Ramblings of my Father- My dad’s view on the state of the economy.

From time-to-time, my dad likes to send me some political  “common sense” via email.  I’ve come to find that my dad has a certain journalistic quality to what he writes, and I wanted to share his recent writing.  It’ll become clear that my dad is a Republican, but a pretty level headed one (I, on the other hand, have not “thrown my hate into the ring” as far as my political affiliation.)  He is an Engineer with his masters, and a very wise and smart man (I mean, he IS my father after all!)

Aside from living in a country with ever-increasing debt, I also live in a state with high unemployment and a governor who is implementing a lot of interesting and (sometimes) scary solutions.  As a future teacher, I am trying to form an opinion and stay informed.  My dad helps a lot…

The email:

Some interesting statistics which may help explain why so many on the political right (conservative) are so worried about where the country is heading.  Is this all Obama’s fault?  No – but it is also pretty clear that the policies congress and his administration have put in place and supported have done little to make the country better financially and arguably have made things much worse.  The last line is particularly troubling – our national debt has gone up 32% in just two years.  What does this mean to me and you? 

  • The national debt is money the country has borrowed from a number of sources – banks, other countries, regular citizens in the form of Treasury securities and savings bonds. 
  • At a minimum, the country has to meet interest payments on this debt.  If the average interest on this debt is 5%, the U.S. government must pay $725 BILLION dollars in interest each year to various people. 
  • Where does this money come from?  Ultimately from you, me and all the other citizens.  That is, the first $725 billion in taxes must be used just to pay the interest on our existing debt – never mind paying anything on the principle (the original amount borrowed) so the loans get paid off. 
  • The amount of money we (the US government) takes in via taxes is somewhere around 2.5 trillion dollars.  This means that roughly 25% of this money is gone before we even start and pays for nothing other than interest payments. 
  • Unfortunately, where the money to pay this interest is really coming from is more borrowing as our national debt is going up by over $1.2 trillion dollars per year.  My main knock against Bush was his support for out of control spending, but our national debt has gone up more in Obama’s first two years that in all eight of Bush’s combined – and most of Bush’s debt increase happened from 2006 -2008 when both houses of congress were under Democrat control.
  • This would be like me using credit cards to pay the mortgage on my house.

Much is being made about the drastic measures that governor Snyder and other governors across the country are taking.  While we can argue about the exact methods and what actions are being taken, it is clear that something must be done.  Unlike the Federal Government, States CANNOT run at a deficit for any length of time.  They do not print money and by the state constitutions must have balanced budgets.  Many financial tricks have been used in Michigan and other states for the past couple years to make it appear that the budget is in balance, but these tricks have run out.  (The old rob Peter to pay Paul game.)  The bottom line is that the amount of money our current state programs cost – roads, prisons, education, pensions, salaries, etc. – exceeds our tax revenue by several billion dollars.  The state either needs to cut spending or raise taxes, these are the only options.  Raising taxes tends to drive people to leave the state or not move here.  For businesses it also tends to make them leave, or at a minimum not expand their operations.  Again, we can argue about exactly how the budget gap is closed, but unlike the Federal government, it must be closed.

In the case of the Federal government, what they continue to do is pass the buck to the next Congress or generation because any cut or even slowing in the expansion of a Federal program irritates someone and those “someones” vote or donate to campaigns.  You may have heard some cross talk about the “massive” budget cuts that were being debated.  It ended up being $38 billion.  Sounds like a lot.  This is not even 5% of the interest payment on our current debt.  This year, we are projected to add another $1.2 Trillion – that is $1,200,000,000 – dollars to our national debt, which further drives up our minimum interest payment, which makes even less of our tax dollars go to paying for anything of use.

Understand, I don’t have the answers here.  This problem has been building for many years, but the fear is that we are reaching a financial tipping point.  As more and more people retire and draw social security, our national expenses will go up.  At the same time, unemployment continues to be high.  The reported figures put it at 8.9%, but this is VERY deceiving.  What they did about six months ago was to drop then number of total available jobs.  That is, magically several million potential jobs disappeared.  I know the math here is a bit hard to figure out.  10% unemployment means that 90 people out of 100 have a job.  If you simply reduce the number of available “jobs”, the percentage of people having jobs goes up – but the same number of people are employed.  For example, if you say that there are now on 95 jobs instead of 100, the unemployment percentage is now only 6%.  Are there any more people REALLY employed?  No.  So is the economy really getting better?  No.  Will our stalwart media reporters go to the effort to make you understand this?  No.  Why?  Unfortunately it is generally because they support President Obama and his policies and want to spin them in the best light.

These are scary times.  I am very fortunate to have a decent paying job – but my salary hasn’t gone up for over five years and things cost more and more all the time.  It is very unlikely that I will be able to retire until I am nearly 70 at this rate.  I have greater fears for the two of you.  The job market continues to suck.  The salaries paid for a given job are stagnant or even going down.  Sorry to be such a downer – but as you are getting ready to enter the real world, you need to start understanding that what you hear about on the news really does have consequences for your daily lives.  As the Federal government continues is fiscal death spiral they either continue borrowing or raise taxes – usually on the “rich.”  Unfortunately, these “rich” people are the ones who run companies and create jobs.  If they have to pay out more of their profits in the form of taxes, they will hire fewer people, which leaves less people to pay taxes and so on.  When you hear about this or that great government program or an “investment” by the government is something, understand that the money comes from you and me, and ultimately our children and children’s children because it is being supported by borrowing ever increasing amounts of money – which MUST be paid back at some point.  If the Federal government cannot meet its interest payments, some really bad things happen.  Our currency becomes essentially valueless, which means that $115 per barrel oil will seem cheap.  Food costs will skyrocket.  This HAS happened in other countries and CAN happen here if something is not done.  This something is going to be painful and hard to swallow.  There will be much hand wringing and name calling, but the longer it is put off, the worse it will be.  What we are doing now is like treating skin cancer by spreading a pain killing ointment on it and then covering it with make-up.  Makes it feel better for a while and you can’t see it, but the cancer continues to grow.

Now – stop reading the gloomy maundering of your old man and study for finals.  As bleak as things are financially, at least there is a growing recognition – strangely by both Democrats and Republicans – that something must be done.  There is strong disagreement over what that something is, but at least it is being discussed rather than totally ignored.

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