Saturday, August 15, 2009

State of the Union's Finances

Do yourself a favor and read this synopsis of our debt. Then watch I.O.U.S.A.

Our current national debt of $11 trillion is cause enough for concern, but that figure does not account for the gap between future promised and funded Social Securityand Medicare benefits, as well as a range of other commitments and contingencies the federal government has pledged to support. A full accounting of those exposuresshows that the federal government is in a $56 trillion-plus hole!

During the past 50 years, we’ve balanced the federal budget only six times. When you exclude the Social Security surplus, we’ve only balanced the budget once (in 2000) over the same period.

Why is this a problem? Given our AAA credit rating and the fact that the dollar is a global reserve currency, lenders, both domestic and foreign, have thus far been willing to finance our national debt. However, in light of projected deficit and debt burdens,this may change.

For example, in March 2009, Chinese premier Wen Jiabao publically expressed his concern regarding the credit worthiness of the U.S. government. For example, in 2008, the federal government ran a budget deficit of $459 billion. For 2009, the Congressional Budget Office (CBO) projects a deficit of $1.7 trillion—the largest as a percentage of GDP since WWII.

Our national debt has doubled in the past decade, rising from about $5.5 trillion in 1998 to over $11 trillion as of March 2009.

By 2008, only 38 percent of the budget (including defense) was considered “discretionary” and funded through annual appropriation decisions, while 62 percent consisted of entitlement programs and other mandatory spending (including net interest).

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