Future Debt

Aug 19, 2013 by

“But with respect to future debt; would it not be wise and just for that nation to declare in the constitution they are forming that neither the legislature,

nor the nation itself can validly contract more debt, than they may pay within their own age, or within the term of 19 years.”

-Thomas Jefferson

Today, when you look at the national debt and state debts, it doesn’t seem like that big of a deal.  However, this seems to be a serious flaw in our way of thinking.  First of all, let us deal with the vast amounts of debt we have accumulated and then move on to the idea of “a little debt is healthy.”  Ignore the total amount, for now, when looking at the national debt, you have to understand what it is based on:  GDP (Gross Domestic Product).  GDP is our national production value, how much money we make in a year as a nation.  As of writing this article, our GDP is 15.8 trillion dollars a year.  So, our Government (State and National) takes a portion of that through taxes and spends it defense, welfare, and whatever else they decide to do with it.  This revenue of the Government is 33.7% of the GDP.  That works out to approximately 5.2 trillion dollars a year. Now, let us factor in the National debt.  It is at 16.9 trillion dollars.  Immediately you can see that the numbers do not add up.  15.8 is less than 16.9.  However, not to worry, we have that 5.2 trillion dollars a year, just throw it all at the debt and nothing to worry about.  Except we will have no army, medicare, or social security.  Well, still, it cannot be too bad.  It will just take a little longer than expected, maybe we will raise taxes a little.  Let us look now at debt to GDP:  106.6%.  That means that, even if we tax 100% of everything, we will still be 1.9 trillion dollars in debt.  Now, maybe that doesn’t sound too bad.  A lot of people take out loans more than their annual income.  However, keep in mind that 106% is of everyone’s money, not of what we pay in taxes.  That comes to approximately 311% Debt to Revenue.  Moreover, keep in mind that the reason we are in debt is not merely because of a one time spending spree, but also the result of a long train of constant deficits.  Thus, with the current payback rate, we would never actually pay back the debt that we have incurred.  To pay this back in 19 years, we would have to drop spending or raise revenue to have revenue higher than spending by .9 trillion dollars a year.  This would require a change of 1.1 trillion dollars a year.  20% of the government (5.2 trillion dollars a year currently) would have to be eliminated in order to be able to pay back the debt in 19 years.  Any longer than 19 years and all the children of this nation would be paying for what we spent.  Does it seem right to force someone to pay a dime for something you bought?  Would it be right to have to pay for another’s purchases?



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