Each year the Federal Government spends far more money than it takes in through individual and corporate taxes. We call that a yearly deficit. That deficit then gets added to the existing debt or deficits from previous years.
With the passage of the Biden "stimulus" plan (which is essentially just another pork barrel bill providing tax largesse to corporations and other countries) I thought I'd try to explain the level of indebtedness we are in and try to keep it simple and understandable.
Our current federal tax receipts for 2019 are 3.46 trillion. Tax receipts are normally estimated higher for each forthcoming year- unless of course you have a covid pandemic where 1/2 of the country shuts down. So the projections on this table, the one I used for this piece, simply aren't going to happen. Thus I am using 3.46 trillion as the amount of Federal tax taken in 2019. https://www.thebalance.com/current-u-s-federal-government-tax-revenue-3305762
We will add the 1.9 trillion dollar stimulus plan to the outstanding debt on the US debt clock to arrive at a figure of 30 trillion in debt. https://usdebtclock.org/ I'd like to direct your attention to the last line on the debt clock. From left to right. As I write this..
We owe another 54 trillion in social security and medicare costs for a grand total of 84 trillion.
We owe another 3.5 trillion in state and local debt. I am going to round this up to 88 trillion dollars because the debt continues to compound and I don't think the GDP went up, nor did tax revenue during the pandemic. Not to mention the cost of all those vaccinations. (who do you think pays for those?)
All debt is serviced essentially through the issuance of bonds. In the USA, half of our debt is financed with 30 year treasury notes. The other 50% is financed with bonds with shorter maturities. This means that half of the debt is continually refinanced. We make interest payments on this debt. That is one of the reasons why interest rates are never going to go substantially up. We couldn't service the debt. Can you imagine paying 5% interest on 88 trillion? That is 4.4 trillion or about one trillion more that the Federal Government takes in each year in taxes. That's why the Federal Reserve must step in with any one or several of their cost containment programs. The yield cost containment curve or YCC is going to be their next move- they will stop the yield ascent of the 10 year treasury.
It's like a child plugging holes in the leaking wall of a dam. As the water (debt) rises the pressure on the dam wall increases. Eventually the water begins to crumble the wall or go over the top. Either way, the debt tsunami cometh.
Ok. So let's use a ratio you can understand. We owe about 25 times what we take in each year. (88 trillion divided by 3.46 trillion in revenue)
Thus if you were an average wage earner in the US making 40 grand a year- you'd be able to accumulate 1 million dollars in debt if we were to use this government standard.
Could you make the payments on a million dollars in debt? With zero interest on half?
If you had a zero interest loan for 500k over 30 years- your payment would be 1389 a month.
If we added the other 500k in debt at a revolving rate of 3% over 30 years- your payment would be another 2108 a mo.
Thus your two payments on your 1 million in debt would cost you 3500 a mo. You would fall 2000 dollars short of annual gross income. You could not buy gas, food, clothing, utilities, repairs, insurance, property taxes, or anything else. In short, you are bankrupt.
The USA is also bankrupt. The only difference of course is that the US government can defer their debt through a number of measures not available to the common taxpayer. How long can they extend and pretend we are solvent? It's an interesting question that nobody has been able to answer. We are all going to feel the pain as they try and tax the shit out of us and steal our property in the process.
One last item which I have found to be universally true.
The liberal mind always thinks the solution to debt is more taxes. They just want everyone else to pay them.
The conservative mind thinks we have a spending problem.
In the end, it simply doesn't matter who is right or wrong. The dam is bursting and all of the crying, finger pointing, and blame that is American politics- can't fix what's coming. It's too late. We are either going to default on our debt- or use the historical custom of trying to inflate the debt away by the issuance of more money. And we are going to feel this pain. Because of our apathy, we probably deserve every little bit of what's coming. Buy land, stockpile goods and prescription drugs, buy precious metals and ammo. What's coming is unprecedented. The issue is when.
Like Yogi Berra says..."Predicting is hard, especially about the future." Indeed it is.