Cowboy Confessional

One cynical definition for an optimist is a person who while falling from a cliff declares “See, I am not injured yet.”

If you still believe in government fiscal responsibility, then you are an optimist.

The Congressional Budget Office (CBO), a functionary of federal fiscal mysticism recently released their projections for where the United States budget is heading.  By the tone of the report, we can conclude that it is heading south down the porcelain maelstrom.  In overly simplified terms the CBO says we are in debt up to our chins and whoever is standing on our shoulders (your kids) will be gasping their last economic breath forthwith.

Sovereign solvency is typically measured in terms of the accumulated national debt as a percent of everything a country makes in a year (debt as a percent of annual gross domestic product, or GDP). Some countries with dictators and oil have very low debt to GDP ratios, as in the case of pre-bombing Libya, whose debt was a meager 3% of their total output.  Other countries with dictators and no significant natural resources have huge debt ratios (Syria and bankrupt Greece sits at about 150% of their GDP).  And some countries with no natural resources, industrial economies and near zero economic growth are even worse off (Japan jiving with 226% debt after decades of economic stagnation and Obama-style “stimulus spending”).

The United States was at 48% debt-to-GDP at the end of George The Lesser’s reign.  But now Uncle Sam is in hock at a 59% rate after the Double-B Bump, with back-to-back Bush and Barack trillion dollar spending sprees.  To put it in more frightening terms, we raised our debt 23% in about two years.  Even my ex-wife couldn’t spend that fast.

This however is not the bad news.

The CBO’s report projects the condition we will be in a few years down the road assuming that Congress does what Congress does, which is nothing resembling sanity. Just 24 years ahead, the CBO claims that our collective(ist) debt can rise to 190% of GDP (in other words, all 308 million of us could work for two years without clothing, housing or food and barely pay off the government credit card).  Even recovering Zimbabwe has a mere 149% debt ratio, and they ran printing presses until their own currency was so inflated they couldn’t afford to buy more ink.

This however is not the bad news.

An interesting phrase protrudes from the CBO’s analysis, specifically “…debt held by the public would exceed 100 percent of GDP by 2021 …” Uncle Sugar performs a fiscal miracle by lending itself money.  Debt instruments created by the government of the United States are then held by departments of the United States government.  It would be like paying off your husband’s credit card with yours and declaring that you retired the family debt. Much of this budgetary sleight-of-hand arose in the 1980s when nobody in congress had the rocks required to balance a budget, and instead force-feeding the formerly cash-rich Social Security trust fund bonds and spending our retirement lucre.  Thus, your granny’s food budget is tied-up in government debt securities, which we don’t have the cash to redeem today, much less when we have a debt ratio triple today’s.  And the Social Security Administration cannot dump those bonds on the open market because congress made the bonds non-negotiable, redeemable only by the functionally bankrupt federal government.

This however is not the bad news.

The gloomy red line on the chart (which you can click to engorge) is low.  It represents only federal debt held by the public, excluding the nearly 30% extra debt on account with the federal government.  Assuming that congress continues its inability to extract its collective cranium from its aggregate arse, you can tack at least another thirty points onto the tally, putting you at risk of 2.2 years labor just to pay-off Washington’s fiscal malfeasance.

This however is not the bad news.

Debt owed by the fifty states adds another 7%, so we are now heading for 240% of GDP.

This however is not the bad news.

Local government is also sucking-up available capital (that could be going to build the factory that you are not working in) and adds an additional 11% to the total, raising it to around 250%, or two and one half years of everybody’s effort just to get out of hock.

Sen. Tom Harkin said of our national fiscal flailing “We are not broke,” displaying senatorial dementia in its purest form.

That is the bad news.  There is no good news.

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This entry was posted by Guy Smith on Thursday, June 23rd, 2011 at 9:52 am and is filed under Economics, Politics. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.