In the shadow of the recently passed healthcare bill, the news that the administration made a $1.2 trillion “mistake” in deficit projections over the next ten years should do nothing to reassure us regarding our country’s fiscal future. Last Thursday, the CBO, after analyzing the Obama 2011 budget, declared that the $8.53 trillion 10-year deficit projection was off by $1.2 trillion.
Now, for many of us, who’ve heard billion and trillion bantered about in Washington recently as though these are pretty standard monetary denominations, let’s be clear about what $1.2 trillion means in real terms, for real people. The GDP (gross domestic product) of the entire country of the US was $14.2 trillion in 2009; a trillion seconds is the equivalent of about 32,000 years; and if you were to have spent $1 million every day since the day Christ was born, you still wouldn’t have spent $1 trillion (only about $750 billion, or 3/4 of $1 trillion).
That additional $1 trillion means another $10,000 per US household is now owed to investors. When President Obama took office, the public debt was approximately $56,000 per household, a total of $6.3 trillion. Today, based on the most recent budget, that amount has jumped to $72,000 per household, or $8.2 trillion, and will reach over $170,000 per household by 2020 (based on the administrations own numbers), for a whopping $20.3 trillion in federal public debt.
Such an astronomical accumulation of debt is completely unsustainable. In the Bush years, through 2008, $2.5 trillion was added to the public debt. In the six years from 2010-2016 (2009 belongs to both Bush and Obama, so isn’t included but amounts to $2.6 trillion), President Obama’s budget would add $4.9 trillion to that debt.
Currently the US has a AAA bond rating, enabling our federal government to borrow money at extremely favorable rates. By 2020, the cost of major federal entitlements in conjunction with servicing the debt will be equivalent to 100 percent of federal tax revenue, and this is if our credit rating remains stellar. No one believes it will, without major fiscal discipline never before seen in a politician.
If the rate at which our government is able to borrow money were to increase, we would find ourselves in the non-enviable position of Greece in recent months: Unaffordable and unsustainable rates of government entitlement spending, sluggish economic growth, and increasing interest rates as investors decide the risk of default on government bonds is real.
Just this past month, the rating agency Moody’s issued a stern warning to the US and other major Western nations with regard to the unseemly levels of debt currently being amassed.
“Growth alone will not resolve an increasingly complicated debt equation,” Moody’s said. “Preserving debt affordability” — the ratio of interest payments to government revenue — “at levels consistent with Aaa ratings will invariably require fiscal adjustments of a magnitude that, in some cases, will test social cohesion.”
While Moody’s said the US credit rating is not currently threatened, it relies on the ability of our leaders “to repair the damage caused by the crisis on public finances.”
We have been warned – budgets must be cut, and in a serious and substantive way, which may cause social cohesion to be threatened. Politicians will certainly use this to their advantage as they try to turn us against each other by encouraging disparate groups to push for the preservation of their favorite entitlement. We can’t allow that to happen.
Our elected leaders, who certainly understand the serious fiscal crisis awaiting us, will most likely do what they’ve always done – put aside the good of the country in order to score cheap political points that in the long run will cost us all far more than we ever imagined. We must work together, “cohesively,” to defeat any who choose to put their personal interest ahead of the interests of this country.