The U.S. Budget/Debt Crisis: Why Are They Making It So Complicated?

With a myriad of opinions and proposals being made by various government officials, including the President, one would be led to believe that the current problem is incredibly complex.  In fact, it is really very simple and there is an easy solution if our elected officials would only focus on the forest rather than the trees.

The problem is that the United States has been on an out-of-control spending splurge that has created such a massive debt that the world, including the credit markets, are very worried and believe we may be headed for an economic meltdown.  In order to rein in this worry, we need to establish a long-range plan to pay down this massive debt to a more sustainable level.  Forget all the hocus pocus and creative cheating being dreamed up in Washington.  Simply treat this as a mortgage on the U.S. and establish a reasonable amortization schedule to pay it off.  The debt can be amortized over whatever period of time needed to make it manageable, 100 years or whatever.  The important thing is to reverse the “Debt Clock” and to guarantee the world that making regular payments on the mortgage will be our number one priority.  If we do this one thing that truly addresses the core problem and gets at the bottom line of what is needed, all the other details, balanced budget, controlled spending, entitlement reform, tax reform, etc., etc. will necessarily follow.

Our government simply needs to assure the world that we are serious about  paying down our $14 + trillion debt and have a guaranteed, top priority, program, a “mortgage on the U.S”., to deal with the problem.

Update – July 29, 2011

Does Barack Obama actually want the U.S to experience a financial crtisis?

Many now believe that this is his true goal and having achieved that goal he would not “waste a good crisis” as advised by Rahm Emaneul.  Such a crisis would likely lead to widespread civil unrest and provide the opportunity for him to invoke emergency measures and seize more power.

I would rather believe that our current problems are simply due to a dysfunctional congress and an incompetent President who has shown little capacity for leadership.  However, it’s hard to understand why Obama, being on the verge of an agreement with John Boehner last week, blew the deal up at the last minute by changing his terms.

Making sense of this Washington fiasco stretches one’s capacity for rational analysis to the limit.  

Will The Ship Sink?

We currently have a very serious problem in our country that needs to be addressed if we are to avoid a national calamity.  Many are aware of particular facets of this problem such as poor employment opportunities and the current high unemployment rate but many don’t understand the meaning or significance of high deficits and “out of control” national debt.  I offer the following analogy that should make this problem easy to understand for everyone.

Imagine that your family is aboard a boat that has developed a leak in the hull.  You realize that if you are to prevent the boat from sinking, you need to stop the leak or at least bail out the water as fast as it is leaking in.  Now let’s equate that to your family’s financial situation.  The water leaking in represents the amount of money you spend and the amount of water you bail out represents the amount of money you earn.  As long as you bail out as much water as leaks in, or earn as much money as you spend, the boat is safe and will not sink.  In essence, your budget is balanced. However, if you spend more than you earn or fail to bail out as much water as leaks in, your budget is running a deficit.  As a consequence, the total money you owe, i.e., your debt, grows in the same fashion as the total volume of water that a leaking boat would accumulate.  If these conditions continue, the boat would eventually sink.  So, in the case of the leaking boat, what would you do?  Obviously, you have several choices but if you want to prevent the boat from sinking, you at least need to bail out water at the same rate as it is leaking in.  Better yet, you might patch the boat to stop the leak.  But the best solution would be to both stop the leak and then bail out all of the accumulated water. 

In financial terms, financial advisors would advise a family with such problems to immediately stop spending more than they earn, i.e. adopt a balanced budget in place of a budegt running at a deficit and to develop a plan to eventually pay off the previously accumulated debt.  The ultimate goal would be to become debt free.  Remember when you are in debt, a portion of the money you earn each month goes to pay interest on that debt and, thus, you have less money available for other things.

The United States, as a country, is in such a situation and, collectively, we individuals are the United States.  Our government represents our employees that we have hired to manage our affairs and they have done an absolutely terrible job.  Remember, government does not create a penny’s worth of wealth.  It is created by all of us, the private sector.  The government simply takes a portion of what we create in the form of taxes and spends it as it so desires.  The great problem is that for many years the government has been spending more than it has taken in and as a result, we now have a massive national debt.  In fact it is so large that each one of us, each man, woman and child in this country, is in debt to the tune of more than $45,000 and that figure is rapidly growing.  The problem is that the vast majority of us will never have the capacity to pay off our share of that debt.

Putting this again in the context of a ship taking on water, the good ship USA is taking on water faster that it is being bailed out and the amount of water already accumulated in the ship’s hull is rapidly approaching the critical amount where it will sink the ship.

