For the first time in six years, the Congressional Budget Office (CBO) reckons the budget deficit of the United States will increase in 2016 and continue increasing for the next 10 years or so. Generations to come may end up being even more FKD than we are, all thanks to America’s public debt crisis.
Old Folks and Interest Rates: A Match from Hell
Even after Congress was lauded for passing this year’s 2009-page omnibus spending bill, we all seem to have stopped caring about deficit spending and our national debt. This year, the government plans to overspend by $544 billion, a six-percent increase from last year, leaving U.S. taxpayers with $14 trillion in public debt at the end of the 2016 fiscal year.
We’re not trying to scare you with these big numbers, but if creditors were to ask the United States to pay up all at once, every single one of us would have to pay close to $60,000. Add that to your outstanding student loans total and you’re in a pickle.
Odds are, that won’t happen anytime soon and it won’t happen all at once. Nonetheless, there is something a bit nerve-wracking about increasing our national debt and continuing down this path of overspending.
This year, the increase in expenditures is the result of a seven-percent increase in mandatory spending (mainly Social Security and Medicare), a three-percent rise in discretionary spending and a 14-percent surge in the interest payments unto themselves.
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The Baby Boomers are now in full swing of taking advantage of federal benefits. The CBO’s projection says that Social Security (SS) spending will increase by $28 billion, or three percent, in 2016 alone. Health care spending is projected to increase by $104 billion, an 11-percent increase.
The slight increase in discretionary spending, the portion of the budget that is allocated through appropriations, is due to Congress raising the spending limit. This spending is optional, as opposed to the mandatory spending required by law, and is directed at things like: defense, agriculture, education, veterans’ benefits, transportation, energy and whatever else the government decides it should spend it on.
The spending we really find disturbing is the money spent on paying off the interest on what the the government has borrowed. Six percent of total government spending goes to just paying interest on the national debt, which stands at close to $18.97 trillion. The $32 billion-increase in net interest spending is due to expected increases in the interest rate while the debt mountain just keeps getting larger. Go check out the debt clock on the GenFKD homepage to see how fast those numbers tick.
Is the United States on the Way to Becoming Greece? What About Puerto Rico?
Well, if you look at the numbers, it looks very similar. The big difference is that neither Greece nor Puerto Rico have a central bank that controls their currency. They are dependent on institutions with other primary concerns — the European Central Bank and the Fed, respectively — to make the calls for them.
In addition, the United States economy is still quite productive and GDP continues to grow, unlike the economies of Greece and Puerto Rico. Nonetheless, we should still be cautious of our massive national debt.
Why Does the Government Keep Borrowing?
During hard times, like the Great Recession, the government spends more on safety net programs, like unemployment and food stamps. Nevertheless, because these are still hard times and a large demographic of the population has hit retirement age, less people are working and paying taxes. This results in a deficit because not enough money came in to cover all the safety net expenses.
Another reason the government continues to borrow is to stimulate the economy via more public spending. The late John Maynard Keynes, a famous and very smart economist, was a huge proponent of using government spending to jumpstart a crashing economy. In 2009, deficit spending increased close to 10 percent of GDP to get the economy going. By 2015, it dropped back down to around 3.5 percent.
Oh, the final and most obvious reason is tax policies. A weird tax code can lead to many loopholes and screw up what the government expects to bring in.
Our Take
Deficit spending and increasing debt could lead to the obvious — more debt. The blatant disregard for future generations is apparent when Congress decides to get the country into more debt, while millennials struggle to get hired to pay off their own debts. In addition, too much debt reduces saving, which decreases the value of the economy as a whole, resulting in lowered productivity and wages.
Finally, it flat out makes a fiscal crisis much more likely, especially for Gen Z and the following generations. If debt gets too high and Congress continues to increase deficit spending, investors may lose faith that the government will be able to repay its debts. Interest rates would shoot up, the debt would skyrocket, and the resulting financial shitstorm will be left for us and our kids to clean up.
