As President Obama unveiled the 2013 fiscal year budget, the nation's financial situation came back into sharp focus. Experts say partisan gridlock in Washington means the budget will probably go nowhere.
Considering this is an election year, however, expect politicians to harp on facts, figures and terms that most Americans weren't taught in high school. To help out, it's time to dredge up lots of scary facts to make you pay attention.
Before we get going, a quick primer on the number TRILLION:
$1 trillion = $1,000 billion or $1,000,000,000,000 (that's 12 zeros) very true
How hard is it to spend a trillion dollars? If you spent one dollar every second, you would have spent a million dollars in 12 days. At that same rate, it would take you 32 years to spend a billion dollars. But it would take you more than 31,000 years to spend a trillion dollars.
And now, some scary (She still hasn't said why it is scary) facts about the debt and the deficit -- some basics:
Deficit = money government takes in -- money government spends very true
2012 US deficit = $1.33 trillion still see no problem here, it is not causing inflation and our economy is still not doing that well
2013 Proposed budget deficit = $901 billion this may actually not be enough to grow our economy, still too far away to tell for sure
National debt = Total amount borrowed over time to fund the annual deficit sort of true, the debt is meant to 'fund' the deficit, but isn't necessary to do so. Issuing debt is a way for the Fed to maintain interest rate targets, not a necessary means for raising funds. The government can spend without taxes or issuing debt.
Current national debt = $15.3 trillion (or $49,030 per every man, woman and child in the US or $135,773 per taxpayer) True, but thinking of it this way is misleading. We will never have to fork over $49,000 to pay it off. Most of it isn't due for years to come and doesn't ever have to paid off at anyone one moment. Plus, the national debt=national savings. That means there is $15.3 trillion dollars of US bonds in the hands of the private sector, of which they are earning interest on.
OK, let's get started! Here is her official list of "scary" facts
1. The U.S. national debt on Jan. 1, 1791, was just $75 million dollars. Today, the U.S. national debt rises by that amount about once an hour. Which increases total savings and boosts the economy
2. Our nation began its existence in debt after borrowing money to finance the Revolutionary War. President Andrew Jackson nearly eliminated the debt, calling it a "national curse." Jackson railed against borrowing, spending and even banks, for that matter, and he tried to eliminate all federal debt. By Jan. 1, 1835, under Jackson, the debt was just $33,733.
3. When World War II ended, the debt equaled 122 percent of GDP (GDP is a measure of the entire economy). In the 1950s and 1960s, the economy grew at an average rate of 4.3 percent a year and the debt gradually declined to 38 percent of GDP in 1970. This year, the Office of Budget and Management expects that the debt will equal nearly 100 percent of GDP. These numbers are meaningless. It doesn't really matter how much of GDP our debt is, what matters is the health of our economy. Increasing our national debt to improve our economy is a good thing, not a bad thing. It only becomes a bad thing when it causes inflation, but that will happen only when the economy is over-heating from doing too well. At that point we must stop increasing the debt, but the debt-to-GDP ratio is meaningless for a country sovereign in its own currency.
4. Since 1938, the national debt has increased at an average annual rate of 8.5 percent. The only exceptions to the constant annual increase over the last 62 years were during the administrations of Clinton and Johnson. (Note that this is the rate of growth; the national debt still existed under both presidents.) During the Clinton presidency, debt growth was almost zero. Johnson averaged 3 percent growth of debt for the six years he served (1963-69). These administrations were followed by bad recessions in the early 70s and early 2000s. Decreasing the debt by going into surplus budgets or even just diminishing deficits takes away income from the economy which is likely to cause recession.
5. When Ronald Reagan took office, the U.S. national debt was just under $1 trillion. When he left office, it was $2.6 trillion. During the eight Regan years, the US moved from being the world's largest international creditor to the largest debtor nation. Growth was pretty solid in the 80s too, but much (almost all) of that growth went to the top through tax cuts and defense spending.
6. The U.S. national debt has more than doubled since the year 2000.
Under President Bush: At the end of calendar year 2000, the debt stood at $5.629 trillion. Eight years later, the federal debt stood at $9.986 trillion.
Under President Obama: The debt started at $9.986 trillion and escalated to $15.3 trillion, a 53 percent increase over three years.
A lot of that went toward bailing out big banks and businesses and this still hasn't been enough to grow the economy.
7. FY 2013 budget projects a deficit of $901 billion in 2013, representing 5.5 percent of GDP, down from a deficit of $1.33 trillion in FY 2012, which was the fourth consecutive year of more than $1 trillion dollar deficits.
8. The U.S. national debt rises at an average of approximately $3.8 billion per day.
9. The US government now borrows approximately $5 billion every business day.
10. A trillion $10 bills, if they were taped end to end, would wrap around the globe more than 380 times. That amount of money would still not be enough to pay off the U.S. national debt.
The only things scary about these numbers is that their enormous size still isn't big enough to grow the economy.
11. The debt ceiling is the maximum amount of debt that Congress allows for the government. The current debt ceiling is $16.394 trillion effective Jan. 30, 2012. A useless ceiling. Our national government cannot go bankrupt. It faces no insolvency issues because it is the issuer of the money it needs to pay its bills. So when that debt comes due, it has no problem paying it off. Capping it arbitrarily serves no useful purpose and often causes fear or even panic if it is taken seriously.
12. The U.S. government has to borrow 43 cents of every dollar that it currently spends, four times the rate in 1980. I'm assuming she means that the other 57 cents is paid for by taxes, but in reality taxes aren't collected by the government. Paying in taxes destroys money from balance sheets. Spending by government creates it.
Don't be scared by the national debt. Remember that it equals savings for anyone who holds that debt, that the government cannot go bankrupt, and that we never at any one moment have to fork over the money to pay it off. We should be worried about full employment and income distribution, not the debt. Don't be fooled by these scare tactics and this fear mongering.
And again, this doesn't mean I support 'big government'. The issue is the growth of the economy which relies on spending which in part relies on the deficit to plug any holes in aggregate demand caused by saving and other leakages. If the deficit isn't large enough to fill the gap caused by these leakages then we can expect a recession (or a debt driven bubble followed by a financial crisis and then recession). If you want smaller government, then you shouldn't support a balanced budget amendment, but rather a decrease in total spending and taxes.
Full article by Jill Schlesinger here.
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