Budget Gymnastics and Lies

From the WSJ

Let's take a quick look at what the current Administration and Congress are up to in terms of budgeting.

In the last four years the annual (each year) outlay of the US government was approximately $ 3.5 trillion USD (using this - however there is some variation in the exact amount but for the most part its insignificant).

Each day we spend about $9,600,000,000 dollars ($9.6 billion or 9.6 x 10^9).

Of this $9,600,000,000 about $3.4 billion dollars is borrowed - this is income less expenses which in this case is negative.

The "sequestering" of the budget will cut some $120 billion out of the US Budget each year to save a total of $1.2 trillion over a decade.

Sounds like a lot, right?

It isn't.

The Administration has today countered with a $1.5 trillion dollar savings (which includes tax increases) over the same time.  Let's call this an annual savings of $150 billion.

We borrow $150 billion dollars every 50 days (or you could say we borrow $150 billion dollars seven or eight times a year).

So while either the Administrations budget or "sequestration" will cut the government's budget there is

A) no guarantee that we will actually spend less because congress has not in fact passed any budget at all in the last four years.  Instead they have passed "stop gap" funding bills.  Its hard to imagine anyone doing the math or limiting themselves to actually spend less no matter what is decided.

B) The existing $16 trillion USD in debt is financed in large part with very low interest debt.  So even if there were an actual savings in #A above an increase in the interest rates will handily out weight it.  For example, at the 2% or lower rates currently in effect the US paid about $251 billion in interest in FY 2011. 

According to CNN a 1% increase in interest rates means approximately another $1 trillion USD in interest payments over a decade.  So even a modest interest rate increase to, say, 5% could completely wipe out any saving from #A.

Given historical interest rates are as low as they have ever been it highly unlikely the cost of debt will remain this low for long.

The bottom line is that neither the current Administrations plan, the GOP plan nor "sequestration" is a solution to the problem.

Out debt and spending today are totally out of control relative to historic spending (see this chart).

Over all there have always been deficits but since 1971 when Nixon decoupled the US dollar from the gold standard there is no longer accountability, i.e., debt before 1971 on behalf of the US was collateralized  (backed) by gold in the US treasure.  Since 1971 there is no collateralization other than the good faith and name of the US government.

And the credit rating companies are already lowering out credit rating because we are become a credit risk.

The leaders of this country are misleading the populace on the state of the government's finances.

This is simply criminal.

The plans and proposed solutions jeopardize Social Security, Medicare and Medicaid directly.

They jeopardize the poor and the middle class and the rich.

Even if the tax rate were 100% there is not enough revenue to take from the rich to pay for this debt.

The debt has increased some 50% in the last four years.

These reports, such as those in the WSJ, are grossly misleading.

If a commercial entity operated like this similar reporting would be cause for criminal proceedings.

None of these plans does a thing to stop the crisis.

Until people learn the truth there is literally no hope.