Can We Afford Not Borrowing?

The amount of road between us and the can is getting short, and we still haven't figured out what to do with the can, whether we kick it further down the road, stand and stare at it, or stop kicking it and go home.  Some people (President Obama) have claimed that when we hit our credit limit, we will default on our fiscal obligations.  Many others have said that there's plenty of revenues to pay our debts, after which we will prioritize spending, but a Bipartisan Policy Center report indicates that we would need 44% across-the-board spending cuts, after paying off our creditors.  The question is, can we really quit borrowing cold turkey, or do we need to visit the loan shark?

Whatever we do, it has become abundantly clear that we are running out of road.  Of the $1,200,000,000,000 we borrowed in 2010, about $840,000 million (70%) came from the printing press, because there are no countries or individuals who can afford and are willing to loan the $1.2 trillion.  This year, we are expected to borrow (or print) $1.5 trillion.  To put it in proper perspective, the World GDP is approximately $62.9 trillion, and the US GDP is about $14.7.  We are borrowing 1/40 of the economic activity of the world, or 1/10 of our own economic activity every year.  In terms of gross personal income, the US government would need to take about 40% of every dollar, after the standard deduction, just to break even.  Alternatively, it could take 100% of every dollar earned after the first $175,000 (or thereabouts), while maintaining the current rates below $175,000.  That's per return filed, so it includes joint returns.  Of course, if people can't enjoy their money, why would they bother earning it?

To use the president's example of the family budget, our family earns $50,000 a year, spends $85,000, and borrows $35,000, while paying a $350,000 mortgage (which would require about $20,000 a year, if it were a mortgage, but it is currently interest only, and so is about $5,000).  It is clear that our family budget has two problems; the $35,000 we borrow yearly, and the $350,000 we already have borrowed.

Continuing the example, if we look at our family just 10 years ago, in 2001, we earned $46,300 and spent $43,300, using the extra to pay down our mortgage.  In 2007, we earned $59,700 and spent $63,500, borrowing $3,800.  Adjusting the 2001 spending for inflation, it would be about $53,000 in today's dollars.

So we have and can live on our present revenues, while only borrowing $130 billion a year, if we just go back to 2001 government.  Who would claim that 2001 government was too small and ineffective, or lacked waste?

What happened between 2001 and 2011 to blow up the spending?  The favorite culprits of the left are the Bush wars and tax cuts.  True, the wars added $150 to $250 billion per year, but it's hard to say what the tax cuts did, because revenues and taxes are dynamic, and revenues went up.  The tax cuts may have added $500 billion to the revenues, rather than cutting anything.  The $500 billion in revenue increases, and $250 billion in wars meant we should have had a $250-billion surplus, so how did we get $200-billion deficits?  The No Child Left Behind Act added between $60 and $80 billion per year.  The prescription drug benefit added another $50 billion per year.  The real cost of the wars includes all of the social spending demanded by Democrats to gain their support.  The budget became bloated with increases in recurring annual programmatic expenditures, and one-time projects.

Under President Obama, with Democratic majorities in the House and Senate, the programmatic increases and one-time projects worsened by a factor of 10.  Suddenly, the federal government took on an extra $100 billion a year in unemployment payments.  The military budget ballooned by another $200 billion, even though we were withdrawing from two theaters of operation.  Another $200 billion per year was funneled into various porkish projects, and federal employees saw increases in their base salaries and pay grades.  The Democrats spent and spent another $1,000 billion per year, while revenues fell $350 billion.

It is now clear what happened.  We had an extreme surge in social program spending, with absolutely no way to pay for it.  It's like having a $50,000 income, with a $290,000 mortgage, and then running out and buying a Ferrari California.  Are we living within our means?  No.  Can we live within our means?  Yes.

So if we keep that Ferrari (all those social programs), then we will have to visit the loan shark, and then visit another loan shark to pay off the first, and then another to pay off the second, until we run out of loan sharks.  We cannot keep the Ferrari.  We cannot maintain all of the social programs at their current levels.  We must go back to 2001 government, but we must do it gracefully.  A $14.5-trillion debt is hard to manage, but if we really, really had to, we could probably (slowly) go up to $16.5 trillion.  This means we can borrow up to another $2 trillion, while taking ourselves back to 2001 government.

It is possible.  First, we go back to 2008 government.  That should be simple, considering it was only 3 years ago.  We will still have to borrow about $600 billion a year, but that's only the first year.  Then, over the next four years, we shrink and cut, possibly going back to a lean 2001 government.  The yearly deficits being $600 billion, $400 billion, $200 billion, $100 billion, and then 0, totaling $1.3 trillion.  Then, we start running surpluses and paying down the debt.

Gone are ObamaCare, No Child Left Behind, free school lunches, CHIP, prescription drug program, public transportation subsidies, rope bridges for squirrels, 99 weeks, Obama Kobe beef diners, "green jobs," et cetera.  Remember, we cannot afford the Ferrari.  We have run out of other people's money.  We can restructure our tax code, to remove the social engineering "loopholes" which have been inserted into it, but we need to be wary of pulling too much money out of the economy; after all, even a lawnmower won't run if we choke it.

