I was looking at my blogs for 2004. I was very frustrated at the time that many prominent people didn't understand the Federal deficit. I heard intelligent people regularly say we are passing on our debts to our children and our grandchildren.
The deficit is a transfer payment, just like social security. If the Federal revenue ($3.5 trillion) is less than the Federal expenditure ($4 trillion), this year the deficit is $.5 trillion, that is borrowed by selling U.S. bonds to pension funds, individuals and foreign governments. About half of it is sold to our fellow Americans. That $.5 trillion is added to the existing debt of $18 trillion.
We started paying off that debt in 1999, but in 2000 Bill Clinton couldn’t resist spending more that year than the government received in taxes. We were on track to pay off the Federal debt. Economists were worried that the financial control part of the government couldn’t operate without the debt.
The real problem with the debt is the interest the government pays on the debt. The interest payment is mandatory ($.23 trillion this year). It now consumes 6% of the total budget. At times it has consumed far more. Roughly 15% in 1996. That reduced the amount of other budget items that could be spent.
An especially serious restriction considering that the interest is part of the mandatory 2/3rds of the budget.
Less than ⅓ of the federal budget is under Congressional control in any one year.
So the reality of the deficit is that the interest on the debt can consume a large part of future federal expenditures and that PART can be out of the control of the Congress of the future. Right now interest rates on bonds are very low and have been low for 5 years. Great for us right now.
But there could be high interest rates in the future, and that will restrict the future Congresses that our children or grandchildren might elect. A possible restriction; not a ‘great debt burden.’