complaining politicians have voted to authorize it.
Suppose you believe that $150,000 is too much for the average taxpayer to repay; what does that mean? That is simple; it means that the holders of U.S. Treasury bonds will not receive their money when their bonds mature … and may not receive all the interest they are due in the meantime. That is called a default. Those that have invested substantial portions of their funds in U.S. government bonds may face bankruptcy; banks, corporations, local and foreign governments – and pension plans – that have large bond holdings will face a reality: Those holdings have become worthless. You may imagine that result at a $19 trillion magnitude …
Often enough though, a default ends with a partial return of invested money rather than a total loss. Half maybe, or less. Still mighty economic dislocation and an enduring problem for the government responsible as no lender will trust it for a long time.Most major governments will go to great lengths to avoid that.
How is it avoided? Only by extracting the $150,000 per taxpayer from the citizens … plus interest. Politicians spending may act as though they have magic money, but when the borrowed money comes due, suddenly the magic vanishes. Reality sets in and as we hear from the kids, reality sucks.
As of this moment, recalling the President’s latest budget, our government is arguing between President an (D) and Congress (R) about how much to enlarge the national debt with new spending. None are moving to reduce the amount of debt. To them, a deficit reduction means growing the national d debt a bit more slowly. Yeah ….
Perhaps you have known that, or perhaps you hadn’t though of it in so much detail. It’s not complicated. It’s pretty sad, though …