Friday, February 26, 2010

The Day After

The US national debt is currently about $12.4 trillion. Interest on the debt is about $.2 trillion annually. Actual federal tax revenue is about $2.1 trillion, while the budget is over $3.5 trillion. To bring the budget in balance immediately would require an across the board cut of at least 33% in federal spending.

Federal spending has increased on average about 8% over the past decade, while average annual GDP growth is closer to 3%. National debt is now almost 87% of GDP and rising. No one is proposing any real reduction in federal spending. In fact, many are pushing for more. A lot more.

It was once conceivable that we could grow our way out of this situation. But the growth rate required to keep up with government spending trends would spur skyrocketing interest rates, which would cause the deficit to spiral out of control at an even faster clip.

At this point, you have to believe one of two things. The government will muster the political courage to make massive cuts in spending or the failure of this government is imminent. It might be next week. It might be in 20 years, but without a sea change in policy, behavior and the philosophy of the government’s role in society, it’s not a question of if it will collapse, just when.

Right now, politicians are playing fiscal hot potato. The hope is that they can continue as is until they are out of office and safely retired. The next crew will figure something out. But the next crew will be the same personalities in different suits.

All I can recommend is that you ground yourself in your principals. There will be a day after. There may be no avoiding the train wreck, but you control how you’ll respond to it. Make it something future generations can be proud of.

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