Will Obama Bankrupt The United States?

President Elect Obama has recently stated that the US will need to run Trillion Dollar deficits for many years to come to get us out of the current financial mess. Does anyone actually realize what this means? We are mortgaging away our future to make the current times better. Is it really fair to make our children and grandchildren pay the price for years and years for our problems in 2008 & 2009? Can we really solve a problem that was caused by irresponsible lending and borrowing by doing exactly what caused the problem (being an irresponsible borrower). Let’s look at the U.S. Government track record. The government has spent more money than it has collected in taxes every single year since 1969. Forget about the surpluses that were claimed during the Clinton years. That surplus used the Social Security surplus in the calculation, and Social Security is a trust fund and not a tax. The U.S. can’t count that as income, because it is money to be set aside for future retirement payments. So the U.S. is by definition an irresponsible borrower. We have shown absolutely no means to pay off the debt we are accumulating. We have not made a principle payment on the debt in over 40 years. We are living on an interest only type loan with no ability to pay it down. The world has been more than willing to finance our debt up to this point, but eventually they will get wise that the U.S. is spiraling into bankruptsy.

Lets look at how bleak the current situation is, and what things will look like if Obama is allowed to run a one trillion dollar deficit in each of his first four years in an attempt to “fix” the economy. The 2009 deficit is already projected to exceed 1.2 trillion. Below are some interesting numbers:

Current National Debt (Jan 1st 2009): $10.7 Trillion
2008 Interest on National Debt: $470 Billion
2008 Effective Interest Rate: 4.39%
2006 Number of Tax Returns that Paid Tax: 93 Million

So if we decided today we wanted to pay off the national debt in a 30 year type mortgage the average taxpayer would owe $6,681 per year for the next 30 years. This assumes that we could somehow immediately balance the budget, and not pile on additional debt.

Now let’s assume that Obama is allowed to run a Trillion dollar deficit for each of his first four years. I will assume that as we get further into debt, and our ability to repay is reduced, that lenders will demand higher interest than we are currently paying. Let’s say the effective rate becomes 5.0%. We also have Obama’s tax policies that will dramatically reduce the number of people who actually pay taxes. I have heard estimates that this number will be reduced to about 50 million people, but I will use a more conservative number of 70 million. So after 4 years of Obama the national debt payoff situation will look like this.

Estimated National Debt (Jan 1st 2013): $14.7 Trillion
Estimated Interest on National Debt: $735 Million
Estimated Effective Interest Rate: 5.0%
2013 Estimated Number of Tax Payers: 70 Million
30 Year annual payment per tax payer to pay off: $13,010

So in just four years time to fix the current problems, the average tax payer will be stuck with an additional $6,340 bill per year for the next 30 years, based on Obama’s deficit spending. Some of you out there are young, and will be stuck with all 30 years of these payments (assuming we become a responsible borrower with the intention of paying back our loans). Others who have children or grand children, will not be paying taxes for the next 30 years, and will just shove this expense off on their kids and grand kids. When Obama talks of a $700 Billion stimulus package, you need to think about what that actually costs. The cost is on the order of $1000 per year, per taxpayer for the next 30 years. I like nice roads and bridges and everything, but that is way more than I want to pay for them.

Unfortunately we are an irresponsible borrower, and that will not change anytime soon. Eventually our interest payments on our debt will exceed what we take in taxes, and the United States will be Bankrupt. Looks like this will be happening sooner rather than later. Is there anything that can be done now? Sure. Write your representatives in congress, and tell them you do not want anymore stimulus without a plan to pay for it. Since we really have no plan on ever paying for this, we would be better off dealing with hard times now, than destroying our country’s and our children’s future to make 2009 better. Let the economy find its own natural bottom, and it will start to grow again.

The US economy has been bubble driven for almost 15 years now. First it was the stock market bubble that made everyone flush with cash, and drove consumer spending. Then it was the housing bubble, where refinancing drove consumer spending. Sure, we can create a government spending bubble, and extend the good times out for a few more years, but this is yet again an unsustainable bubble. Will we ever learn a lesson from all these bubbles? What happens when we stop running Trillion Dollar deficits? How about letting the U.S. economy find some new footing without being sustained by a bubble? We are just delaying the pain, and mortgaging our future to do it, and this need to stop now.