Is The Federal Debt A Problem?

At almost $20 trillion, the Federal Debt is a big number. Politicians’ rhetoric range from “the sky is falling” to “how can we leave this to the next generation”. Others counsel that the US can borrow at historically low interest rates, so from strictly a business perspective, the US should be borrowing more and investing in infrastructure, medical research, alternate forms of renewable energy, and increasing the skills and education level of American workers. So why is there such a divergence in opinions?

Continuing with the business analogy, no investment is wise unless there is a positive return. This means that any money spent on new or improved roads, harbors, or airports must generate enough profit to repay the amount of the investment AND some additional “profit”. So if the Government can borrow (by issuing Treasury Bonds) at 3%, any investment should return the bond value plus some interest in excess of 3% (preferably greater than 6-8%.

When the Government spending, however, goes for Obamacare, Medicare, Medicaid, or Social Security, what is the return?  The Republican debt argument roughly lies upon this premise. There is no return for entitlements and accordingly there should be no spending on them.

Democrats see Government spending on entitlements as a sacred promise Government has made to citizens. Democrats would be ok with funding entitlements through increased taxes but have not been successful getting Republicans to agree. Consequently, the Government does borrow, does put the cost onto the Federal Debt, and does pass it on to the next generation.

Considering the strength of the dollar and the credit worthiness of the US, increasing the Federal Debt does not present the catastrophic consequences many conservatives see.  Also, if entitlements come with no return, what is the return on military spending?  Hmmm.

But over and above the question of what is the return on government spending, there is still a huge problem, namely continuing to increase the Federal Debt is a default result, not a conscious decision by Congress. The inability of Congress to reconcile its spending and taxing priorities is a far greater problem with far greater potential consequences.

Behind a deadlocked Congress lies one or more special interests which stand to gain mightily. Dark Money (conservatives like Koch Brothers, Mercers, and others) seek simply to keep more of their earnings through lower taxes.   Business interests seek industry specific favoritism normally to increase earnings. This has bred a Congress of era centric, anything but statesmen members.

The current candidate for Congress is normally good looking, modestly well off, and primarily interested in getting reelected. For Representatives, most rely upon districts whose boundaries have been set with the thought towards favoring one party or the other. Who is going to think about the country as a whole?

The Federal Debt could become a problem were interest rates to increase dramatically. Today that is not the case. Never the less, the debt and the unbalanced budget both represent large warning signals about the quality of public officials Americans elect.

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Explore posts in the same categories: congress, Democratic Party, Donald Trump, federal budget, federal debt, GOP, Politics, Republican Party, Uncategorized

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