Volume 13, Issue 01-15: Deficit

I’ve gotten feedback from some of you saying you still don’t understand the problem with the federal spending. I will attempt to explain this. The Federal Government last year borrowed 48 cents of every dollar spent. Lets relate this to a family budget. Lets assume a family nets $52,000 a year after taxes to live on. The family spends $100,000 a year on living expenses. They borrow $48,000 so their living style remains the same.

After the first year they owe the $48,000 they borrowed plus interest on the borrowed money of $1,440. I am assuming they pay the same bond rate the Federal Government pays. So the total they borrowed is $49,440.

For the second year, their disposable cash is again $52,000. They again spend $100,000 to live. The family again borrows $48,000 plus the interest. The interest is now paid on the $48,000 they borrowed the first year plus the interest on the first years borrowing, plus the interest on the second years borrowing. The new interest totals: $1,440 plus $93.20 (interest on the interest borrowed) plus $1,440 in interest for the second year plus $92.20 for interest on the money to pay the interest for a grand total of $3,064.40.

For the third year, all the variables stay the same. They borrow another $48,000 to maintain their lifestyle. But the interest for the third year is $1440 plus $92.20 for the money borrowed for year one, plus $1440 plus $92.20 for the second year and $1440 plus 92.20 for the third year for a total of $4596.60.

As you can see, this can not continue. The family needs to cut their spending. Maybe the lenders will stop lending as the repayment is in question. Maybe the lenders will demand higher interest because of the higher risk. Maybe both will happen together. The family could maybe not buy new cars every few years. Maybe brown bag lunches instead of eating in restaurants. Maybe stop eating out at night. Maybe downsizing the house. This is the same situation the Federal Government is in. We have to cut back on our spending. PERIOD. We can not sustain this level of spending and debt. See in our example above how the interest grows each year. Soon the interest payments will consume such a large percentage of the revenue, there won’t be any money left to pay anything else.

We are paying interest on 16 trillion dollars. We are borrowing 48% of the interest we pay making next years interest payment that much higher. We can not continue along this path. Our debt has already been downgraded once and could be downgraded again shortly. We are becoming a problem for the rest of the world. Do you all now understand?

Second Term

Obama will be sworn in for a second term. I listened to the “talking heads” on TV saying Obama did all he could to work with the Republicans during his first term and will likely be much more forceful during his second. They speculate he will start running around Congress and use Executive Orders to implement his agenda. I can’t imagine how he could work less with Congress than he has so far. Obama held a new conference which sounded like a political speech. All his speeches sound this way. He has yet to sound Presidential. He rips the Republicans at every turn. Maybe someday he will act like a President, but don’t
expect him to represent ALL Americans anytime soon.

Obama’s Cabinet nominees all seem to be on the same page as him. Kerry at State, along with the rest of the nominees all seem to support Obamas’ agenda. This means much less support for Israel, drastic downsizing of the military and soft on Iran.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s