Ostensibly, sometime toward the end of this coming February, we will need to increase our Debt Limit, i.e., the total amount of money which we can borrow from others to service our spending needs. To grasp the issue more clearly, in Fiscal 2011 the U.S. spent $3.6 Trillion. These dollars were, for the most part, spent across six specific areas:
- 23% or $835 B on Medicare and Medicaid
- 20% or $725 B on Social Security
- 19% or $700 B on Defense (DoD)
- 18% or $646 B on so-called Discretionary
- 13% or $465 B on ‘Other Mandatory’
- 6% or $227 B to Service our Debt (interest)
In Fiscal 2012, the government received $2.47 Trillion in revenues of which 57 percent were received from the Income Tax. Obviously, there is a shortfall of some $1.1 Trillion, i.e., spent versus received, which must be garnered from somewhere or someone else other than from the American taxpayer.
Mainland China has lent us the lion’s share of our debt, currently at $1.15 Trillion, followed by Japan, oil exporters, Brazil and others. Said differently, the U.S. is not living within its means, i.e., it’s spending 130 percent more than it is receiving in income.
When congress last established our debt ceiling, in August of 2011 at $16.4 Trillion, it was with the clear knowledge that we would have to increase the ceiling again sometime in 2013, due partly to our sluggish economy and increased spending – as we would have spent all the money our Nation’s credit card would allow.
Due to the economic downturn within the U.S. in the past four years, U.S. income has been unable to keep pace with U.S. spending. This is not the first, nor the last time, that the government has asked its Congress to increase its credit card limit.
Should the Congress fail to raise the debt ceiling again, 40 percent of the Nation’s obligations would go wanting. That new carrier for the Navy would have to wait; that order for more F35s for the Air Force would have to be shelved. Infrastructure spending would have to be put off as would spending on certain social programs, not the least of which would be Planned Parenthood.
Nonetheless, the Nation will still be able to service its debt, i.e., the interest owed on all outstanding Treasury Bills, Notes and Bonds. We’ll have sufficient tax revenue to do so, i.e., they’ll be no ‘default’ on our debt obligations.
However, the Government will probably shut down, as it did in ’95 and ’96. And, it’s possible rating agencies, such as Moody’s may down-grade our rating, as Standard and Poor’s did in 2011. The Congress of the United States, which includes the Senate and House of Representatives; and, the president, must come to grips with the reality that we simply cannot continue our current rate of spending. We just don’t have the income, and won’t, until the Nation’s GDP – through job creation, improves. Let’s visit Greece on our own terms.