National Debt Overview

The national debt is a financial disaster slowly dragging down this country. In this article, we conduct a national debt overview to introduce you to the concept of the national debt and the problems facing us.

Overview

The national debt is exactly what the name describes. Is the total cumulative debt owed by the federal government on various financial obligations. The feds don’t borrow money as you or I do, however. Nope, no credit cards for Congress and the White House. Instead, the federal government issues debt securities in the form of treasury notes for the most part. Investors then purchase these notes. The notes state that for buying them today, the investor will receive a certain payout down the road. The amount owed is the payout. This leads to two major problems in the United States.

Annual Deficit

The first problem we face is that the government is running and will continue to run an annual deficit. This year the deficit is $1.6 trillion. This is a huge number. Pundits on television and radio will tell you it is the fault of the Democrats or Republicans depending on the pundits particular political leanings. In truth, both parties run up the debt. President Obama has spent like mad, but so did President George W. Bush who signed off on a Medicare prescription plan that is a crime against nature from a national debt perspective.  Regardless, this annual deficit adds up every year like a credit card balance and causes us financial distress through interest payments

Interest Payments

As the debt climbs, the amount we must pay in interest also climbs. In 2011, we are estimated to pay between $400 and $500 billion dollars. That is a huge number that could be used for other things such as education, infrastructure, Social Security and so on. In another five years or so, the annual interest payments may actually be more than the military budget which is currently in the $700 billion range.

Interest Rates

To borrow a phrase from Dennis Miller, interest rates are the Sword of Damocles that hang over our collective head. The interest rates the federal government must currently pay are incredibly low. As investors start to recognize there is a good possibility we may never pay off our debt, they will demand higher returns given the increased risk of a default. This will mean higher interest rates. When rates go up, the total interest we pay each year will shoot up like a rocket heading to space. In short, interest rates may do to this country what two World Wars and the Soviet Union never could – destroy our way of life.

Unfunded Liabilities – The Real Debt

You might think things sound a bit grim at this point. Well, it gets worse. You are told repeatedly that the national debt is in the trillion teens. It is not. It is actually much higher. The total number is believed to be in excess of $100 trillion dollars. How come you don’t hear about it? The government uses accounting sleight of hand to claim that certain debts should not be counted as part of the national debt. The debts are still there, they just aren’t included in the calculation. It is like figuring out your net worth, but excluding your mortgage! Yes, it is outrageous. Regardless, the government owes huge amounts on Social Security and Medicare that it hasn’t paid. In fact, it has been BORROWING money from Social Security for decades and now cannot repay it! It is a boondoggle beyond comparison. As the Baby Boomer generation retires, no amount of accounting shenanigans can hide the problem anymore. In short, the bill is coming due.

What It All Means

So, are we screwed, blue and tattooed?  The short answer is yes…yes, we are. Can we get out of it? Maybe. The problem is we do not have the political will to do it at this point. To show you how dire the situation is, keep in mind that if we just paid for Medicare, Social Security and the military, we would still run an annual deficit.  Are a generation of older voters going to be willing to dump their health care, Social Security checks or the military? Are people who are already suffering in this economy going to vote to raise their taxes? It is going to take one hell of a strong willed and persuasive politician to convince Americans to do so. Sadly, I don’t see such a person present at the moment.  Such a person may not exist.

And that is a huge problem.

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