Monday | October 23, 2017
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The debt really does matter

Some economists now say that our huge federal debt doesn’t really matter. I suspect these PhD economists might be immigrants from the old USSR.

Many people wonder why our economy hasn’t come roaring back as it has done previously and why we seem to be caught up in an endless recession with high unemployment. It is specifically the national debt.

In our capitalistic system it is in everybody’s selfish best interest that the economy does well: Business people want to do more business, provide more products and services and sincerely want to have the amount of business that requires they hire more people. People want good secure jobs; they want a career with a company or business that is doing well with good future prospects. Everyone wants to have an income that will allow them to purchase the goods and services they want and need.

Our capitalistic system is a very powerful engine that is constantly innovating, inventing and improving products and services in a highly competitive market place. At the core of this economic system are the tens of millions of small business people who you will find in every village, town and city across our nation. These are people who had to cut out their share of the market pie and work and survive amid daily competition. These small business people are the only people in our country who are not only allowed to work for less than minimum wage, work overtime with no time and a half, work with no workers comp, no health insurance, no vacation or sick leave pay and no unemployment insurance, but can actually go to work and lose their personal money. Yet, they have to pay their taxes and fees, make payroll and provide employee benefits.

It was their choice to engage in business and take the risks associated with it and they have to be good at staying in the black, or they don’t survive. In short, these are hard-working and smart people. To them, the national debt matters because they understand the numbers. The numbers scare them to death. The federal government now borrows 40 cents of every dollar it spends. They know that can’t go on and, unlike most Americans, they know the other side of that debt load; the interest that has to be paid.

Most Americans are familiar with loans where the payment covers both interest and some principle on the money borrowed, like a car loan or mortgage. The interest alone on our national debt is $4 billion a day. Break that down equally among the 50 states and that is $80 million per state, each and every day, 365 days a year. That number is constantly going up and not a dime is being paid on the principle. Now, consider that does not count the nations’ many other financial obligations, such as employee pensions or other liabilities. But wait, there’s more — more debt that is. Many states are deep in debt, as are counties, towns and cities. Some cities have already declared bankruptcy and others will follow.

Our government has got itself caught up in a Catch-22. There is really no way out. Politicians in D.C. talk about spending cuts, but they are not talking about reducing the amounts we are now spending; no, they are talking about reducing the amount of projected increases in spending.

If we stop borrowing money, we default. If we cut back on spending, we lose jobs. If we increase taxes, we kill our economic engine. If we print too much money, we wind up with hyperinflation. If we took all the money from the top 10 percent of wealthiest Americans, it would only run the government for a few months. If we doubled tax rates across the board, it would put us in another great depression and wouldn’t cover the money we borrow.

We hear a lot about borrowing money from China. China does own about 26 percent of our foreign-held debt, which is only 8 percent of our overall national debt. Most of the money our government borrows, it borrows from wealthy Americans. These people are smart, as they are tapping in to that $4 billion of interest per day, with virtually no risk. The money they are lending is real money, already earned. It is a huge amount of cash being lent to the government instead of being invested in businesses, where it would normally go. This diversion of investment capital hurts the economy.

At this point, cutting spending or raising taxes cannot solve or pay the national debt and printing our way out won’t solve it, either. In short, our government is stuck with constantly borrowing money. The real problem is there is a limit out there to the amount of money available to lend. So, somewhere in the future, a real crisis does await us.

Forget blame, there is more than enough to go around. Our business people look at government, just shake their heads, and hope for the best.

Our government, probably with the best of intentions, has built us a financial house of cards. The problem is they are credit cards.

However, then again, maybe those PhD economists from the old USSR are correct when they say the debt doesn’t matter. After all, while the USSR is gone, everyone and everything is still there.

Jim Rath is a Kona resident.