An America Without Debt?

Debt, a term that is referenced negatively in our modern vernacular, we associate and view the word debt as an idea or thing we should not have or try to get rid of; but what is debt, what makes it so trivial and negative.  Well according to the Miriam-Webster definition of debt, it is “something owed, a state of owing or a common law action for the recovery of money held to be due”.  With that in mind is it a good idea for America to be in debt when debt is an action of owing someone other than oneself, is it a good idea to be in debt to other nations, is it a good idea for the American government to create more debt by spending more money on programs that is a function for our debt. These are the questions I pose to you all today, should America continue on its current path and borrow more money from other countries to fund their programs or should they scale back spending and create a balanced budget for a more stable America.  My view is that we should scale back spending so that we do not have to worry about our government owing anyone money, so that we can have a surplus and then focus on investing in programs that bring back dividends to this country instead of throwing away money into the sea, and finally if we lower the debt we can finally trust our government again to make the proper decisions.

There is no doubt that America is in debt, according the the US Treasury, the total US Public debt stands at about 15.4 trillion dollars, for which most of that is back by US Treasury bonds and securities that are sold by the federal reserve to private investors and foreign nations. 

In 2007 article called “Just who owns the U.S. national debt?” columnist John W. Schoen breaks down the debt.

The money is borrowed from buyers of Treasury securities -- which are basically a big batch of IOUs that are auctioned off every three months. As the auction date approaches, the Treasury figures out how much it will need to pay off old debt and cover the government’s latest round of overspending.

When the auction day comes, buyers submit bids in the form of the interest rate they’re willing to accept. You can choose to make a competitive bid (you ask for a specific rate) or a non-competitive bid (you agree to accept the average rate of other winning bids.) When all the bids are in, the Treasury starts at the bottom, taking the lowest bids until it has collected enough money to cover that round of borrowing.

The money flows in from all over the place: from individual investors and corporations, pension funds and governments, both in the U.S. and around the world. Basically, anyone with a large amount of cash looking for a safe place to put it is a good candidate for holding U.S. Treasury debt.

So just who are these lenders? As of last June (the latest complete breakdown available), the biggest holder of Treasury debt was the U.S. government itself, with about 52 percent of the total $8.5 trillion in paper that's out there. Most of the government’s holdings are massive savings accounts for programs like Social Security and Medicare. Just as you may prefer to keep your Individual Retirement Account in the safe Treasury bonds, the folks who manage the Social Security Trust Fund are looking for a secure investment, too.

That’s leaves a little over $4 trillion in public hands. The biggest chunk (about 25 percent of the $8.5 trillion total) is held by foreign governments. Japan tops the list (with $644 billion), followed by China ($350 billion), United Kingdom ($239 billion) and oil exporting countries ($100 billion).

Other big holders of Treasury debt include state and local governments ($467 billion); individual investors, including brokers ($423 billion); public and private pension funds (319 billion); mutual funds ($243 billion); holders of US savings bonds ($206 billion); insurance companies ($166 billion) and banks and credit unions ($117 billion.)

Once issued at auction, Treasury securities enjoy a healthy second life when they’re traded in the so-called “secondary market” (aka the “bond market.”) The prices of bonds bought on the open market go up and down as the market reacts to changes in demand and news about the economic outlook like inflation. But no matter what you pay for a bond, if you hold it until it matures, the government has to pay back the full amount that was borrowed when the debt was first auctioned and issued.

And, as of January 2011 foreigners owned $4.45 trillion of U.S. debt, or approximately 47% of the debt held by the public of $9.49 trillion and 32% of the total debt of $14.1 trillion.  The largest holders were the central banks of China, Japan, the United Kingdom and Brazil.  The share held by foreign governments has grown over time, rising from 13% of the public debt in 1988 to 25% in 2007.  The largest single holder of U.S. government debt was China, with 26 percent of all foreign-held U.S. Treasury securities.  China's holdings of government debt, as a percentage of all foreign-held government debt, have decreased a bit between 2010 and 2011, but are up significantly since 2000 when China held just 6 percent of all foreign-held U.S. Treasury securities.

So is that a good thing should we allow foreign governments and private corporations to control our national ‘public’ debt, furthermore should the government pass on the national debt to us hard working Americans.  We elected politicians into office so that they can represent our interest in government, but so far what we can tell is that there is so much bickering and infighting in Washington it is hard for the lawmakers and bureaucrats to make up a plan that can get us out of debt and continue on with spending and creating more debt for Americans in our society today.

So what can we do to get us out of this mess?

As of now there is no direct answer or solution to that question, but we can look to past examples for the answers.

