​​Businessman

​Politically Active and Aware

Gregory C. Duerden

FEDERAL DEBT   101     

( and CUTTING Federal Spending Solution )

          Understanding Federal Economics is almost impossible, but just know even the uninitiated can get a fundamental understanding.  Although there is not a single source of revenue nor a single payday, the culmination of revenue and expenses SHOULD still balance, but that takes a very disciplined Congress and we all know that is impossible with our current crop of REDCOATs and BLUE COATs entrenched in office!!


                            WHERE DOES THE FEDERAL DEBT COME FROM ??


          One area we can understand is how the Federal Debt is generated and why.  Congress does have a "debt ceiling" they are suppose to stay UNDER!!  Except they keep "raising" the debt ceiling every few months.  What this 'ceiling' actual does is impose limits NOT ON CONGRESS but on the Treasury Department which cannot issue more Treasury bills, bonds or notes than the revenue provides.  BUT, the Secretary of the Treasury does have the option to pay employee salaries , Social Security benefits, or the interest on the national debt - the debt limit is like the credit limit on your credit cards, with one exception . . . Congress is in charge of the spending AND the debt limit.  


       Congress already knows how much it will add to the debt when it approves each Fiscal Year budget, usually a few months BEFORE the Fiscal Year (FY) starts, hopefully - but we don't always have that accomplished, do we (e.g., such as the Debt Ceiling Crisis of 2013 which resulted in sequestration and 'government shutdown,' or the 2011 Debt fiasco, etc.).  


                                                 THE  DEBT  CEILING


     The Debt Ceiling is a Congressional invention back in 1917 (the Second Liberty Bond Act).  It allowed Liberty bonds to be issued by the Treasury Department to finance the expenses of World War I.  They were long-term bonds with lower interest payments than the shorter-term bonds issued before the Act.  This is when Congress gained the ability to control overall government spending for the first time.  But in 1974's Budget Control Act, Congress created the budget process that allows it to control spending.


      When the budget process works, both houses of Congress and the President have already agreed on how much the government will spend and there is no need for a debt ceiling. The ceiling then allows the government to borrow money to pay the bills it has already approved. 


      Politicians create programs which benefit their constituency (the definition of 'Pork' are the authorization of such 'special programs' attached to unrelated legislation . . . such as the 'Pork' added to the 2018 Budget, which is actually the FY19 budget, as 'sweeteners' to get bi-partisan support for the legislation).  These type of increases in the budget pushes the national debt higher and higher.


     The nation's debt limit is similar to the limit on your credit card.  Congress is in charge of both its spending and the debt limit.  The debt ceiling and government spending can become a concern if the debt to GDP (Gross Domestic Product) gets too high.  According to the International Monetary Fund, that level is 77% (percent) for developed countries (the US is currently at 96% of GDP with the new FY19 Budget).  When debt to GDP ratio rises too high, debt owners become concerned that a country can't generate enough revenue to pay the debt back.


      At the end of FY 2018 the gross US federal government debt is estimated to be  $21.09 Trillion, according to the FY19 Federal Budget.


     Then according to the OECD (Organization for Economic Co-operation and Development),  general government gross debt (federal, state, and local) in the United States in the fourth quarter of 2015 was $22.5 trillion (or 125% of GDP); subtracting out $5.25 trillion for intergovernmental federal debt to count only federal "debt held by the public" gives 96% of GDP (Gross Domestic Product).


                                                                        2018  BUDGET  (FY2019)


       The 2018 budget (for FY19) had too many 'deal sweeteners' (aka: pet project 'pork') such as McConnell's favorite: a tax break for Berea College (a small private college in McConnell's home state of Kentucky).  It also included a few more, such as:  hefty special interest tax provisions for television and film companies and NASCAR, credits for wind energy facilities, fuel cell projects, a hybrid solar lighting deduction, debt forgiveness for railroad maintenance, mine rescue training payments, excise tax re-payments to rum producers in P.R. and the US VIrgin Islands, etc. 


