Visualizing the fantasy.

Numbers On The Table

From the desk of Johnny Fincioen

All figures in dollars. The US economy (GDP) is worth about 15 trillion (2009 was 14.12 trillion). The total federal debt stands now higher than 14 trillion, and reaches about 100% of GDP. If all non-covered expenses for retirees over the next years are added, the total federal debt reaches about 400 % of GDP. The debt of the 50 individual States and of all local governments in the country is NOT yet added to this total.

The yearly federal deficit during Obama’s three years in office is on average 1.5 trillion, and this on a budget total of 3.83 trillion. This means about 40%. Obama borrows 40 cents on every dollar he spends. His administration predicts a yearly budget deficit of over 1 trillion for the next 10 years.

Obama wants Congress to raise the debt ceiling, now legally fixed at a bit over 14 trillion, with at least another 2 trillion. In exchange he promises to lower the expenses with 1 trillion over the next 10 years. This means 100 billion per year. His deficit improves to only 1.4 trillion. The cut equals 7% of his deficit, or not even 3% of his budget. The Republicans in Congress accept to raise the debt ceiling, if Obama cuts his spending with 2 trillion over the next 10 years. This means 200 billion per year. The deficit improves to 1.3 trillion. The cut equals 14 % of the deficit, or about 5% of Obama’s budget. Both proposals still generate a deficit of over 1 trillion per year. Conclusion: the Republicans have no choice but to accept a raise of the debt ceiling.

Both US Parties don’t consider the US financial situation serious.

And, worse is about to happen: nobody is willing to buy US government debt at the present conditions.

During the last 12 months the American Central Bank, the Fed, bought 70% of all new US government debt. This means, the government ‘prints’ money: more money is brought into circulation. This creates inflation, but it gives the US government access to cheap money, because the Fed keeps the interest artificially low.

The average interest percentage on the total debt of the US stands now at about 2.5%. Historically, this percentage was on average close to 6%. 2.5% on 16 trillion is 400 billion. If the percentage would normalize and for example double, it would mean an extra cost of another 400 billion. Four times more than Obama’s deficit reduction proposal, and twice as much as the Republican’s proposal!

In which fairy tale do these folks live?

How do we get out of this mess? A dual policy: extreme harsh spending cuts, and a spectacular, yearly minimum 5% growth of the US economy to boost the tax receipts, and to ameliorate the debt/GDP ratio.

Serious, with-the-chainsaw kind of spending cuts. Obama and the Democrats want the opposite: more government power, and more citizens to depend on government handouts. The Republicans in Congress made a timid first step with their 2012 budget proposal, but they still run away from closures of any government departments, from rising the retirement age, from the abolishment of certain social programs and subsidies.

Grow the economy. By cutting taxes in a spectacular way, and by abolishing complete sets of rules and laws. Unleash private enterprise. Free the citizens. Obama and his Democrats propose to raise the taxes, and every day they throw more new rules at businesses and citizens. The Republicans only talk about cutting taxes with a few points here and there, and about throwing out only a few rules.

It’s a shame, but first it will have to become much worse, before most Americans will awake from their dream.