As the debate rages over raising the national debt ceiling–even House Speaker John Boehner (R-OH) is looking for a way to raise it–it’s increasingly clear that nobody in power is serious about dealing with the cause of the problem: runaway spending. The inevitable result: debt and inflation.
The president and leaders in his political party insist on a tax hike as part of any debt deal, but even if the hike raised the expected revenues (an unlikely prospect) it wouldn’t come anywhere near to closing the gap. So everyone in power apparently agrees we have to raise the debt ceiling. Of course they do. Raising it allows them to keep running away from reality.
The fiscal reality is this: There is no reason for default. Federal revenues this year are projected at $2.2 trillion. Interest on the debt is projected at $214 billion, just one-tenth of that.
Expected revenues would allow Treasury Secretary Geithner to pay the interest on the debt ($214 billion), Social Security ($727 billion), Medicare ($572 billion), and Medicaid ($274 billion). He’d have more than $400 billion left over.
Default or failure to pay “entitlement” benefits would be a political decision by the Obama administration, not a fiscal one.
The national debt ceiling has been raised 74 times since Congress created it in 1917, supposedly to keep lawmakers from spending the country into oblivion. The original limit was $11.5 billion.
Today the national debt is $14.3 trillion–approximately 1,240 times more debt in less than 100 years. (We’ll get to the inflation-adjusted level in a few moments.)
Annual federal spending has doubled from $1.8 trillion to $3.7 trillion in just the last 10 years. The nation’s population, land mass, military, and economy have not doubled in those 10 years. Yet federal spending has doubled.
When the debt ceiling was created nearly 100 years ago, federal spending accounted for approximately 3 percent of the economy. At the end of the Clinton administration in January 2001, it accounted for 18 percent. Today it’s more than 24 percent. The federal government consumes one-third more of the economy than it did just 10 years ago.
Much of that surge in government has come through borrowing. The federal government borrows more than 40 cents of every dollar it spends–$4 billion of borrowed money every day.
The Obama administration projects total federal debt will grow to $26 trillion over the next decade. An agreement to cut somewhere between $1 trillion and $3 trillion from future deficits, as is being discussed, would leave $23 trillion to $25 trillion of debt.
Because the government spends far beyond its revenues, holding the debt ceiling where it is would force policymakers to stop borrowing. But this is the last thing leaders in either major political party want, because borrowing enables them to buy today’s votes with tomorrow’s tax dollars.
Meanwhile, the Federal Reserve has an official inflation target of 2 percent. Assuming the Fed hits its target–a huge assumption–this means if we received one dollar on January 1 of this year, on January 1, 2012 that dollar will be worth 98 cents. In January 2013 it will be worth 96.04 cents. And so on.
Since Congress created the Federal Reserve in 1913, inflation has caused the dollar to lose approximately 95 percent of its value. If we adjust the national debt for inflation, in current-money terms it is more than 60 times larger than it was when it was created.
Promoting inflation and devaluing the nation’s currency mean dollars borrowed today can be paid back with cheaper dollars tomorrow. Ever-cheaper dollars thus make ever-more borrowing easier. This is what the people who go into government want–no limits on their borrowing, which means no limits on their spending, which means no limits on their power.
They do not care that we–and our children and grandchildren–will have to pay for their ever-higher debts with ever-shrinking dollars.
Steve Stanek ([email protected]) is a research fellow at The Heartland Institute in Chicago.
