As we navigate the complex landscape of national finances, it’s clear that we face critical challenges requiring immediate attention. The insufficient handling of the budget by Congress reflects a broader issue that affects every American. This article explores these challenges and highlights the implications of neglecting sound fiscal policies.
“It’s a stupid way to run a country,” remarked Maya MacGuineas during the Thanksgiving holiday. MacGuineas, who leads the Campaign to Fix the Debt, expressed her frustration regarding Congress’s inability to adhere to a budget. “Change comes from two possible sources: a crisis or leadership,” she added.
Sadly, the handling of the nation’s finances has often been reactive, responding to crises instead of effective planning. Each fiscal emergency is typically addressed with temporary solutions that merely delay the inevitable, which many find to be profoundly disrespectful.
This is especially disheartening since Congress seems unable to implement the same responsible financial strategies that most diligent Americans use—spending less than they earn or earning more than they spend.
In fact, Congress last passed a budget resolution in 2009, choosing instead to spend money without any meaningful limits. Unfortunately, there appears to be little motivation for change in the foreseeable future.
Currently, the Congressional budget panel can only agree that some modifications to the automatic sequestration cuts are necessary. Their discussions are limited to an agreement on spending adjustments between $50 billion and $100 billion. When compared to the staggering $17 trillion national debt, these measures can be likened to merely rearranging the deck chairs on the Titanic.
The Ball and Chain Weighing the Economy Down
Adjusting sequestration cuts does nothing to remedy the deeper issues of our nation’s debt and insolvency. Genuine deficit reduction will require Congress to reevaluate and restructure Social Security, Medicare, and Medicaid, as these entitlement programs account for nearly half of federal spending.
These extensive entitlement programs are pushing the country into bankruptcy. Congress increasingly relies on borrowing from the future to fulfill promises made in the past. Yet, making reforms to ensure these programs’ sustainability is considered politically risky.
Congress members are reluctant to admit to the American public that they have been misled. They also fear the political repercussions of any potential job losses should they be held accountable. Instead, they prefer to postpone addressing these issues, hoping to avoid fallout during their tenure.
Meanwhile, the economy’s growth potential remains hampered by the heavy burden of mounting debt. Over time, this burden will only intensify. Here’s why:
Eventually, the yields on Treasury bills will likely rise significantly. Who knows if they’ll reach the levels seen in the 1980s? Back then, in 1981, the yield on the 10-Year Note surpassed 15 percent. However, even if yields were to climb to just 6 percent—the level at the turn of the millennium—the cost of interest payments could triple. To manage these escalating costs, higher taxes would become necessary just to handle the interest on existing debt.
Albert Einstein’s Eighth Wonder of the World
According to the Congressional Budget Office’s latest budget outlook, “Net interest spending, which covers the interest on our growing national debt, will amount to $5.216 trillion over the next decade. Interest costs from previous deficit spending are set to increase from $223 billion today to $823 billion in 2023—a staggering rise of 369 percent.”
“Compound interest is the eighth wonder of the world,” a quote often attributed to Albert Einstein states. “He who understands it, earns it. He who doesn’t, pays it.” Regardless of its true origin, the sentiment rings true and resonates deeply, especially in the case of Jack MacDonald.
Jack MacDonald, who passed away in September at the age of 98, was secretly wealthy. Aside from his family, few were aware of his considerable fortune. MacDonald preferred to clip coupons, live in a modest one-bedroom apartment, and take the bus rather than display his riches.
He built his wealth through frugal living, smart investments, and the careful management of a small family inheritance. Ultimately, through the power of Einstein’s eighth wonder, MacDonald was able to bequeath $187.6 million to his favorite charities, including Seattle Children’s Hospital, the University of Washington School of Law, and the Salvation Army.
It’s a pity MacDonald didn’t lead the Congressional budget panel. If he had, the country’s fiscal situation could be significantly more favorable today. Instead, Congress squandered a remarkable opportunity to impose fiscal restraint while interest rates were historically low.
We wish we could assert that Congress members lack an understanding of compound interest. Indeed, we believe that at least some possess this knowledge—perhaps even Nancy Pelosi. Rather, it appears that many are indifferent to the escalating debt, fully aware that taxpayers like you will ultimately bear the burden.
Sincerely,
MN Gordon
for Economic Prism
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