When U.S. Treasury securities come due, the principal is repaid to holders. To do that, Treasury sells new securities of equal or greater value, rolling over the debt. As the federal government continues to run deficits, spending far more each year than it collects in tax revenues, Treasury sells ever more securities to cover it, and our national debt soars.
The U.S. Gross National Debt has now hit the statutory debt ceiling of $31.38 trillion. If the ceiling isn’t raised by Congress, Treasury ultimately won’t be able to borrow to cover our habitual budget deficits and may default on interest payments and repayments of principal on maturing securities. “The full faith and credit of the United States” would be a broken promise and unleash a financial earthquake on international financial markets.
Defaulting on our debt is not a realistic option. So, after the usual theatrics have run their course, Congress will raise the debt ceiling as it’s done 80 times since the 1960s. This charade is too little too late. The time to restrain government spending is during the Congressional budgeting process, not after spending commitments have been made.
U.S. GDP is about $25 trillion this year. Our national debt is now 125% of GDP, even greater than its percent of GDP at the peak of World Warr II when we were literally fighting for our freedom and our survival. Defense spending, then, was 90% of the federal budget and 40% of GDP. Today, the military accounts for a mere 13% of the budget and only 3% of GDP. Our soaring debt will only get worse as we run perpetual budget deficits and are forced to pay higher interest rates on our bonds due to inflation and declining international confidence.
The government is spending too damn much, and it’s not on the military. This is the inevitable price of a welfare state. There are two official categories of federal spending. The first is called “Discretionary Programs” that accounts for only a quarter of total spending. Almost half of discretionary spending is on defense. Slashing defense spending in the current international climate with Russia, China, Iran, and Islamist fanaticism would be suicidal. The balance of discretionary spending is for government departments and agencies, transportation, agriculture, education, housing, etc.
The second category is “Mandatory Programs,” three-fourths of the budget, dominated by “Payments for Individuals,” two-thirds of which is Social Security, Medicare, and Medicaid. The other third goes for veterans benefits, a raft of means-tested entitlement programs, and interest on the national debt which is rapidly accelerating.
When there’s a so-called government shutdown, most federal spending lives on. “Mandatory” programs are on automatic pilot and don’t require new legislation each year. Since we don’t disband the military, a “shut down’ mostly affects non-defense discretionary programs which is only about 15% of federal spending. So, “non-essential” government workers get a paid vacation and the Washington Monument is closed to tourists.
In the debt ceiling standoff, Republicans will try to force Democrats to cut spending. The Dems will counter with defense cuts. Since “payments to individuals” will be off limits, whatever cuts ultimately come from a compromise will be symbolic small-change as a percentage of the national debt or even this year’s almost $2 trillion deficit.
As for solutions, to be effective, a Constitutional amendment to balance the budget would have to cap federal spending as a percentage of GDP. Legislatures in Democrat states wouldn’t ratify that. They’d want to get there by raising taxes. But we can’t tax ourselves rich and we’re already above the nation’s tax capacity. Attempts to exceed it are counterproductive and economically destructive. Ever-expanding federal spending is driving us to economic collapse. For progressive Democrats with no limiting principal on their journey to socialist utopia, if 100 welfare programs are good, 1,000 would be ten times better. Even with an amendment limiting spending, it would take years to balance the budget by bringing spending down to our tax capacity as a percentage of GDP.
A return to fiscal sanity would require coming to grips with economic reality and disciplining the federal budgeting process to live within our means. The bulk of federal spending — social spending driven by payments for individuals — is politically sacred and can’t be slashed but its growth must be restrained. Congress must pass appropriations bills, as the law requires, before the start of a fiscal year, instead of passing a patchwork of Continuing Resolutions after the fact. And we’d have to run budget surpluses to actually reduce the national debt.
In the advanced stages of a democratic welfare state like ours it may not be possible for a majority of politicians running on such a platform to win election.
Longtime KOA radio talk host and columnist for the Denver Post and Rocky Mountain News Mike Rosen now writes for CompleteColorado.com.
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