On a golf course in California on Feb. 15, President Obama signed two bills approved by both the House and Senate that will enable the U.S. Treasury Department to borrow “normally” to pay its obligations for Social Security, Medicare and military pensions until March 02015. The government’s borrowing cap will have to be reset after that.
The bills were an amendment to the balanced budget act of 2011, popularly referred to as the debt limit bill, and described by some as giving Obama a “blank check,” lifted the current debt ceiling of $17.2 trillion by an unspecified amount. A separate bill repealed cuts to military pensions that had been attached to the debt ceiling increase approved to end the government shutdown in October.
The national debt currently stands at more than $17 trillion. Although the federal deficit has been materially reduced in recent years, without fiscal reforms, the deficit is expected to grow again beginning in 2016, necessitating larger or more frequent debt ceiling increases well into the future.
In his State of the Union message, President Obama didn’t mention the national debt, although he listed among the accomplishments of his administration the development of a budget for the next two years that would decrease the federal deficit, which to the unknowing sounded like they were cutting the national indebtedness.
Few people are totally aware of the fact the bipartisan “deal” columnists have lauded as an accomplishment by the legislators provides a budget that fails to balance the government’s income with the committed expenditures for the next two years. Nor are they aware that during the 65 minutes Obama was speaking, the national debt increased by $120.3 million. We have been increasing our debt at an average of $2.64 billion per day since Sept. 30, 2012.
Though Republicans have insisted that increasing the debt limit be accompanied by spending cuts to offset the increased borrowing while Democrats have pressed for a debt limit increase with no strings attached, the bipartisan compromise makes it necessary to raise the debt limit perhaps as early as the end of this month.
Everyone knows it will be necessary to increase the national debt limit in order to protect the nation’s ability to continue borrowing to stave off having to default on current obligations.
As important as it is to increase the debt limit in order to preserve the value of our currency and future ability to borrow, it is even more important that citizens consider how the country will sustain that debt load, or ever repay it.
Before time runs out on the current authorization to borrow, citizens need to be reminded that as of the end of January, each individual’s share of the current national debt stood at $54,451.88.
The total amount we owe is $17,283,884,852,919.01. For those who don’t know how to read numbers this large, that is 17 trillion, 283 billion, 884 million, 852 thousand, 919 dollars and one cent. (A trillion is a thousand billion, a billion is a thousand million, a million is a thousand thousand.)
At an interest rate of two percent per year, taxes equaling $1,120.54 for every man, woman and child in the United States must be collected every year in order to pay interest on the obligation.
It is probably not realistic to project that with the country’s ever-increasing indebtedness, lenders will be eager to invest in our bonds at that low rate. The current rate for short-term treasury bonds is 2.5 percent.
Actually, that low rate is maintained only by the action of the Federal Reserve Bank that sets the rate as part of its effort to stimulate the economy.
It maintains that low rate by a process called “quantitative easing” — buying a quantity of federally guaranteed mortgage bonds from private investment concerns with new currency it prints. When it prints new money, the Federal Reserve Bank posts a U.S. Treasury bond in the amount of the currency printed.
In effect, the Federal Reserve Bank borrows money from the Treasury to purchase and hold the mortgage securities, and the investment firms have new cash to finance new projects. We are now at QE 3 printing $75 billion a month to stimulate the economy.
Actually most of the quantitative easing money goes into the stock market, where speculation drives up stock prices and the public looks to the rise in stock prices as evidence the economy is improving. Unless the money goes into new stocks that support enterprises producing new wealth, food, clothing, energy and materials for manufacture, the only result is inflation.
Shifting money from one account to another may increase the value of the paper it is written on, but adds nothing to the real wealth of the economy.
The mounting federal debt is not the only problem. The continued imbalance of trade with other countries of the world drains the wealth produced in the United States and adds an additional burden for the producers of wealth to bear in settling international accounts.
It is unquestionably time for the country to consider what it will do about its debt. Will we develop a reasonable plan to amortize and eventually pay off the debt, or will we simply leave the obligation as a legacy for our grandchildren?
Such a legacy will become increasingly burdensome for them since there are currently more people ages 65 and older than there are youngsters under 15.
Murvin H. Perry of Johnson City
is a retired professor of journalism.