U.S. Government Debt as a Mortgage

Hundred dollar billsToday imagine that Congress has a fit of sanity and manages to balance the budget. They do it through a combination of spending cuts and tax increases. The dollar strengthens and there is more money because of interest that is not needed to pay for deficits. Congress’s approval rating soars and they decide to balance the budget from now on because the voters love it and so does the economy.

But there is still the outstanding debt of trillions of dollars. Congress in a display of unparalleled common sense tackles this by treating the debt as if it was a 30 year mortgage. In my scenario (sadly imaginary) Congress is able to secure a 3% fixed interest rate for 30 years. In the table below is the schedule of payments. I have included other rates of interest in the event that you think 3% is unrealistic.

The dollar amount of the debt is obtained from Treasury Direct’s Debt to the Penny, which I have rounded to the nearest billion dollars. The date in the top right-hand corner is the day the debt reading was taken. The highlighted figures are the yearly amounts paid (the sum of 12 monthly payments), depending on the interest rate. All dollar amounts are in billions. So for example, $13,616 billion, which is $13.6 trillion, just add nine zeros like so: $13,616,000,000,000.

I have been periodically updating the debt reading. It is scary how much this debt is rising. Truly we should avoid debt as we would avoid a plague. The sooner we start paying our mortgage the better. Default is not an option. Refinance now while interest rates are low.

Money Photo Credit: Andrew Magill
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Paul on Politics: How to Reduce the Federal Deficit

My guest writer today on the Rickety blog is my Uncle Paul. We have been talking about the deficit and I present here some of Paul’s thoughts. He characterizes them as “musings” that are subject to discussion and not his final word.
Source: Summary Report of the 2007 Financial Report of the US Government.

Percentage Cuts

How to reduce the Federal deficit? Lopping off a percentage across the board is one strategy and used most of the time. I don’t prefer that type of approach because it may reduce programs that are performing for us. Moreover, when we make percentage cuts, the agencies simply cut the programs that hurt the electorate the most. Then there is a hue and cry until the public pressures legislators to restore the cuts or they pass a special levy to create a new program.

Paul’s maxim takes effect: “The demand for services rises to consume all available resources.” Programs came into effect one by one. Some do furnish services we need like law enforcement — not all law enforcement programs by the way should be kept. We can do without programs like D.A.R.E. as an example.

Reduce Unnecessary Services

Therefore, reducing unnecessary services dictates an examination of each program one by one to evaluate its efficacy. And, it dictates some honesty on our legislator’s part to deal with special interests. Of course, legislators are, for the most part, elected by special interests — teachers’ unions for instance. So it is up to the voters to remove ill performing legislators. Especially professional legislators. A big step in that direction would be to remove retirement benefits from the list of legislative benefits for elected officials. Our system of liberty demands citizen participants that rotate to refresh the body politic and intellect and who want to serve the public.

To evaluate efficacy, services need to be audited by an outside source who then reports to the legislature. Here in Washington, we passed an initiative from the people to create independent audits. The legislature had to be dragged by the heels screaming and kicking like some spoiled child. Some of us worked to promote independent audits for at least ten years. Results are promising but we need more time to evaluate how it is working.

Agency Function

One year, the Republicans in the legislature, in concert with a Democratic Governor (Gary Locke), approached the problem by forcing every agency to list their functions in terms of the agency priority. Then the Governor lopped off the lowest valued programs until his budget goals were met. That worked marginally O.K. but we are still left with the fact that agencies protect themselves first which doesn’t mean the public is necessarily served well by their evaluation.

If I were the legislature, I would cause the agencies to compete for funding instead of colluding to run up all their programs. When an agency must justify itself to survive, we get more information to work with in deciding which program is performing, intended, and worth funding.