Posts
When last we left:
Earlier this summer; our "Debt Ceiling" was reached and breached, this effectively means that our government is much like our hypothetical single citizen at the end of part two who is literally now spending NONE of his cash on his monthly budget; as it is all going to pay his existing expenditures. In a real world example; this would be equivalent to someone who is literally living off of his maxed out credit card, he pays his entire paycheck to the credit card company each and every month; which gives him a little bit more room to spend until the next pay day. I believe the fancy pants common sense term for this is "buying time." However, as anyone who spent the better part of their mid-late 20's without a line of credit from the First Parental Bank will tell you, this shell game can only go on so long; because we are still outliving and outspending our income; eventually we can't pay enough to the credit card company to make sure our bills all get paid by credit card. If you believe U.S. Secretary of Treasury Timothy Geithner, then the United States as an entity cannot keep playing THEIR shell game of debt and income past August 2nd, 2011.
One of the ominous and scary words that the talking heads on the moving picture box likes to throw around during this discussion is "default," At the end of the day, "defaulting" is just a fancy pants term for a welch. You said you'd pay and you are not going to. It's an extremely common occurrence when you spend money you don't have. I realize it's a pretty complex idea; but it seems to be one that allegedly smart people (Sean Hannity I'm looking at you) seem to have trouble grasping. If you have promised to pay something and you don't have the money to do it; so you don't, THAT is a default.
The political game of football going around is that the zealots on the left believe that default will mean complete economic collapse and financial Armageddon. Meanwhile, the zealots on the right (again, I'm looking at you Hannity) are going so far as to say that this is unrealistic fear-mongering and default is not even remotely close to a possibility. I actually saw Stuart Varney claim that their was a distinct possibility that the Federal Reserve would FLOAT our payments and essentially let the defaulted payments BOUNCE. With a straight face and being deadly serious, a supposedly learned "businessman" said that we're going to have our bank keep our currency and good faith from being worthless by essentially sweeping the issue under the rug; completely oblivious to the fact that doing so would only accelerate the process we're in this discussion to try and prevent.
So who isn't getting paid?
Remember in part one I pulled the data so we had a constant reference point. Here's where we put it to use; because the question now becomes who does NOT get paid without a debt ceiling increase. Lets look at the bills we have to pay from largest to smallest (note, if you want more information on WHAT these programs are; either wait for my forthcoming, in-depth blogs on each, or Google them, at the moment I'm trying to plow through the math:
1. Medicare/Medicaid:
Annualized Costs (as of May 19, 2011): $813,270,000,000.00. Medicare is far and away our largest budgetary item and our gravest spending concern going forward; as the above number is a whopping 23% of all spending and an even MORE whopping 37% of all revenue collected.
2. Social Security Recipients:
Annualized Costs (as of May 19, 2011): $710,944,000,000.00 In Medicare/Medicaid, I used the words "far and away", but Social Security looks pretty close; what gives? Quite simply, the rate of persons using Social Security is high and rapidly growing; but not NEARLY at the rate Medicare/Medicaid. One of the major arguments of both Obamacare and the Paul Ryan budget plan is that the sheer level of both estimated usage and the level of frauds and inefficiencies within the program itself from both a supplier and a consumer standpoint will have the rate of growth increase very rapidly. Though Social Security is a flawed program with tremendous costs today (20% of all spending, 33% of revenue); it's costs and implementation are largely static and manageable for the time being. The biggest concern is the baby boom generation who is about to begin collecting benefits and we simply do not have the workforce (Unemployment would have to drop to zero tomorrow and stay there for the next 20 years or so to even be close to making the program sustainable in its current form).
Has anyone else noticed, that we've already spent 70% of our tax revenue collected in these two programs?
3) Defense:
Annualized Costs (as of May 19, 2011): $697,797,000,000.00 There is a strong tradition of military service within my family and several of my friends; and there is very little that stirs the emotions within the fiber of every American more than our brave fighting men and women who devote their lives to protecting our freedoms. However, as you've guessed by now; the spending is NOT in line with our revenue. Defense spending is also 20% of our total spending; but it is only 32% of our total revenue collected. (yay rounding). So yes, not only do our brave fighting men and women have to leave their loved ones and put their lives on the line on a daily basis; they officially put us over the top on our cash holdings and we have to start borrowing to keep them functional; but what's even better is that they are also the largest DISCRETIONARY expenditure on the books; which means they are usually the first place cuts come from when budget time rolls around. (I'll discuss this more in detail later)
Again, please note from this point forward; please note that we are OUT of cash revenue; meaning we are borrowing 100% of the funds to pay for every initiative that follows:
4. Income Security (disability and unemployment benefits)
Annualized Costs (as of May 19, 2011): $426,907,000,000.00. This is pretty self explanatory; so not a lot of elaboration will follow. This number is 12% of all spending and 19% of total revenue. However, in the interest of fairness; this number is the ONE number that is dropping (I assume as people's 99 weeks of unemployment benefits run out); but doing some quick calculations shows that the percentages don't have any significant change.
5. Interest on existing debt
Annualized Costs (as of May 19, 2011): $207,709,000,000.00 Again, this is pretty simple idea. We've borrowed and continue to borrow; here's the money it costs us to borrow money. If it makes it more simple to understand, think of it in terms of your credit card's interest rate; as for the purposes of our discussion (at this point anyway), they are the same thing, so as of right now; our interest rate is 5.8% of our total spending; and 9.5% of our total revenue.
6. Federal Pensions and Benefits:
Annualized Costs (as of May 19, 2011): $207,327,000,000.00 I've been largely successful keeping my political opinions and thoughts out of the thoughts I've placed here; but you can probably imagine how I feel about the fact that veterans health care and retirement benefits are apparently grouped with congressmen and women's retirement nest egg. I guess I'll let you all decide how you feel about this number being 5.8% of all of our spending and 9.5% of our revenue.
7. Everything Else
Annualized Costs (as of May 19, 2011): $488,424,000,000. This number is calculated by subtracting the sum total of the above "Big 6" items from the Total Spending annualized budget. (Total Spending-Big 6). This number translates to 15% of total spending and 22% of total revenue.
Number 7 is also where a lot of the "Tea Party" logos, ethos and pathos come from. Literally ANYTHING you want to talk about funding with government funds that's not included in the Big 6 can be easily paid for with only 22% of the amount of money that the United States had collected as of May 19th, 2011; meaning the remaining 78% could be used to either pay down the debt, return to the taxpayer, or some combination of the two. If you want to go full-monty Libertarian; you could argue that by the time you trim some serious fat off of "everything else" you could easily cut that number in half; if not more. However, this blog isn't in the business of speculating; we deal in data; not ideology.
And therein lies the rub. . .
Of our 6 largest single budget item allocations; the 3 highest are costing us more than the rest of our government combined. This entire "crisis" is based on the fact that someone is not going to get paid if we can't keep racking up debt; therefore we have to decide how we are going to allocate our funding going forward; but of course, that's a whole other story.
(end of Part 3)