What can be done to prevent disaster?  Our problem is our government.  They are the one’s who we have entrusted with the responsibility for keeping us safe.  Yet many of them are still resisting the need to stop the leak and today we see the first alarm bell being sounded, Standard and Poors has downgraded our credit rating.  This is first time in the history of this country that we have heard this alarm.  Some in government are warning that we need to stop the leak.  In order to do that in the financial sense, we need to ensure that we spend no more than we take in, i.e., we need a balanced budget.  The only sure way of ensuring this is via a balanced budget amendment, a move vigorously opposed by many liberals in our government.  They would rather retain the ability to continue the spending binge.  Why?  Because, they are able to buy votes by giving their constituents money.  Furthermore, we need a plan to pay down this enormous debt, currently approaching $15 trillion.  Selfish, self-centered motives trump keeping the ship afloat.  As ridiculous as this sounds, this is the crux of our current problem.  With luck, the ship may be able to stay afloat for the duration of this generation but future generations face a nearly impossible task of surviving.

Post Note!  It's come to my attention that the Liberals are attempting to blame the so called "tea party" Republicans for the credit downgrade.  That's a bit like the king killing the messenger who brings him bad news.  This group of newly elected members of congress is simply attempting to carry out the mandate expressed by the majority of Americans.  These people get it. They don't want the boat to sink.  They are simply insisting that our government take immediate action to deal with budget deficits, i.e., government spending that exceeds revenues, as well as the total amount of money owed by all of us, i.e. our national debt (now approaching $15 trillion). 

Phantom Goals And Bright Lights: Why Government No Longer Works

Out of control federal debt, high unemployment, insecure borders and confused foreign policy are some of the key issues that our government appears to be unable or unwilling to deal with in an effective way.  Recent job approval polls give poor ratings to government officials and congress in particular.  Without getting into a politically charged discussion, the following thoughts address the situation in more basic terms.  Structural features of government and society may be major factors leading to our current problems.

In my book, “A Path To The Gold”,  I describe a rational process for arriving at high quality solutions to problems.  By following this relatively simple process various individuals and groups, including many businesses, arrive at solutions which possess  high probability of achieving designated goals.  Unfortunately, government groups rarely if ever use such decision making methods.  The reason for this is that key to the success of such a process requires that clearly stated and unambiguous goals be unanimously agreed to and remain the only goals sought after.  Here in lies the crux of the problem when it comes to government groups such as the congress or even smaller groups as sub-committees. Regardless of the seriousness of the national issue being addressed, politicians  will nearly always have hidden agenda and thus, “phantom goals”, that address their personal perceived political needs.  Their first objective, i.e. goal, is to enhance their standing with the electorate and thus, win votes for the next election.  The human drive for survival, albeit in a political sense, will almost always trump any issue related goal.  While we often hear politicians proclaim that they are acting in the best interests of the American people, you can be certain that their own personal best interests usually comes first.

Additionally, effective decision making requires that all members of the group are encouraged to participate and that all ideas are thoroughly and equally evaluated following solution-based brain storming.  More often than not in the government setting, the party in power steam rollers bills into law, frequently ignoring input from the other party.  There is rarely serious “brain storming” and thorough analysis of all ideas.  Chosen solutions are rarely reached through a fair vote of all group members. Rather than optimal solutions to national issues, goals are often reached that reflect the political objectives or ideology of the party in power.  Government resolution of issues is, at best, sub-optimal and far too often,  useless or even counterproductive.  The recent stimulus program is a classic case in point.  The $800+ billions spent to “supposedly” stimulate the economy has largely failed to do so but rather pumped large sums of tax-payer money into politically favored hands.  One of the nation’s most respected economist, Dr.Martin Feldstein  summarizes in plain, easily understood, language the mistakes made by our government in this regard (The Economy is Worse Than You Think,  Wall Street Journal 6/8/2011).

Additionally, intense and often biased media coverage has produced a highly charged, confrontational, political environment that does its best to negatively impact the lives of potential candidates it chooses to oppose.  Under these circumstances, do were really think we’re attracting the brightest and the best to public office? Look at how we’ve treated our last half dozen or so presidents.  Rather than being supported and respected by the American public, they are vilified, torn down and disrespected in a barrage of attacks led by legions of media personalities, talking heads, internet bloggers, political book writers and many others looking to profit from this destructive sport.  It’s at the point now that you have to be suspicious of the sanity of anyone expressing interest in running for political office.  Consequently, those in office and candidates for office are forced to an extremely defensive posture in order to remain viable.  Thus, goals which enhance personal career survival are first and foremost on their minds.

In conclusion, I believe  that our current government/political structure is no longer  effective.  There may need to be a wholesale change in the government construct in order to greatly lessen the political component of decision making.  High quality decision making cannot occur  in the presence of hidden agenda, “phantom goals” and the threat of constant personal attack.  Perhaps some form of term limits would be effective in bringing about an atmosphere where members of government, congress in particular, would be more focused on solving problems optimally than on protecting and promoting their own political lives.