Recently, I glanced across a news article; Imagine a world with U.S. Debt by Washington Post columnist Brad Plumer, that sparked my interest in the public debt debate.  In his article he goes on a narrative about a time when the United States did not have debt and that officials in Washington were wondering what they could do with the money.  He compares the scenario of today with the scenario from back in the 1990’s when:

“We’ve all heard the horror stories about what would happen if the U.S. debt burden spiraled out of control. But what if we went in the other direction and paid off our debt entirely? Back in the late 1990s, with the economy galloping and the government racking up budget surpluses, this prospect didn’t seem so implausible.”

What did they do in the past that create the surplus in the 1990’s?

REAGANOMICS

  

The answer to that question would be “Reaganomics.”  In the 1980’s following the turbulent 1970’s where America and the globe were plagued with the oil and energy crises and recessions that created a bleak outlook for the incoming president in 1981; the president along economic advisor William Niskanen, they formulated and introduced the idea of Reaganomics to America. This according to Niskanen was:

"Reaganomics" was the most serious attempt to change the course of U.S. economic policy of any administration since the New Deal. "Only by reducing the growth of government," said Ronald Reagan, "can we increase the growth of the economy." Reagan's 1981 Program for Economic Recovery had four major policy objectives:

(1) Reduce the growth of government spending

(2) Reduce the marginal tax rates on income from both labor and capital

(3) Reduce regulation

(4) Reduce inflation by controlling the growth of the money supply

These major policy changes, in turn, were expected to increase saving and investment, increase economic growth, balance the budget, restore healthy financial markets, and reduce inflation and interest rates.

Reaganomics was based on supply side economics, a theory created by Friedrich Hayek, from the Austrian School of Economics who sought to create a more free market economy, where the government would not interfere and allow for businesses and private investments to grow.  While the government’s sole role was to take charge of the state and to keep the budget from defaulting.

So with Reaganomics President Reagan and successive presidents after him could enjoy an economy that was booming and a government that was lowering their debt by spending less and allowing for Americans to be controlled less by the government.  If we could only follow this model today, I believe that we can lower the national debt in a booming economy.

Now some might argue that this is a bad idea and that deregulation is the reason why America is in its current situation, and that budget cuts will lead to a loss of jobs.   Well that is true deregulation might have caused our current situation and budget cuts might lead to cutting of jobs as well; but that is economics as nothing lasts forever the economy “bears” and “bulls” continuously in it is the way of the market.

I am not arguing for Reaganomics, but I see it as a good alternative to our current situation as of now, which is to lower the current national debt, at the end of the day I see our national debt as a high priority, we need to find a way to lower it and lower it fast.  And if we cannot come up with an idea among the modern economists, well maybe we should look at past examples as to get us out of this debt problem.

President Obama Introduces New Tax Breaks for American Companies, but the Spending in the New Budget is Still Too High

In his weekly address to America, Continuing to Strengthen American Manufacturing, President Obama announced from the Boeing production plant in Everett, Washington about his new tax break plans for companies who keep production here in the United States.  This is a part of his new tax reforms which is geared to bring back more production to America.  In the address, the president is encouraging companies to ‘in-source’ their jobs back to America and said that he would be willing to give tax breaks to companies who return their manufacturing to America.  He stated that, “companies like Boeing are "in-sourcing" jobs from overseas.  [and] The tax code can be used to encourage more companies to do the same.”

President Obama further directed his address to those companies who outsource their work that:

"No company should get a tax break for outsourcing jobs. Instead, tax breaks should go to manufacturers who set up shop here at home.  Bigger tax breaks should go to high-tech manufacturers who create the jobs of the future.  And if you relocate your company to a struggling community, you should get help financing that new plant, that new equipment, or training for new workers.  It's time to stop rewarding businesses that ship jobs overseas, and start rewarding businesses that create jobs here in America.  And Congress should send me that kind of tax reform right away."

Though I agree with the presidents plans to bring manufacturing back to America, and the fact that President Obama is willing to introduce these tax break reforms to help business who bring business or ‘in-source’ production back to the United States is a good thing.  And will help in reinvigorating our economy.   I still believe that the president is still pushing for many programs in the FY 2013 budget that creates a heavier burden on Americans through the unnecessary spending and higher taxes in his new tax reform bills.

In a response address by the Republican Party, United States Representative Cathy Morris Rodgers, the congresswoman who is representing the town of Everett, Washington and the Boeing Plant commented that:

"On February 23, 2009, during a fiscal responsibility summit at the White House, President Obama made a promise to the American people. 'I'm pledging,' he said, 'to cut the deficit we inherited by half by the end of my first term in office.'

Well, in the budget he submitted this week to Congress, the president admitted he won't keep his promise. He won't even come close. Because of the president's failure to control spending, the government will run trillion-dollar deficits in each of his four years in office.

