Holly's Take

You know, I have days when I wonder that very same thing.  I have days where I think it is hopeless. Then I get a good nights sleep and I am back at it!  I am talking to anyone who will listen, and surprisingly….there are A LOT more people interested than I had thought.  I have a couple thoughts about what everyone can do…

FIRST: Get informed! I know it is hard…but it is worth it.  I have spent months getting an understanding of what is going on financially.  I know that most people don’t have that kind of time, which is why I built this site.  Yes, it will take a few hours to read and understand what I have written.  It isn’t easy, but it is worth it.  If you have the time…read the source documents.  I have found that reading the CBO’s reports for myself is an eye-opening experience.  In order to understand our financial situation the most important posts to read and understand are Social Security, Medicare, and Spending Visualization.  There is good information in the other posts, but those 3 really give a nice overview of why we are in such tough shape.

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The saying goes, a picture is worth a thousand words.  I have to agree.  So, here are a couple of charts to break down our spending.

In 2009 our Outlays were 167% of our Receipts.

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I had planned to get all my facts ready for this post.  What I realized is that the “facts” don’t exist.  All the facts are really just estimates, best guesses of what is to come.  The CBO says that we will reduce the deficit.  BUT… I would like to point out that the expenses are mandatory, and the revenues are subject to the economy.  The assumption for the Revenue side of the calculation is all contingent on growth in our GDP.  In 2009 we had our first decrease in GDP in over 50 years!  Furthermore, the CBO has to score the bill with the assumptions that the administration puts forth whether or not the CBO believes there to be any truth to the assumptions what-so-ever.

“The President’s budget includes a placeholder of $743 billion in related revenues between 2011 and 2020. Because the Administration did not provide the details of the underlying legislative proposal, for the purposes of this analysis CBO assumed that the policies would have the effect set forth in the budget.” (Quote)

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I have enough knowledge of this to know that I probably don’t want to know how bad it is.  As a resident of Massachusetts I know that MassHealth is a large liability that without the federal aid would cause severe problems in our budget.  We are not alone though, State debt is a problem in many states.  Check out this state debt map.  

What seems to be the biggest concern is unfunded pensions (isn’t that illegal in the private sector?) .  What I want to find is some information about when these pension liabilities start to become a real problem.

We have been running budget deficits for a long time.  Both Democrats and Republicans have been running up our credit card. It is catching up to us.

Please don’t try to tell me that President Clinton cut the deficit, he didn’t.  President Clinton had an “on-budget” surplus of $449 billion but during that same time the “off-budget” deficit was $850 billion.  This results in a net deficit of $400 billion dollars.  I didn’t believe it myself…all these years I thought he had actually improved our situation.  See for yourself on page 8 of this report prepared by the Congressional Research Service (CRS).

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I was quite shocked when I started to really look at the official US Budget.

Here is the 10 year plan (page 151)

• Receipts:  $37 trillion
• Outlays:  $46 trillion
• Deficit:  $9 trillion

Um…yeah, doesn’t sound like a good plan to me either.  So, debt is going to grow. What happens to interest expense?

• 2010 = $188 billion
• 2020 = $840 billion

Wow! That is an increase of 446%!  If we have 325 million people in 2020 that’s $2,600 per person per year just in interest!

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Debt? So what…so many people say we owe it to ourselves, it isn’t a big deal.  Well, that is not exactly true.  As we have seen with Social Security the debt is coming due.  I did a search to see if I could find out what was coming due when….check out page 13 of the Bureau of the Public Debt’s financial audit report.  It says that 65% of the marketable securities currently held by the public (not even including the 90 day notes) will mature in the next four years.  In other words, we’re going to have to pay off a big chunk of our debt very soon or refinance it.

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If you have read my Social Security post, and come to terms with it….this one will scare your pants off.  Social Security is a mild problem in comparison.

I don’t even know where to begin, so I will point you to a 6 page report written by the CBO in 2002.  This report says that because Medicare is so expensive and we are choosing not to fund it with revenue we will see dramatic growth in debt and therefore interest.  This interest growth will overwhelm our budget.  According to this report in 2075 our operating budget will be 40% of GDP.  Forty percent of everything we make in the US will go to pay for the Federal Government!  Social Security, Medicare, Medicaid, and interest on the debt will make up 82% of the Federal Budget if that report turns out to be accurate and we don’t address this.

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I have been hearing that Social Security is going broke my whole life.  I think most Americans hear it, know it, but think we have time to address it “later”.  I have known since I joined the workforce about 20 years ago that Social Security has problems, so that is at least 5 presidential terms…both sides of the aisle.  What I didn’t know or understand was the magnitude.  I, like most Americans thought that when the Baby Boomers retired, they would use up the whole trust fund.  If only that were the case…the situation would be so much better than it is now.

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