top of page

The Federal Debt Bomb - Is it about to Blow? (Vol. 55)

Updated: Feb 7, 2023

analyticsbox | Jun 08, 2022

Federal Debt Bomb

The Federal Debt Bomb - Is it about to Blow?

In a dinner conversation last week, we got into the subject of the Federal Debt and my concerns about us going over the Fiscal Cliff with the enormous government debt. The immediate reaction was to ask a very good and simple question.

We have never had a problem borrowing money for the government, so why is that a problem now?

That’s a Good question. And here is a good answer.

But first, what is the Federal Debt? I have asked this question numerous times, NO ONE has known the answer. As outlined in No Spin # 41, the interest bearing debt and unfunded obligations are:

$112,000,000,000,000 as of September 30, 2021

(per the published US Financial Statements).

You are reading that correctly, $112 Trillion dollars as detailed in No Spin #41 .

But that doesn't answer the question,

Why is it a problem? Here are my thoughts:

  • From 1960 to 2008, the Funded Debt (interest bearing) ranged from 30 - 65% of GDP. The debt grew constantly (except for 3 years of surplus) during those 48 years, but remained ‘within reason’ in relation to the overall economy. In the last 14 years, it has grown to 28 Trillion dollars and 130% of GDP.

  • The Congressional Budget Office (CBO), a nonpartisan agency of the government, projects this to continue to grow to over 200% in the next 30 years, if we continue on the current path, WITHOUT any more new programs (not a likely scenario).

  • The most recent Budget Proposal from the current administration for the next 10 years has annual deficits of 1+ Trillion dollars every year and increases the interest bearing debt by 15 Trillion dollars to 45 Trillion dollars (the debt today has already grown to 30+ Trillion dollars).

  • The interest cost to the government with a doubling of interest rates from the artificially low rates recently and an increase of debt of about 50% will eventually make the interest cost the largest component of our Federal expenditures, for which we get nothing, and crowds out other programs. In this scenario, we will never be able to balance the budget.

  • This is a Ponzi scheme as described in No Spin #4. This bubble will burst some day as this Debt Bomb explodes and we head over the Fiscal Cliff - if we do not fix the problem.

  • ‘The current fiscal path is unsustainable’. This is a quote from the published financials from the US Government. Every fiscal agency of the government agrees.(See the first comment in the Executive Summary of the U S Financial Statement published by the Treasury Department).


BOTTOM LINE

If we keep on keeping on, this will end in disaster some day. We cannot let this happen and destroy this Country for our kids and grandkids. We inherited a Country that worked, and we owe it to future generations to leave them one that still works.

LEARN ECONOMICS, THEN VOTE SMART

12 views0 comments
bottom of page