The current U.S. national debt has hit $11.6 trillion this year and continues to climb, according to the U.S. Treasury. That number is so mind bogglingly huge that it is hard to understand what it actually represents. Admittedly, the U.S. deficit is not a sexy topic. It is filled with Congressional Budget Office (CBO) projections, and tax and spending dilemmas. It is easier to just turn away and focus on what to make for dinner, what new movie is opening or which teams might play in the World Series.
But the issue cannot be ignored. The bottom line is that deficits can hamper long-term economic growth and take larger amounts of money out of your pocket for taxes to pay interest on the debt, for which you will get nothing in return. The deficit problem directly affects our future standard of living.
“We’ve just gone through a major credit crisis—some are calling it the Great Panic of 2008. We are about to go through the worst federal budget crisis in our country’s history. This is serious,” says David Jones, a former Wall Street economist with 35 years experience and president of DMJ Advisors, a Denver-based consultancy.
JUST LIKE CREDIT CARDS
The government deficit is just like individuals who live beyond their means and rack up credit-card debt each month. The problem then becomes not only the actual debt but the monthly interest payments on that debt, which can make paying off the balance insurmountable to some. We strive to teach our children responsible money management, why do we not demand it from our political representatives in Washington?
Some might point out that the U.S. government has run a deficit for years. But the difference in 2009 is the magnitude—the current deficit projection sits at 12 percent of gross domestic product, a level not seen since World War II—and the billions of dollars of interest payments that will come due on that debt in the years ahead. Figure 1 reveals the total outstanding U.S. debt. The trend and pace of it are nothing less than disturbing.
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The U.S. government budget deficit surged from $459 billion in 2008 to a CBO projection of $1.825 trillion in 2009, more than three times as large in just one year. Besides, “the CBO has a history of chronically underestimating the size of the deficit,” says Jim Bianco, president of Chicago-based Bianco Research LLC. “There are people arguing it could be in the $2 [trillion] to $3 trillion range, especially if health care gets passed.”
A large part of the 2009 deficit is the $787 billion spending package the Obama administration passed in attempts to prevent another Great...