I've never thought of myself as a math person; my focus has always been on literature, philosophy, history, even geography but not math, which is probably why I've never devoted any effort to fully understanding all the ins and outs of the national debt and the federal budget deficit. However, the headlines proclaiming in large type, followed by an exclamation point, that the federal budget deficit is projected to be a record $499 billion for fiscal year 2009 caught my attention. Before I went into a chicken-little-the-sky-is-falling conniption fit, I decided to do a little research. (I love the Internet!) After checking out the US Treasury site, Bloomberg News, NPR, the National Debt Clock, and MSNBC, I no longer worry about the sky falling; I'm worried that the earth is going to fall out of its orbit and crash into the sun. (Okay, maybe I've watched one too many episodes of Dr. Who.)
In addition to being frightened, I'm even more befuddled by the folks who spend their time worrying about Senator Obama's middle name and whether or not he wears a flag pin. People, the sky is falling. Depending on which financial reports you read, the amount of the projected federal budget deficit for 2009 varies from a low of $410 billion to a high of $500 billion. The Bloomberg folks polled 28 economic experts and the average number from that group is $447 billion. Like me, you may wonder exactly what is the federal budget deficit and how does it differ from the National Debt?
The federal budget deficit is the yearly amount by which government spending exceeds revenue. The National Debt is the total amount of money that the federal government owes, currently a whopping $9.589 trillion dollars. I gave this some thought and here's what I think this means in plain English. Let's say that you earn $50,000 per year (revenue), you spend $60,000 per year (expenses), and you owe $250,000 for mortgage, credit cards, car note, and insurance (debt). At the end of the year you will have a $10,000 deficit because you spent more than yu earned and you have a debt of $250,000.
Now let's suppose that in 2009, you are more fiscally responsible and you only spending $52,000, reducing your deficit by 80%, but your debt has interest, so it increases to $275,000 and once again you don't have any money to spend towards your debt. What to do? You borrow money to pay down your current debt and in doing so you create new debt.
Try to imagine this on a grander scale, a scale measuring billions and trillions of dollars. When you read news stories telling you that the deficit is less, that's nice, but it really doesn't address our serious national debt. However, when you read the current headlines that the deficit is increasing, it's time to get out the hard hats and look out below.
All those other scary terms like recession, unemployment, and housing foreclosures are close friends with an increasing federal budget deficit and a growing national debt. However, here's what has made me take to my bed. In 2001 when President G.W. Bush took office, the National Debt was alive and well, but--and here's the scary part, please don't allow children to read this--there was no deficit. Instead, there was a budget surplus of $128 billion.
I don't pretend to be an expert in economics or market analysis or any of that other math related stuff, but I can balance a check book, I. Evidently President Bush has fewer math skills than I do. He managed to take a surplus and in the course of his two terms of office, deplete the surplus and generate one of the largest deficits on record. How did the Bush administration accomplish this feat? Economic analysts say that it is at least partly due to the additional $10 to $12 billion that is added to the government's National Debt every month to cover the expenses of maintaining the war in Iraq. Economic experts also cite the stimulus checks sent out to rev up the economy as substantially increasing the National Debt, and point out that the economy is more sluggish than revved up, leading me to think that perhaps the stimulus checks fell short of their goal.
All of this reading about debt and deficits made me wonder who owns the National Debt, who are we borrowing this money from, and do we have to pay it back?
From what I was able to gather from the experts, the U.S. Treasury auctions off Treasury securities every three months. Individuals, corporations, foreign and domestic, states, and foreign countries purchase these treasury securities and then the government uses the money to pay off some of the National Debt. The Treasury securities are like IOU's backed up by the U.S. Treasury. So you could say that the government is borrowing money from these investors. Oh, and the investors earn interest on the money that they lend to the government.
No, I don't understand it fully either. Some of the Treasury debt, around 52% ,is held by the U.S. government. Some of that money/debt is held in savings accounts for programs like Social Security and Medicare. I don't know about you but I don't understand the connection between debt and a savings account. Some of this debt is owed to foreign governments who purchased Treasury securities. I couldn't find a clear answer as to whether or not the U.S. government has to repay this debt. Although, it does appear that every three months when the securities are auctioned off, the proceeds are used to pay some of the national debt that has come due. Unfortunately, as we continue to over spend, the deficit increases which makes it difficult to make any real progress in lowering the debt. If you would like to read more about this fascinating process or want to invest in Treasury securities yourself, check out this article on MSNBC. By the way, the MSNBC article was written in 2007 when the National Debt was only $8.5 trillion. The earlier number that I mention, $9.589 trillion is the current figure, which is changing by the minute.
As if all of this wasn't enough to make any southern woman take to her bed with the vapors, another headline this week brought alarming news. Exxon Mobil had predicted profits of $2.53 a share for the second quarter of this year but only achieved a profit of $2.22 a share for a net of $11.68 billion. I don't know how those Exxon Mobil executives are going to make it with such disappointing profits. Somebody bring me my smelling salts!
The video is For the Love of Money by the O'Jays. I love the bass in this song. I dare you to sit still and listen to this song. Come on, you know you wanna get up and dance!