November 24, 2009
Santa Claus, the Easter Bunny, and Federal Trust FundsBy Jon N. Hall
The Congress of the United States of America is consigning you, your children, and your children's progeny to slavery.
Maybe it's the Scottish strain in my DNA, but I've been concerned about the national debt since before it breached the $1 trillion mark. That was way back in 1982. So it's heartening to see folks finally getting concerned about this issue. Debt matters.
From the installation of America's first government in 1789, it took 193 years to rack up that initial 13-digit debt. To put such an ungodly bar tab in context, here are some key debt benchmarks. Each benchmark is ten times the last one, and my source is the feds:
Notice that the average time between any two of these six benchmarks is 36.5 years. So, when does America hit her next national debt benchmark of a cool $100 trillion? 2044?
Before answering, notice that since the 1918 benchmark, the time between benchmarks has gotten shorter, averaging 30 years. So are we talking 2038?
Fear not. For the debt to balloon to $100 Trillion in 30 years, it would require a deficit of $3.33 trillion each year, and we're currently running only a $1.42 trillion deficit. Of course, this doesn't factor in compounding interest (as well as possible perturbations in the space-time continuum). Going as we are, it will be well past mid-century before the good old USA amasses a national debt of $100T. Assuming America still exits.
Here's another way to put our debt into context (same source):
The national debt went up by a factor of 25+ in the 19th century and by a factor of 2,666+ in the 20th century. That means the national debt rose 106+ times faster in the 20th century than in the 19th century. I'm beginning to see a pattern here: When we go forward in time, the debt curve gets steeper.
The national debt is a wee bit more complicated than these aggregate numbers suggest. Not all debt is created equal. Some debt has to be repaid, while other "debt" does not have to be repaid. The national debt is divided into the "public debt" and the so-called "trust fund debt," or intergovernmental holdings. The "public debt" is the real debt, the debt that must be paid back lest America default and go into bankruptcy. I like the adjective National Review's Mark Steyn uses for it: "hard," as in "hard debt."
The federal government should stop including the "trust fund debt" when reporting the gross national debt. First, the "trust funds" aren't really debt. And second, like the Easter Bunny, the "trust funds" don't really exist, at least not as trust funds. But most important, the feds are soon going to be confronted with some unpleasant choices about which "debts" they're going to honor. Will it be the "hard debt" that is purchased by willing buyers, or the "soft debt" comprising promises Congress made to get reelected?
In a must-read MacLean's article, Steyn writes of this dilemma:
The word is "unsustainable." The federal government cannot continue on its course of insane spending much longer. Soon, Congress will be forced to consider spending cuts. But what will Congress cut? We've already seen what the current regime thinks of corporate bonds (a form of debt) in its treatment of Chrysler bondholders. Contracts no longer mean what they used to. Nor does private property. Nor does the Constitution. So will Congress discriminate between foreign and domestic owners of U.S. treasuries? When commercial banks fail, will Congress allow the FDIC to renege on insured bank accounts? Or will Congress at long last make adjustments to entitlements?
Or will Congress tax the bejesus out of you? That's where that business about you being a slave comes in. Steyn again:
Rather than putting the breaks on spending, Congress is hitting the accelerator with the "mother of all entitlements": government-run health care. Instead of backing away from the abyss, Congress is joining hands and jumping in.
And Congress expects us to join hands and follow them.
Jon N. Hall is a programmer/analyst from Kansas City.