Uncle Sam’s debt is getting “interest”ing

That which cannot go on forever, ceases:

Interest payments will make up 13 percent of the federal budget a decade from now, surpassing spending on Medicaid and defense.  Finding the money to pay investors who hold government debt will crimp other parts of the budget. In a decade, interest on the debt will eat up 13 percent of government spending, up from 6.6 percent in 2017.

Within a decade, more than $900 billion in interest payments will be due annually, easily outpacing spending on myriad other programs. Already the fastest-growing major government expense, the cost of interest is on track to hit $390 billion next year, nearly 50 percent more than in 2017, according to the Congressional Budget Office.

Some members of Congress want to set the stage for even more red ink. Republicans in the House want to make last year’s tax cuts permanent, instead of letting some of them expire at the end of 2025. That would reduce federal revenue by an additional $631 billion over 10 years, according to the Tax Policy Center.

Despite the tax cuts pushed by the Trump administration, the Federal government collected a record amount of tax revenue from October 2017 to August 2018. Washington doesn’t have an income problem. It has a spending problem.  Roughly a third of the Federal Budget in any given year is financed by borrowing money.  A family that ran its household budget that way would soon be bankrupt.  The Federal government has creative ways of masking its increasing insolvency, but it’s there nonetheless.  The spending spree of the past two decades was possible mainly due to low interest rates across the economy.  As the economic outlook in the U.S. turns upward, so will those interest rates.  A single percentage point increase equates to about $160 billion, given the official government debt of just shy of $16 trillion.  (Counting the ongoing raid of Social Security Funds — listed innocuously as “intragovernmental holdings” — the actual debt is over $20 trillion.)

In short, next year the government will spend close to $400 billion just to service the debt.  Not a penny of that amount will improve the infrastructure of our nation, modernize our military or provide services for our citizens.  It will simply go straight into the pockets of those who hold pieces of our country’s debt.

That debt has increased eight times faster than the government’s annual budget.  In 1981 — 37 short years ago, the U.S. debt hit $1 trillion for the first time.  That was an accumulation of more than two centuries.  In less than 40 years, that debt increased 1,600%.  The Federal budget over the same period increased from $1.9 trillion in 2015 dollars* to $3.8 trillion in 2015 — a “mere” doubling in spending.

We’ve been running like the cartoon coyote in thin air after leaving the cliff.  Gravity — in the form of normal historical interest rates — is about to kick in.

It will not be pretty.

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* People are so used to hearing about inflation, and the need to “adjust for it” when comparing years, that few stop to ask what drives it.  The standard explanation is that basic market economics causes it.  Not true — government deficit spending does.  By flooding the market with dollars to enable his spending sprees, Uncle Sam diminishes the value of each individual dollar.  It is, in effect, a “stealth tax” on the spending power of Americans.  The value of a U.S. dollar remained remarkably stable from 1787 to 1913, with a directly convertible exchange rate of $20 to an ounce of gold.  Only after creation of the Federal Reserve, which enables this gorging on debt, did that change.  As of this writing, one ounce of gold is worth about $1200.  That represents an 85% loss of dollar value in just over a century.

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College and Congressional qualifications

…have apparently become a topic of conversation in Georgia:

A leading Republican candidate for U.S. Senate in Georgia criticized a fellow primary opponent for having only a high school degree. David Perdue, a businessman and first-time candidate for office, was touting his experience and education to a group of voters in January when he made a reference to “a high school graduate in this race.”

That candidate is Karen Handel, the former secretary of state and gubernatorial candidate. Handel left an abusive home at age 17, according to her campaign, and finished high school. She never graduated from college.

“Look at the backgrounds. Look at the credentials. There’s a high school graduate in this race, okay? I’m sorry,” Perdue told a group of Republicans in Bibb County. The Atlanta Journal-Constitution has the video

The Perdue campaign told the AJC in a statement that “David was simply making the case that he is the most qualified person in this race to help get our economy back on track so that we can start paying down the massive federal debt. His comment was based on facts that are a matter of public record.”

