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Sunday, July 10, 2011

Budget numbers--Feeling Spendy...

OK, I'm going to take a swing at figuring out the budget deficit that is causing such trouble...I'm gonna take information from the Congressional Budget Office, since that is supposed to be a non-partisan organization, and any errors of mathematics are likely going to be mine, not theirs...
Sooo...the CBO reports the following are the breakdowns of the US Budget for 2010:
  • The US Government spent $3.4 Trillion
  • The US Government took in $2.2 Trillion in revenue
Thus, we have a budget deficit of $1.2 Trillion.

In order to get the money to make up that difference, the US sold Treasury instruments (bonds, bills, etc.) to investors--other countries, corporations, mutual funds, hedge funds, private individuals.... (The US then promises to pay an interest rate on those bonds to the holders of that debt for a period of either 10 or 30 years, and then return the original principal...that will come back later on...) The accumulation of that debt incurred over the years to cover that budget deficit is the gross national debt, which is now over $14 Trillion, and approaching the upper limit of the US ability to borrow. (Like we're hitting the credit limit on our credit card...)  Congress has to authorize raising that cap, or we lose the ability to borrow more money, and thus we can't spend any more, as we've already spent what we took in earlier in the year.

Yikes.

Our "leaders" are debating/bargaining over whether or not to raise this cap.  Actually, that doesn't seem to be quite right.  Instead it seems that one faction of the government is pushing to raise the cap if spending is cut, while the other faction of government is pushing to raise the cap if taxes are raised.  It doesn't seem as though there is debate about whether or not this cap should be raised...so let the bargaining commence....

To spending then.  According to the CBO, the budget of $3.4 Trillion in expenditures broke down as follows:
55% of it went to "Mandatory Spending Items." These include:
  • Social Security (37%)
  • Medicare (23%)
  • Medicaid and other health programs (15%) These "Big 3" add up to about $1.4 Trillion, or more than the total amount of our budget shortfall...
  • Other (16%) (I don't know what these are yet...)
  • Unemployment/jobless benefits (5%)
All of those are amounts mandated by laws passed by Congress, and cannot be changed unless Congress passes a subsequent law altering the amounts. It amounts to roughly $1.9 Trillion total. To be truthful, though, those amounts can and will go up as the population ages and more and more people sign into these entitlement programs...Thanks Boomers! Though a longer-term view would indicate that once that segment of the population begins to die off, those numbers will go down...it is a bubble, if you will.  Nonetheless, the amounts and percentages will continue to climb for the next decade or so.

The rest of spending breaks down thusly:
  • Defense 20% ($680 Billion)
  • Non-Defense Discretionary 19% ($650-ish Billion) This is everything from Pell Grants, to bridges and roads, to PBS funding, veteran's services, bridges to nowhere, etc.
  • Interest payments on already incurred debt 6% ($200-ish Billion) *Interesting to hear the Treasury Secretary say today that without more borrowing we can't continue to make our interest payments, thus if we don't continue to borrow we default on our loans...So we are borrowing from one credit card to pay down another...that just seems like lunacy...Defaulting on our debt is generally regarded as pretty much the end of the economic life that we have, so cutting interest payments is not even near the bargaining table for anyone who is remotely rational...

Congress is essentially looking at $1.3 Trillion of expenses where they can find some trimmings without having to go through the process of actually voting to make changes to the budget in the Mandatory areas.  In the last budget negotiations in the spring, one faction was pushing a $60 Billion cut in spending, the other wanted $20 Billion, and I think they settled in the middle.  It is like arguing about pennies, from one perspective, as $40 Billion in cuts isn't even a drop in the $1.2 Trillion sea...

So really, if Congress wants to attempt to fix this problem through only spending cuts, with draconian measures they can affect the amount of the gap between spending and revenue.  But even cutting Defense in half won't make a significant dent in the budget deficit (sorry mom...), and doing away with the various social programming that many Tea Partiers want won't also make much of a difference either. Put together, they can do some lessening of the gap, though. But without including the Mandatory Spending Items in the conversation, spending cuts in Discretionary Expenditures alone can't make a difference.

OK, so the bottom line on spending cuts to fix the budget deficit--there has to be pain all around to erase the budget deficit using this side of the equation as the solution. This is just the numbers talking, this is not including a very important conversation about what it means to "protect" and "provide for the common good/individual happiness"...(see earlier postings...)

And even if they do share the pain, that still doesn't impact the $14 Trillion we currently owe as debt...it just keeps it from growing any more...

Oh, and TARP or the bail-out package was an extra-budgetary expense.  So that was $700 Billion worth of raw debt, not a part of the rest of the budget...as the stimulus package to mitigate the recession was also extra-budgetary; another $800 Billion of raw debt...either that or the government just printed the money and hoped we wouldn't notice...

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