The amount of road between us and the can is getting short, and we still haven't figured out what to do with the can, whether we kick it further down the road, stand and stare at it, or stop kicking it and go home.  Some people (President Obama) have claimed that when we hit our credit limit, we will default on our fiscal obligations.  Many others have said that there's plenty of revenues to pay our debts, after which we will prioritize spending, but a Bipartisan Policy Center report indicates that we would need 44% across-the-board spending cuts, after paying off our creditors.  The question is, can we really quit borrowing cold turkey, or do we need to visit the loan shark?

Whatever we do, it has become abundantly clear that we are running out of road.  Of the $1,200,000,000,000 we borrowed in 2010, about $840,000 million (70%) came from the printing press, because there are no countries or individuals who can afford and are willing to loan the $1.2 trillion.  This year, we are expected to borrow (or print) $1.5 trillion.  To put it in proper perspective, the World GDP is approximately $62.9 trillion, and the US GDP is about $14.7.  We are borrowing 1/40 of the economic activity of the world, or 1/10 of our own economic activity every year.  In terms of gross personal income, the US government would need to take about 40% of every dollar, after the standard deduction, just to break even.  Alternatively, it could take 100% of every dollar earned after the first $175,000 (or thereabouts), while maintaining the current rates below $175,000.  That's per return filed, so it includes joint returns.  Of course, if people can't enjoy their money, why would they bother earning it?

To use the president's example of the family budget, our family earns $50,000 a year, spends $85,000, and borrows $35,000, while paying a $350,000 mortgage (which would require about $20,000 a year, if it were a mortgage, but it is currently interest only, and so is about $5,000).  It is clear that our family budget has two problems; the $35,000 we borrow yearly, and the $350,000 we already have borrowed.

Continuing the example, if we look at our family just 10 years ago, in 2001, we earned $46,300 and spent $43,300, using the extra to pay down our mortgage.  In 2007, we earned $59,700 and spent $63,500, borrowing $3,800.  Adjusting the 2001 spending for inflation, it would be about $53,000 in today's dollars.

So we have and can live on our present revenues, while only borrowing $130 billion a year, if we just go back to 2001 government.  Who would claim that 2001 government was too small and ineffective, or lacked waste?

What happened between 2001 and 2011 to blow up the spending?  The favorite culprits of the left are the Bush wars and tax cuts.  True, the wars added $150 to $250 billion per year, but it's hard to say what the tax cuts did, because revenues and taxes are dynamic, and revenues went up.  The tax cuts may have added $500 billion to the revenues, rather than cutting anything.  The $500 billion in revenue increases, and $250 billion in wars meant we should have had a $250-billion surplus, so how did we get $200-billion deficits?  The No Child Left Behind Act added between $60 and $80 billion per year.  The prescription drug benefit added another $50 billion per year.  The real cost of the wars includes all of the social spending demanded by Democrats to gain their support.  The budget became bloated with increases in recurring annual programmatic expenditures, and one-time projects.

Under President Obama, with Democratic majorities in the House and Senate, the programmatic increases and one-time projects worsened by a factor of 10.  Suddenly, the federal government took on an extra $100 billion a year in unemployment payments.  The military budget ballooned by another $200 billion, even though we were withdrawing from two theaters of operation.  Another $200 billion per year was funneled into various porkish projects, and federal employees saw increases in their base salaries and pay grades.  The Democrats spent and spent another $1,000 billion per year, while revenues fell $350 billion.

It is now clear what happened.  We had an extreme surge in social program spending, with absolutely no way to pay for it.  It's like having a $50,000 income, with a $290,000 mortgage, and then running out and buying a Ferrari California.  Are we living within our means?  No.  Can we live within our means?  Yes.

So if we keep that Ferrari (all those social programs), then we will have to visit the loan shark, and then visit another loan shark to pay off the first, and then another to pay off the second, until we run out of loan sharks.  We cannot keep the Ferrari.  We cannot maintain all of the social programs at their current levels.  We must go back to 2001 government, but we must do it gracefully.  A $14.5-trillion debt is hard to manage, but if we really, really had to, we could probably (slowly) go up to $16.5 trillion.  This means we can borrow up to another $2 trillion, while taking ourselves back to 2001 government.

It is possible.  First, we go back to 2008 government.  That should be simple, considering it was only 3 years ago.  We will still have to borrow about $600 billion a year, but that's only the first year.  Then, over the next four years, we shrink and cut, possibly going back to a lean 2001 government.  The yearly deficits being $600 billion, $400 billion, $200 billion, $100 billion, and then 0, totaling $1.3 trillion.  Then, we start running surpluses and paying down the debt.

Gone are ObamaCare, No Child Left Behind, free school lunches, CHIP, prescription drug program, public transportation subsidies, rope bridges for squirrels, 99 weeks, Obama Kobe beef diners, "green jobs," et cetera.  Remember, we cannot afford the Ferrari.  We have run out of other people's money.  We can restructure our tax code, to remove the social engineering "loopholes" which have been inserted into it, but we need to be wary of pulling too much money out of the economy; after all, even a lawnmower won't run if we choke it.