Debt Free

Just what is the cause for the national debt? If you're wondering how our country got into such a financial hole, you've probably asked yourself that question. If you're in debt yourself, you're in good company, because hey, our nation is in the same boat as you are. First of all a definition of national debt is in order to clear up any misunderstandings about what the national debt actually is.

The national debt is cumulative amount our federal government has spent in excess of the revenue it has collected. This is done by the federal government issuing debt securities (bonds, notes, and bills) which are sold to investors. These securities are issued by the Federal Financing Bank and are known as public debt.

In addition to the debt sold to private investors, there are also intra-governmental holdings. These are government securities that are issued by one government agency and held by another. Such debts can include revolving accounts and trust funds. These intra-governmental holdings amount to about 40% of the entire national debt and are actually growing at a faster rate than the public debt portion of the national debt.

The national debt is not the total private debt of U.S. citizens, so don't think that outstanding debt on your Visa is contributing directly to the national debt. It's not, it's only hastening your own financial demise.

Although federal tax revenues have grown to record numbers either in spite of, or because of the Bush tax cuts, depending on whose side of the aisle you happen to sleep on, our federal debt has ballooned out of all proportion to the country's population increase. Although Bush cut the tax rate, the amount of revenue actually grew. This helps to illustrate that if you're trying to increase total tax revenues, you have to cut taxes to the point where the increase in economic activity generated by the larger amount of money in the private sector maximizes total tax revenue; no more and no less. If the tax rate is too high it takes money out of the private sector to the point where economic activity contracts, and tax revenues are actually reduced. If the tax rate is too low, the increase in economic activity doesn't compensate for the decrease in the tax rate.

As I write this our national debt is approximately $9.37 TRILLION. After you complete the task of wiping the vomit from your keyboard, you should know that it hasn't always been like this. If the growth rate of the national debt from 1945 to 1970 was maintained, our national debt would stand at about $1.9 trillion after adjusting for inflation, a staggering sum, but only a fourth of it's actual total. Even taking the growth rate from 1970 to 1975 our debt would be at about $3.9 trillion, or only about half what it is today. What the hell happened that has caused our national debt to explode in such a sick fashion?

A succession of over spending administrations and congresses have combined pork barrel projects, entitlement programs, and defense spending have caused the total of our national debt to spiral out of control. With the exception of the last 2 years of Carter, the first 2 years of Regan and Clinton's second term, the spend happy federal government has devoted most of it's energy to pleasing all those in the private and public sector, in addition to different voting blocks, that have been lining up with their hands out.

The mindset of many people in the country seems to be that of “buy me more stuff and I'll vote for you”. Just as coddling your kids in a search for popularity can run up your visa bill, congress and the various administrations have sought to please this block of voters and that by basically bribing them for their votes with entitlement programs and special projects, and in so doing, have blown up the national debt.

Say what you will about President Clinton, and I've said most of it myself, one thing he did help to do (aided tremendously by the Republican congress, before it jumped on the “let's spend more money” express) was actually reverse the growth of the national debt. As America swings more toward being a nation of citizens that expects to be provided for, (and politicians that are only too eager to comply), rather than one populated by self reliant, independent (I use that in economic, rather than political terms) citizens, the trend of a ballooning national debt will be harder to contain.

Where do we spend our federal dollars that have caused the national debt?

Here is where the Intra-governmental funds are spent according to the treasury's National Debt Schedule from 2007 and the agency that is responsible for it.

Fund                                                                               2006      2007

SSA: Federal Old-Age and Survivors Insurance Trust Fund 1,968,262 1,793,129

OPM: Civil Service Retirement and Disability Fund 687,665 675,936

HHS: Federal Hospital Insurance Trust Fund 319,377 302,186

SSA: Federal Disability Insurance Trust Fund 213,830 202,178

DOD: Military Retirement Fund 190,232 181,810

DOD: DOD Medicare-Eligible Retiree Health Care Fund 92,191 72,740

DOL: Unemployment Trust Fund 74,923 66,213

FDIC: The Deposit Insurance Fund 47,515 46,216

DOE: Nuclear Waste Disposal Fund 39,435 36,482

HHS: Federal Supplementary Medical Insurance Trust Fund 39,248 32,306

DOL: Pension Benefit Guaranty Corporation 35,775 36,635

OPM: Employees Life Insurance Fund 32,965 31,282

OPM: Postal Service Retiree Health Benefits Fund 25,491 0

HUD: FHA – Liquidating Account 22,405 22,030

Treasury: Exchange Stabilization Fund 16,436 15,711

OPM: Employees Health Benefits Fund 15,890 14,822

DOS: Foreign Service Retirement and Disability Fund 14,378 13,876

DOT: Highway Trust Fund 12,205 10,998

VA: National Service Life Insurance Fund 9,752 10,189

Other Programs and Funds 86,373 85,114

Interest on the national debt is a large amount of the debt , and although that percentage has fallen with interest rates the total amount continues to grow, in 2007 the federal government spent $430 billion on just national debt interest payments, compared to $405 billion in 2006. You can see that debt service is a large problem.

The greatest public uses of the national budget and thus the debt are, in order:

#1 Health and Human Services $670 Billion

#2 Social Security Administration $625 Billion

#3 Department of Defense $575 Billion

#4 Treasure Dept (includes interest) $480 Billion ($430 Billion of that is interest)

#5 Department of Agriculture $ 93 Billion

#6 Department of Vets Affairs $ 74 Billion

#7 Dept. of Education $ 54 Billion

You can see that the largest contributors to the debt, by far, are HHS, SSA, DOD, and Interest on the debt itself. So that is the cause for the national debt, but spending too much is the root cause and will remain so as long as we spend so much on ourselves.