Our Disastrous U.S. Fiscal Policy

Our leaders have virtually ensured economic calamity an7-ways-to-spend-money-wiselyd guaranteed our longterm economic decrepitude. They have run our national debt to an unfathomable 20 trillion dollars. This debt is equal to more than 100% of the entire annual GDP of the country. More dangerously, Congress has established mandatory operating expenses that have created a permanent structural deficit ranging from 500 billion dollars to 1.4 trillion dollars per 12 month budget cycle. A mere one per cent in interest expense will increase the “interest only” on this debt by nearly a 100 billion dollars. When confronted with this reality our leaders respond with empty clichés and our citizens look on with uncomprehending empty stares.

Yet, this massive amount of debt and dizzying annual deficits is not the crux of the debt problem. The real danger lies in what the borrowed funds are being spent on. Historically, U.S. debt was deployed to large long term capital projects such as highways, railroads, bridges, water systems, national security  weapons systems, law enforcement and public safety equipment, and other long lasting infrastructure that would, over many years, increase GDP, increase the number of new jobs, and provide hard assets that result in long-term ongoing benefits. Beginning in the 1960’s and 1970’s the precipitous increase in U.S. government debt and borrowing began to be deployed to immediate consumption of goods and services, not to capital project construction. This use of borrowed funds violates the fiduciary principle that long term borrowing be used for long term returns. Current U.S. borrowing is nothing more than long term debt to fund immediate operate expenses, a practice that in the private sector could land one in prison. You will not see this problem explained on the news casts of ABC, NBC, or CBS. If the news producers even understand the problem they have, it seems, a vested interest in not reporting it.

The coming calamity will come either by hyper inflation or large and debilitating increases in income tax rates along with serious reductions in GDP. There will soon be a day when real and actual buyers of U.S. debt (not the faux buyers at the Federal Reserve) demand higher interest rates on U.S. debt. There can be no escape from this fate. The only question is how long can the day of reckoning be delayed by monetary and fiscal slight-of-hand. Time will tell.

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