Ken's Project Blog

July 13, 2011

Why Not?

Filed under: In The News,Politics,Taxation — Ken @ 1:13 am

President Obama (and the Democratic leadership) are trying very hard to convince the millions and millions of Americans that rely on payments from various federal government (including Social Security, Veteran’s pensions, etc.) that unless the federal debt ceiling is raised from it’s current $14.3 Trillion dollars their checks will be late (or may not come at all). I have just one question – why?

The failure to increase the debt ceiling simply means the federal government can not borrow any additional money and would have to reduce spending to match revenues. Despite the loss of the ability to borrow more money, the federal government would still collect a bit over $200 Billion every month (total receipts are about $2.6 Trillion (FY’2011), so divide it by twelve months and you can expect about $200 Billion each month) – why must those most dependant on the government be the first to see their payments cut?

Applying the same magic “divide by 12” math trick to our $3.8 Trillion in annual expenditures (FY’2011)puts our monthly payments at just under $317 Billion – we can easily meet about 60% of our obligations without borrowing any more money.

Democratic politicians like Rep. Nancy Pelosi, Sen. Harry Reid, and President Obama all insist that the worst thing we could do is fail to meet our debt obligations, and they say that is the inescapable outcome if we fail to increase the debt limit is we will, for the first time in our history, fail to meet our debt obligations. Again, I ask “Why?”

Wielding my “divide by 12” formula we find that the monthly cost of our debt obligations is about $21 Billion/month (based on $251 Billion per year interest on the debt in FY’2011), so where does that leave us?

Well, if the worst thing in the world that we can do is not meet our debt obligations, let’s agree to meet them, no matter what, so that’s what we’ll do – we’ll commit to paying the $21 Billion in monthly debt obligations before anything else. There, we’ve saved the full faith and credit of the United States, and we’ve still got about $179 Billion left to spend. But what to spend it on? I know, what about those who most depend on the federal government for their survival (Social Security, Veterans pensions, etc.) Dividing the $1.518 Trillion in Social Security, Medicare and Medicaid by the same twelve months we see we’ll have to spend $126.5 Billion each month, leaving us with about $53 Billion left to spend.,, What’s next? How about Defense?

For FY’2011 we decided to spend $895 Billion per year (or about $74.5 Billion/month) on Defense – but that is too much, we only have about $53 Billion to spend each month, what to do? Well, let’s keep paying the Defense department employees (soldiers and others), but hold off paying suppliers until we can increase our debt limit. In fact, every other obligation the federal government has will need to wait until the debt “crisis” is resolved.

So what have we done? We’ve met our debt obligations, we’ve taken care of the needs of those most vulnerable among us, and we’ve provided for (most of) our defense expenses by simply limiting ourself to the money the government takes in currently – that means everything else is being paid for with borrowed money.

America needs to learn to live within it’s means and the fact that we spend about $1.27 Trillion (FY’2011) more than we take in means we either have to reign in spending OR we can try to increase receipts. If you don’t want to cut spending at the levels necessary, you’ll need to find some way to increase receipts by about $1.27 Trillion.

Any ideas?

Here’s the whole interview with Scott Pelley – it’s about 11 minutes long:

Sources:

YouTube: Obama “cannot guarantee” social security checks and Pres Obama “I Cannot Guarantee Social Security Checks Go Out On August 3rd” If Issue Not Resolved

washingtonpost.com: Taking apart the federal budget

guardian.co.uk: Obama’s Budget and how it compares George Bush’s Last One

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2 Comments »

  1. you missed one very important issue…. a major portion of the bonds that we sell and pay interest on are due to mature in August requiring us to not just pay the interest due but also the principle which exceeds our expected income by several dozens of billions. If it was just interest this would be a non issue.

    Comment by me@myhouse.com — July 13, 2011 @ 6:25 am | Reply

    • An excellent point, but if we are paying off debt, that frees up credit so the debt could be rolled over. If we had, say, $50BN in debts that came due, we could pay them out of the $200BN of monthly revenue and then quickly borrow another $50BN to replace the money spent paying off the treasury notes.

      I should also take a moment and add that I don’t view this as any kind of long-term solution, simply a reasoned, short-term approach to carry the government through 30-45 days while a better, more permanent solution is sought.

      Finally, I was planning on a short post about SS payments for later today, but from memory, all SSI checks (non-retirement) check for August are mailed on the 1st of August, and only about 1/3rd of Social Security retirement benefits checks are to be mailed on the 3rd, another 1/3rd on the 10th, and the final 1/3rd on the 17th – the checks don’t all go out at once.

      Thanks for raising a very good point about the expected note payoffs in August.

      Comment by Ken — July 13, 2011 @ 7:54 am | Reply


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