Wednesday, April 28, 2010

The Difference Between Greece and US Debt Issues

What's the difference between the huge debt issues facing Greece and the United States? Greece is actually doing something to address the problem, and the United States is actually doing things that makes the problem worse. Its just a matter of time before there are riots in the streets here in the United States. The sooner tough choices are made, the better, but don't hold your breath.

The thing about defect and debt reduction, is that only actual results count. You can plan to do it, and talk about doing it, but unless it actually happens it simply does not count. If the Obamacare Bill actually lowers the deficit in year 10 than the president at that time can take the credit. It will be that presidents budget that lowered the deficit, not Obama's.

So lets look at Obama's track record and actual results to see if he really cares about the deficit and the debt. First off, we need a clarification about the numbers. In the old days when Social Security and Medicare were running surpluses, they would count those surpluses against the debt. That way Clinton could claim a surplus on the budget where none existed. Since Social Security and Medicare are entitlements, that money collected must be paid out. It is almost like a company taking out a loan, and calling the loan revenue in there financial statements. Anyway, now that there are no longer surpluses in Social Security, the government has decided to report the deficit differently than they did in they Clinton years and not include Social Security. So when you look at the chart above you can see that Obama's deficit was close to 2.5 Trillion in 2009, not the 1.7 Trillion that is reported. We are 2.4 trillion more in debt after one year of Obama, than before hand. The deficit for 2009 alone represents close to the entire debt accumulated by the U.S. through the year 1980. So Obama's deficit spending in one year exceeded the sum of all deficits through our countries first 200 years of existence.

The chart above shows 10 year periods before the year 2000 and 1 year periods after that. You can see how Clinton who was president for much of the 1990s was not really any better on the debt than Regan/Bush Sr. before him. in the 1980s. So now lets look at the most recent Bush. He racked up a ton of debt, but was making some progress on the deficit until 2008 when the economy collapsed. 2008 ended in an unheard of and unacceptable deficit of 1 trillion. Obama, has now got that number up to 2.5 trillion in just one year, and it is not a one off deficit to deal with the economy. The deficits will be massive as long as he is in office and keeps spending. So he can talk about deficit reduction all he wants, but his actions make him the most irresponsible president ever. He will have us in worse shape than Greece in a year or two. To get out of this mess, Greece is cutting union wages and benefits. Do you think that will happen on Obama's watch?

The last thing you need to know about the debt is debt servicing. Right now interest rates are at all time lows and it is not costing us nearly as much as it should to carry the debt. Since we have no plans or ability to pay it off, we are at the mercy of the credit markets to stay afloat. If interest rates go up (and they will) we will have no choice but to pay the higher rates. Lets say that we are paying 3% on average right now on our debt. A single point increase in interest rates increase our interest expense by 33%. A 3% rise in rates doubles our interest expense. A 6% rise triples our interest expense. We can't even afford the interest payments now, as we just borrow more money to pay it, so we really can't afford the interest rate increases that are bound to happen. So under our current leadership we are rapidly approaching a Greece level deficit/debt problem, and have no immediate plans to address the situation. Rather than cutting spending like the Greeks, we just continue to increase spending, relying on "rich people" to someday dig us out of this mess. What happens when we go to the rich people for help and the tell the government to fuck-off because they are moving to New Zealand, or anywhere else but here. Rich people will not stand for socialist level taxes without socialist level services, so they will simply stop working or move. When this happened the destruction of America will be complete, and we might as well just default on our loans.

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