November 18, 2018

The State of Our Financial Disunion?

1988 State of the Union (President Reagan, VP Bush, Speaker Jim Wright)

Did you happen to notice that the word, budget or cost was totally left out of the 2018 State of the Union message for the coming year? Our Congress lives on debt. Everything the government does represents more and more debt. We have generated close to $21 trillion dollars in debt and plan to continue to add to it. Now please don’t get me wrong. I am not against rebuilding our infrastructure or adding more border agents, but I am a little concerned about spending $25 billion dollars for a border wall. But the government is facing growing deficits and there are no plans to cut spending.

Just once, I would like to see some sort of a balanced approach to government funding. Yes, Congress did pass a massive tax reform bill that will add at least $1.5 trillion dollars to our National Debt. No mention was made in the President’s speech as to how this tax reform package was being paid for. The government can’t address this issue as basically it hasn’t got a clue if they will ever offset the loss of incoming revenue. The repercussions are already starting to be felt in Washington. The Wall Street Journal reported recently that the upcoming deficits will “shake up the Treasury Bond issuance.” In other words, the Bureau of Public Debt will have to increase government borrowing by issuing more securities to offset the loss of revenue. For the layman, it translates into more borrowing at higher interest rates.

As the Federal Reserve raises interest rates, it becomes more expensive for everyone to borrow including Uncle Sam. But the real impact will be felt in the annual cost of borrowing that is included in the Federal budget. This cost, something we can’t pass onto our grandchildren, must be paid to our borrowers and is fast approaching $500 billion dollars per year. This cost will increase both because we are borrowing more and interest rates are rising. Presently, the interest on the debt consumes 6.5% of the U.S. Federal budget. It is the fourth largest budget item. Projections for the coming years calculate that the interest on the debt will double. By 2020, it will be over $474 billion dollars and by 2026, the interest on the debt will exceed $787 billion dollars and make up 12.2% of the Federal budget. Folks, the bottom line is that this debt picture is unsustainable going forward.

Operating without a balanced budget or for that matter any budget at all, Congress today funds its operations through funding or appropriation requests. Any number of things can be included in a funding request. But nowhere are these funding requests tied back to a budget that is binding on Congress. Compounding this situation, Congress keeps kicking the can down the road by deferring the debt ceiling limit that should control the amount of money the government has to spend in any given year. The debt limit or debt ceiling is the legal amount that the U.S. Treasury can borrow to pay the government’s bills. This debt ceiling has been raised 74 times since 1962 and 10 times in the last 15 years. It will be raised again this year as the government does not have the money to pay off any of its existing debt.

Calling our present funding nightmare in the United States a “three ring circus,” is putting it mildly. The true “State of the Union” address, if honestly prepared, would reveal that our Federal Government is basically broke and has absolutely no plan going forward to resolve the situation. What a shock that would be to our nation!

Print Friendly, PDF & Email
Written by
Donald Wittmer

DONALD WITTMER is a retired business executive who held key roles in the automotive and banking sectors. For a time, he also served as a Fiscal Agency Manager for the Detroit branch of the Federal Reserve Bank of Chicago. He received his undergraduate degree from Cincinnati's Xavier University, an M.A. in business management from Central Michigan University, and earned certification in bank operations from the School of Banking at the University of Wisconsin-Madison. A husband, father, and grandfather, he teaches part-time at the Kent Place School for Girls in Summit, New Jersey.

View all articles
Written by Donald Wittmer