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Tuesday, May 17, 2011

A SIMPLE SOLUTION FOR OUR NATIONAL DEBT

I'm hoping for some comments, for my simple solution to our national debt defies common sense.  If what I will say is irrational, please let me know!  I can always retract it as necessary.

Are you confused about our national debt.  Click on it to gain a pretty good understanding.  Here are some graphs, first, government debt as % of the Gross Domestic Product (GDP):

Japan looks terrible, but most of the debt is to its own citizenry, for which they pay almost no interest.  Shown on a map:

If you haven't been keeping track, Congress has raised the debt limit ten times during the past decade, but the Republicans seem to have a good point.  Is it wise to increase the $14.3 trillion limit on federal borrowing?  Isn't it about time that we reduced this burden?  We will this year add another ten percent, around $1.5 trillion.  Interest on our total debt will soon approach $0.5 trillion/year.  The debt was a trillion dollars in 1982 and $10 trillion in 2008.   Personal income taxes, by the way, provide more than 80% of government revenues.

First, it is pretty obvious why we are borrowing:  Americans are paying the smallest share of their income tax since 1958, while we are spending at the highest level since the end World War II. That is in more than 50 years and more than 65 years, respectively!!!  Our tax percentage has dropped to 23.6% of our income.  It was around 27% from the 70's through the 90's, until the George Bush the Younger years.  If we increased our tax paid from 23.6% to 27%, the added revenues would be around $500 billion.

Here are a few incidental numbers to throw around at a cocktail party:

  -  If we made this sudden change (23.6% to 27%), our government would still be short by $1 trillion this year.  So spending cuts demanded by Republicans make some sense, for Federal spending this year will be 25.3% of the GDP, the HIGHEST level since the final year of World War II.


 -  That hypothetical $100,000 citizen paid $27,300 in 1990 and will only lay out $23,600 this year.  

  -  If the past decade payment percentage had been kept at 27%, our debt would not be $14.3 trillion, but less than $10 trillion.



  -  This year our average income tax will be around $10,500/year, almost exactly what we paid in 1990.  However, our Federal government will this year spend a little more than $18,000/person.  That is a good part of the problem, if you want to call it that.  Adjusted for inflation, this figure should be $17,600 (if based on the Consumer Price Index) or $26,700 if on relative share of the GDP.

  -  At this latter level, we would just about not accrue any added debt.  SO A SIMPLE SOLUTION WOULD BE TO INCREASE THAT AVERAGE $10,500 TO $31,500 TO AT LEAST STOP INCREASING THE NATIONAL DEBT.  Budget cuts would then need to be made to reduce this debt.  But is this necessary?

I think not.  Let's say you're a company.  Most borrow money at a lower percent in hopes of making a profit.  In a way, the USA kind of works that way.  The more we borrow, the more we actually make.  Here is the interest we pay:
Thus, we borrow at around 3%, and as long as this interest remains at this relatively low level, surely, this "borrowed" sum must be accruing a higher percentage of "benefits."  Note that the Japanese government owes a lot, but is paying almost nothing in interest.  Greece?  It is a basket case.

So what are the Republicans trying to do?  It's all about politics.  They want to embarrass President Obama and the Democrats, because most voters feel that we are borrowing too much and must cut our burden.  If he chose, our President could brag that people like to lend us money at low interest rates because we are so dependable.  Then, we take this money and invest in enterprises to keep our economy humming (relatively, anyway, for remember that just two years ago we were on the verge of another Great Depression).

THUS, THE SIMPLE SOLUTION ABOUT OUR NATIONAL DEBT IS TO KEEP INCREASING IT, BUT MAKE SURE THAT THE INTEREST WE PAY REMAINS LOW.  When inflation comes, we then lend rather than borrow.  This could mean jumping the $23.6% to 27% and higher, but that would make for good fiscal sense.  As the money we borrowed at 3% remains 3%, we would, actually, be ahead, for these funds can be invested at the inflated percentage.  These extra moneys then lent could provide a nice added income.  DOES THIS MAKE ANY SENSE???

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The Dow Jones Industrials dropped 69 to 12,479, while world markets were mixed.  Gold fell $4/toz to $1486.  Here is what gold has looked like the past year:


But keep in mind the value of money.  Here is the inflation adjusted history:


The Brent Spot price of petroleum is $110/barrel, with the NYMEX at $97/barrel.

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I woke up this morning to a moonset:


Lunch today was a bento of cabbage roll and garlic pork with a bottle of beer, ending with a Romeo y Julieta vintage Churchill with this view:

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