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Sunday, March 21, 2010


Interest on the US Debt was approximately 451 billion dollars in 2008 and 383 Billion in 2009 (lower due to record low interest rates). The 2009 interest payments on the debt are more than we receive in corporate taxes from every single business in the US. A lot of blame and finger pointing always surrounds any conversation between our political parties concerning the national debt. The truth is constantly blurred so what really contributed to the debt and who is at fault?

First, what is the national debt? The government spends money just like people to fund operations, pay for programs, etc. The government collects revenue in the form of taxes and fees. Any spending above the revenue they take in is funded by issuing debt instruments such as Treasury bill, notes, and bonds. These debt instruments are purchased by everyday people and corporations but the bulk of them are purchased by foreign countries.

Another form of debt was created when the US borrowed from the Social Security fund. The fund was running surpluses and it seemed like a good way to get a free loan. However, excessive borrowing has left us in a position where we will have deficits by 2016. In other words, we will not be able to pay out the total social security funds owed to the people, due to the large amount of baby boomers starting to collect.

The US historically has always carried debt but the debt was relatively small until 1980. Ronald Regan made reducing the debt an important campaign issue in his 1980 presidential run but the national debt tripled during his presidency. This was caused by massive military spending during the cold war coupled with “Economic Recovery Tax Act of 1982”, the largest tax cuts ever enacted. Regan’s economic policy (Reganomics) was considered extreme even by the Republican Party. While running against Regan in 1980, George Bush called Reganomics “voodoo Economics.” Although the Regan economic policies now left a deep national debt of 3.3 Trillion by 1990, they created a period of sustained economic expansion.

Soon after George H Bush became president, the savings and loan businesses, de-regulated by Reagan collapsed, adding $150 million to the national debt. In addition the Gulf war did add to the debt but was partly funded by Saudia Arabia, lessening the debt load. He left in 1992 with the national debt now at 4 trillion.

Fast forward to 1993, President Bill Clinton presented to congress the first balanced federal budget since 1969. By 1998, tax revenue exceeded expenditures. Clinton’s 2nd term produced 4 consecutive budget surpluses and in 2000 Clinton announced the largest pay down of the national debt in history. Clinton accomplished this by raising taxes and creating a pay as you go plan.

Following Clinton, in 2001 George W Bush started the first of two terms and a record explosion in spending and increases in the national debt. “President Bush promised that he would "retire nearly $1 trillion in debt over the next four years. Combination of tax cuts and huge spending budgets led to a national debt of 11 trillion (including the TARP passed by George W Bush) and a running deficit over 1 trillion dollars in the budget.

More recently, since taking office, Obama has passed a stimulus plan and several small spending programs bringing the total deficit to now stand at 12 trillion. Obama is quick to point out that massive deficits left little choice. “I found this national debt, doubled, wrapped in a big bow waiting for me as I stepped into the Oval Office. “ -- Barack Obama

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