Warren Buffett suggests that we raise the National Debt limit. If you look at it his way, we can only run out of money if we stop printing it. CNBC’s Rick Santelli, part of the original Tea Party, thinks that now is the time to stop spending. So what if the government can’t pay all of its bills, it needs to live within our means. Not everyone gets paid, but we won't be kicking the can down the road to the next election. Two opposing views that are radically different. And of course in this country, the more money you have the more valued your opinion.
Total tax collections for the country equaled 2.162 trillion dollars last year. Anyone want to bet that this year won’t quite make it to that level?
Total expenditures equaled 3.456 Trillion. And figure another 800 billion that somehow never made it into the colorful illustrations. The word "Off budget," comes to mind. The "Net Interest" below needs to be added to "Other Mandatory" for a more realistic number. Somebody from Fannie Mae must be doing these visual aids.
Below is a graph plotting future debt payments, to progressively higher interest rates, using the new anticipated national debt level of 16 trillion dollars. As interest rates rise, there are fewer dollars left for real government operations. The "Game Over" point is where taxes collected are less than interest owed. Our debt burden makes us very vulnerable to any future interest rate hikes. [double click for a more depressing view]
Government financing will fall apart way before we hit 12 percent. At an interest rate of about 9 percent, Social Security and Medicare would no longer be 100% fundable. The thing to worry about, is that interest rates don’t just increase slowly. Greece saw an interest rate jump from 12 percent to 26 percent in seven months.
We are at a fork in the road. Rick Santelli makes a lot of sense, no new taxes and put government on a budget. We can't seriously expect to spend our way out of debt. Our other option is a financial train wreck, a year or two down the road. With an added benefit, we get to wipe the 16 trillion off the books and start over. Of course if you're close to retirement age, the words "Start Over" means you're going to need a shopping cart with 4 good wheels and a large cardboard box for the long haul. It wouldn't be so bad if my wife didn't hate camping.