As a country we have not defaulted on a single debt payment in our 247 year history. Our elected officials probably will come to a debt ceiling resolution before the next self-imposed deadline. The “how” becomes the point in question. Thanks to higher interest rates, the almost $400 billion in interest payments Uncle Sam will shell out this year is 6.8% of the entire national budget. In 2021 it was only 1.6% of the budget. Even if rates taper off, that staggering increase is expected to grow exponentially in the coming years to hit close to $70 trillion per year by 2050. As a reference, the Feds spent $6.3 trillion TOTAL in 2022 to pay for everything from Social Security and Medicare to national defense and education. With prospective numbers like that, it’s no wonder Congress is taking its time trying to get it right this time around.
The debt ceiling was suspended between 2015 and 2020, a series of decisions which consequently allowed the amount of debt that the U.S. Government could legally take on to double over the most recent decade. It was an easy sell when interest rates were at 0% for so long. But now the piper’s coming back into town and it’s time to pay up. Perhaps a more poignant metaphor is from the movie Tombstone when with a cacophony of thunder in the background, Wyatt Erp comes riding into town to warn the Cowboys (who had overspent their welcome) that it was time to change their ways. See what I did there?
You know it; I know it; Congress knows it. It’s time to change our spending habits and get the budget under control. We (meaning the federal government–I just said “we” to avoid finger pointing) spent 22% more in 2022 than what “we” brought in. The question again is “how” to cut 23% of our bills out. A better question is how to cut 24% of our spending to allay the colossal burden moving forward. Or 25%. Even with the lower amount, that’s a lot. Could you do it on a personal level with your own budget? What would you cut out? Food, clothing AND shelter?
In the personal finance arena, another solution would be to seek a 24% increase in pay. Earning more money sounds like a great solution, but if we’re talking about America’s finances where the overwhelming source of income is taxes, I suspect that there would be 331 million Wyatt Erps hotly contesting that kind of tax increase in perpetuity.
So here you go: Here are the categories of income and spending that need to be balanced out. It just so happens that 27% of the spending that occurs in Washington falls under the “discretionary” category, which $1.7 trillion in annual spending is the onus for the slugfest on Capitol Hill.
So what you do? Print more money? Why not? Well for starters, that solution would exacerbate the inflation equation that another branch of the federal government has been diligently battling for the last year. You’ve felt the pain of the recent price increases. Make it stop. Printing money has been the resort of many of the governments that we discussed last week in an effort to help their countries get out of crippling debt. You don’t need to go back and read it; let me just tell you: it didn’t go so well for them.