Here we see a glimpse of the arrogance of the would-be ruling elite.  Question: who do you think knows ‘real life’ for the average American best: someone who went straight to college and became a successful (and wealthy) businessman, or someone who clearly had enough character to overcome an abusive childhood and achieve at least the responsibility of Secretary of State for Georgia?  Which candidate will relate better to the challenges most of their constituents face?  Which is more likely to favor legislation the strengthens the hand of their fellow college-graduate-turned-successful-socialites?

Admittedly, I know little else about any of these candidates’ backgrounds (I’m not a Georgia voter, so have not followed this race until now).  But I truly hope this conversation becomes widespread, for two reasons:

– It’s long past time we re-examine what ‘representative government’ means.  I don’t think it means a legislative caste drawn almost exclusively from a pool of the wealthy and highly credentialed.  Do we want bright, intelligent, empathetic representatives?  Absolutely.  I’m not certain a college education necessarily implies or guarantees any of those traits anymore.

– Which comes to the second point: we need to have an honest conversation about the value of college today.

The Perdue campaign, in their response to this public kerfuffle, made reference to the need to pay down the national debt.  I have no idea whether Perdue used student loans to get his allegedly all-important degree, or whether he was fortunate enough to pay as he went.  Regardless, it seems Handel didn’t attempt college by taking on massive amounts of debt, as is the case for far too many people these days.

Who, then, is more likely to have the values of thrift and discretion that are essential to staunching the bleeding of ever-increasing debt?  Just a thought…

I firmly believe the college model as most people approach it today is outdated.  It has become yet another big business, bilking consumers for as much as the market will bear–and then some–while returning as little as possible in many cases.  In addition, what college provides these days is often less ‘education’ than it is ‘indoctrination’ — and that may in fact be part of the concern over Handel’s lack thereof (“oh, no!  She hasn’t spent four–or more–years studying Feminist Studies and The History of ethnic grievances!  We can’t have that in Congress!)

The well-ingrained social assumption that a college degree is essential to make a living today is simply not true, as a handful of individuals like Mike Rowe are quick to point out.  Hard work and character are still enough to make a way in this world, although the cards are often stacked against them.  An over-emphasis on credentialism undermines what a merit society is supposed to be.*

Higher education is hitting the outer limits of a bubble that has gone on for decades.  Without the availability of easy loans, there is no way tuition could have skyrocketed to the levels it has reached.  It’s well past time to ask what the return on this debt-driven experience really is, and whether it’s really an essential part of developing tomorrow’s workers, leaders and entrepreneurs.  We may just find that it’s become part of the machinery that keeps the ‘sheeple’ on desired tracks.

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* This is not just an academic discussion for our family.  The Oldest Musketeer is a high school graduate now.  He has been working an entry level job this year, while we examined his options.  He knows what he’d like to do, and it does require a certain amount of credentialing… but not necessarily a 4-year college degree.  He is but one example of many young men and women who would benefit from a more trade-school approach that focuses on what they find fulfilling, instead of the university model that saddles so many youngsters with mandatory classes they will never use…and the debt that pays for them.  As such, we’ve been careful to select a two-year Associate Degree program that focuses on the core skills and credentials he’s trying to obtain.  By doing so, we’re plotting out a five-semester track for which we already have money saved to cover slightly more than three of the five if he continues to live at home.  If the plan completes as envisioned, he’ll graduate with a degree in something he wants to do, with no debt hanging over his head (or Mom and Dad’s).  There were some who showed signs of curiosity when he didn’t immediately follow his peers off to school last Fall.  As homeschoolers, we’re used to the occasional eyebrow.  I can say that this year of work and self-discovery was a valuable investment in its own right, and I’ve enjoyed watching him grow.  My point is simply that there has never been–and never will be–a ‘one size fits all’ solution to getting the next generation on its feet and self-sustaining.  No child–or society–should be left on autopilot.  ((this postscript added with the approval of the Oldest Musketeer))