Congress has just postponed the debt ceiling until December 8 but at least they didn’t repeal it. It is crucial to retain regular and explicit debt ceilings as a reminder of the urgency of putting our debt on a downward course (as a percentage of GDP).
As a reminder:
The debt now stands at 77% of GDP (for the public part on which we pay interest), the highest it has been since right after WWII. The $15 trillion public debt right now is essentially “free” money because interest rates are so low. But interest rates will inevitably return to more normal, and higher, historical levels and, when this happens, interest payments on the debt will skyrocket.
The entitlementprograms of Social Security. Medicare and Medicaid are the drivers of our debt problem because their costs are increasing so rapidly. Medicaid costs the federal government almost $400 billion per year. Medicare costs the federal government $400 billion per year more than it receives in FICA taxes and premiums paid.
The attached chart demonstrates the scope and urgency of the problem. By 2032, just fifteen years from now, all federal tax revenues will be required to pay for Social Security, Medicare, Medicaid and interest payments on the debt. This means that all of ordinary discretionary spending: on defense, various government operations and social welfare programs will be paid for entirely from new deficit spending and, in the process, will almost inevitably suffer huge cutbacks. The lower-income and poor people, who are the most reliant on government programs to get by, will be the most adversely affected.
Conclusion. Such a dreary scenario of drastically tightened government spending does not have to occur. It can be avoided by immediately starting to make sensible curtailments, not actual spending cuts, all along the line. Do our national leaders have the common sense and fortitude to do this?
Congress has just voted to postpone the debt ceiling by three months until December 8. That’s okay; it’s just a tactic which also provides quick federal help for the damage caused by Hurricane Harvey. The important thing is not to repeal the debt ceiling entirely.
As I have said before, global warming and national debt are both creeping catastrophes. We ignore them at our great peril. Right now hurricanes Harvey and Irma are reminding us of the huge devastation which can be caused by extreme weather events (which are made more likely by global warming).
In the same way, having an explicit debt ceiling reminds us at regular intervals that we have a very serious problem which will eventually catch up with us if we don’t take strong action to address it.
The National Debt, now 77% of GDP (for the public part on which we pay interest), is the highest it has been since right after WWII. It is predicted by the non-partisan Congressional Budget Office that it will keep getting steadily worse without major changes in current policy.
The urgency of the debt problem is based on the fact that interest rates are now so low that our debt is almost “free” money. But interest rates will inevitably return to more normal, and higher, historical levels and, when this happens, interest payments on the debt will increase dramatically. This will eventually lead to a new Fiscal Crisis, much worse than the Financial Crisis of 2008.
The solution to this problem need not be drastic. Federal spending is growing by 5% per year while tax revenues are increasing by 3% per year. All we need to do, so to speak (because it will take some restraint!), is to hold spending increases to about 2.5% per year and then the federal budget would be balanced in a few years and debt would start shrinking as a percentage of GDP.
Conclusion. Congress, the President and the American people need to be reminded often and loudly how serious the debt problem is. Hopefully the message will eventually sink in. The sooner the better!