Point #1 … I'm old enough to remember President Gerald Ford holding a press conference in 1974 or so regarding the proposed budget deficit. With a large chart and a pointer—and because of the serious recession the nation was in—he sheepishly informed the American people that the budget deficit that year would be around $40 billion … a truly scary figure at that time …
… we now run a deficit of that size every nine days
Point #2 … If your household income is $60,000 annually, but you spend $100,000 annually, life is good. You are enjoying nice dinners out and entertainment and vacations and perhaps a new boat or RV. You are running up credit cards or getting new loans to make up the $40,000 difference.
If the following year you earn $65,000, but spent $110,000, life is still good. You are living far above your means and borrowing that extra $45,000 to break even. You also have those annoying interest and principal payments on the first $40,000 loan.
The pattern can continue for a number of years, until various lenders deny you new sources of credit, or require much higher interest rates to obtain the funds needed. Those interest and principal payments on the debt accumulated have also become a major pain …
… at some point, your house of cards comes tumbling down.
The first point is intended to show just how irresponsible the federal government has become in regard to spending money it doesn't have. The projected budget deficit this year of more than $1,600,000,000,000 follows deficits averaging $1.4 trillion over the two prior years. Government projections still show deficits of nearly $1 trillion annually over the next 10 years.
This year's budget deficit equals $4,400,000,000 EVERY DAY … $182,000,000 EVERY HOUR … $3,000,000 EVERY MINUTE!
The second point illustrates the dangerous game the Administration and the Congress are playing now in regard to our rising dependence upon those willing to buy our debt obligations … U.S. Treasury bills, notes, and bonds … to finance government out of control.
Our interest cost already exceeds $200,000,000,000 annually, or $550 million each day. Note that this cost is in an environment of historically low interest rates. The U.S. Government can borrow money for three months or six months at annual interest rates of less than 0.15%. Borrowing for two or five years? Annual interest cost of roughly 0.65% and 2.10%, respectively. Borrowing more money for 10 or 30 years? Annual interest costs of roughly 3.40% and 4.50%, respectively.
What about when borrowing costs move to more traditional levels? What about when the Chinese, the Japanese, the Saudis, global insurance companies and retirement funds, etc. say enough is enough? No more purchases of U.S. Treasury securities!
What then? The Government's borrowing costs will rise sharply, pushing annual budget deficits sharply higher as well.
Forecasting economists agree that current budget deficits are unsustainable … that we must eventually get a grip on government spending. The economists disagree as to when such efforts must bear fruit.
Some suggest that spending must be trimmed immediately or that taxes must be raised immediately. Others suggest that we must create a viable, meaningful, dependable plan to slow the growth rate of government spending soon, to be implemented over the next few years and decades.