     The FY19 budget will add $17.4 Billion to the deficit AND raises the debt ceiling for another year . . . talk about postponing 'paying the piper!!' 


                                                  'VOODOO' ECONOMICS

                                       (aka: Supply-Side Economics)


      But when did this Mess start?  Just after WWII the National Debt was in a nose diveuntil the 1980 era of Reagan's Supply-Side Economics (the philosophy George H.W. Bush, "Bush1" or "Bush41" called 'Voodoo Economics' when he was running against Reagan).  Both Pres. Reagan and his VP Bush came into office amidst complaints of "out-of-control debt"  -  IF they only knew where we were going to go 45+ years afterward - with debt equal to a stack of $1000 bills "67 miles" tall.  Eight years later, at then end of the Reagan term, the beginning of the "Supply-Side Economic Author" added another 125 miles to that stack!!"


     We went from a debt nose dive to debt explosion, . . . if ONLY Reagan/Bush1/Clinton/Bush2/ Obama and the Congress' of all these administrations had all balanced their budgets  .   .    .      the National Debt would be $14 TRILLION Dollars lower, AND IF Supply-Side Economics had worked!  (NOTE:  During Clinton's term, Congress DID balance the budget   ONCE  , which actually dropped the debt increase, briefly.)


                                                                         What is the effect of GDP?


     Above we talked about the percentage of GDP?  At 100% it would take the entire Gross Domestic Product - which is one full year and the full value of what the US produces during that entire year to pay off that debt.  That is not unlike being a family who makes $100,000 buying a $250,000 house with 20% down and taking a $200,000 mortgage.  That's isn't outlandish but is almost normal, right?  It would just take ALL the money they make over two years to payoff that debt.  


     The U.S. debt is NOW OVER 100% of the GDP level (actually at 125% at then end of 2015, so, by now we are WELL OVER the 125% level!!). 


    Only 1/3 of the debt is owed to foreign entities, another 40% is owed to Americans (pension plans who invested in Treasury Bonds), the rest is owned by the government's Trust Funds (Social Security Trust Fund and the military pension fund).  So it is not ALL doom and gloom!


    But Supply-Side Economics does NOT work!  Cutting Taxes does NOT always increase revenue (that is what is literally called 'Voodoo Economics')!     Tax cuts DO stimulate the economy, especially during a recession.  But tax cuts and NOT cutting the spending is what INCREASES the DEBTThat is what has been happening.


                         OUR  SOLUTION involves a RADICAL IDEA


 HOW does Congress cut the spending??  Radical Idea:  Cut the 20 to 30, of the 650+, Government Agencies which DO NOT have Constitutional mandates for their existence or for the Federal Government to actually be doing anything (e.g., EPA, BLM, Forest Service, National Parks, EDUCATION (!), BATF, FDA, IRS, Agriculture, Banking, Housing and Urban Affairs, Energy, Transportation, Natural Resources, Health, Labor, Small Business, etc.) - according to the 10th Amendment these are all things the states should be doing   .    .    .  not the Feds​, Constitutionally -  and  you will thereby CUT Governmental Spending!


I AM PROPOSING cutting entire agency/department budgets!!  Transferring employees to other departments, which are authorized by the Constitution (National Defense, Interstate Commerce, Treasury, making 'necessary and proper' Federal law, International Relations and treaties, Trade, tariffs, import/exports, declaring war, maintaining an army and navy, making pardons, appointing Federal judges, ambassadors, etc.) within the three branches, until normal attrition and regular RIF (reduction in force) reduces the payroll.


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 If any of the above makes sense to you, if you see the same DANGERwe see, if you think we need more Congressmen and women who are likewise concerned about the Debt to GDP ratio and what it meansif you see a need for limiting government spending and thereby limiting the debt - a radical idea !! -  then  we would urge you to VOTE on Nov. 6th for            GREGORY C DUERDEN on the Independent American Party (IAP)  ticket for                 Utah's Third Congressional Seat.



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