A sea of debt

We are on an unsustainable path.  While I cannot claim to predict when I have no doubt that if the US continues along the same fiscal path there will come a time when those lending to the government will say enough and will stop lending (or at least stop lending at low rates, no matter what the Fed attempts to do with rates).  To be clear there is a fundamental problem with how we as a country view and spend money no matter if is a Democrat or a Republican in office and to get back on a fiscally sustainable path we have to make massive changes in how we collect or how and on what we spend.

As of the middle of February the US government owed $15.4 trillion.  Notice that even though the slope of the graph steepens over the most recent few years the debt problem has been growing steadily since the mid-1970s.

According to the Tax Policy Center in 2010 the Federal Government collected $2.2T in taxes and had expenses of to $3.5T, thus adding about $1.3 to the total outstanding debt.  While as individuals we may be able to spend more than we make for period of time by living off savings (e.g. during a job loss or during retirement) the US government is in the position of having no savings and spending 60% more than it brings in.  The federal deficit has exceeded $1 trillion for the last few years and based on President Obama's latest budget proposal will continue to exceed $1 trillion in the short term.

When you spend well in excess of $1 trillion more than you bring in fixing the problem.  With tax collections of $2.2T it would tax a 50% increase in the tax burden off all individuals and corporations just to break even ( no comment on if that would even be possible without destroying the economy).  Alternatively and more realistically we have to look at spending.  Social Security, defense, unemployment insurance, Medicare, Medicaid all have to be on the table and tough decisions and drastic action must be taken.

Again, if this continues at some point people purchasing US government debt will decide that the risk of default outweighs the potential benefit of the low interest rate and the perceived safety of the debt will evaporate.  For me personally the time has already come - I just say no to US government debt.  The risks in my mind of holding treasuries far surpasses risk in the stock market.

It is my sincere hope that as a country we begin to make different choices - choices that will undoubtedly be challenging and will require that we think about the government differently than we have in more recent history.  We will have to celebrate what individuals can achieve for themselves as more will be expected and required.  Far better for us to come to this realization on our own rather than having the debt markets dictate the terms to us.  The great news is I believe the strengths of individuals and the power of freedom has the potential to propel us forward.  While the path before us is not easy or certain path - we do have the power to move away from our current unsustainable direction.