President Obama's broken promises have left our country broke. On his watch, the size of our debt has surpassed the size of our entire economy -- making it harder for small businesses to create jobs and pushing us closer to a fiscal crisis.

I'm afraid his budget is even worse than it looks. More than half of the proposed 'savings' in the president's budget for the next year -- about $2 trillion -- are already law. These savings come from the Budget Control Act -- the bill congressional Republicans insisted that the president sign last year in response to his demand for an increase in the nation's debt limit.

The president spent nearly six months last year resisting those spending reductions, until he finally listened to the people. Another almost $1 trillion in 'savings' comes from what we call the 'war gimmick' -- money that was never requested and will never be spent on wars in Iraq and Afghanistan. Those aren't real savings.

Do the math and you'll discover that the president's budget only achieves, at most, about a tenth of the savings it promises. This kind of accounting would sink any business or household."

Though I support the new tax breaks that the president has introduce in his new tax reforms, and with some reluctance I am temporarily supporting the president’s plan to increase the taxes so that the federal government may generate some revenue.  However, I am still firm on the idea that President cut back on our national spending for the upcoming budgets in the next few years, which is the only way we can get out of our massive public debt and try to work for a more balanced budget.

President Obama's Address: Continuing to Strengthen American Manufacturing

Republican Response Address

As America’s Debt Continues to Rise the Less Americans Feel Safe About America’s Future?

President Obama is to announce his budget for the Fiscal Year 2013 on Monday, in his new budget for the New Year starting in October; President Obama announced will announce his plans. He will plan to make a new standard tax rate for all Americans in America, which will raise taxes across the board for all americans.  However, the new increases in taxes he will also add in new projects for this next fiscal year, which are:

$2.2 billion for advanced manufacturing research and development
$350 billion in short-term job spending,
$476 billion for six-year transportation and infrastructure program
$60 billion to refurbish schools and secure jobs for teachers, firefighters and police officers

However as Andrew Taylor from the Associate Press says:

Obama's 2013 budget, set for release Monday, is the official start to an election-year budget battle with Republicans. It's unlikely to result in a genuine effort to address the $15 trillion national debt or the entrenched deficits that keep piling on to it. But it will serve as the Democrats' party-defining template on this year's election stakes.

The president's plan is laden with stimulus-style initiatives: sharp increases for highway construction and school modernization, and a new tax credit for businesses that add jobs. But it avoids sacrifice with only minimal curbs on the unsustainable growth of Medicare even as it proposes a 10-year, $61 billion "financial crisis responsibility fee" on big banks to recoup the 2008 Wall Street bailout.

This budget plan, administration officials say, borrows heavily from Obama's recommendations in September to a congressional deficit "supercommittee" that was assigned to come up with at least $1.2 trillion in deficit savings as part of last summer's default-avoiding budget and debt pact. The panel deadlocked and left Washington to struggle with bruising across-the-board spending cuts that kick in next January.

In his new plan President Obama will increase not only are taxes but will increase our national debt to fund his new plans.  As I said in my previous blog post The ‘Buffett Bill’ a Bad Idea for America, I do not believe that we should be giving more money to the federal government if they are continually raising the debt ceiling to fund projects that are supposed to create “STIMULUS” but in my opinion have not really done much but raise our debt and put our country more into an economic hole that we cannot crawl out of.

As Virginia Governor Bob Mcdonnel said in the Assoicated Press that,

 

"The Obama approach is simply more debt, more taxes, and more blaming others, this will not be a proactive budget built to promote fiscal responsibility and future prosperity. Rather, it appears we'll see a bloated budget that doubles down on the failed policies of the past.

 

I would agree, for our current situation, for an approach that would raise taxes, but at the same time scale back on in our spending.  We are spending more than we can have thus creating more debt for our country, and making normal average Americans feel like this country will be unable to have the feeling of security and pride for our nation’s once great strength in our economy and our government.  When the “Willy-Nilly” spend our money away on projects that create more debt.

Again, I believe that in our current times we need to pay more taxes, but the government in return should stop spending the money we give them in taxes; and start saving for our future so that we as normal Americans may have a hope of a future where this country is out of the debt of other countries.

Obama budget: New spending with recycled tax ideas   

Obama Budget Bets Other Concerns Will Trump the Deficit

State of the Union 2012

The ‘Buffett Bill’ a Bad Idea for America

In recent weeks democrats in the US Senate have contemplated on whether or not to introduce the so called “Buffet Bill,” which would raise the nominal tax rates to a standard 30 percent for all make more than 1 million dollars in income.   The Bill if debated on the Senate floor would be called the ‘Paying a Fair Share Act of 2012’, has been introduced by Senator Sheldon Waterhouse (D-Rhode Island). The White House and Senate Democrats say that the legislation would raise billions for the government, but there is no official estimate from the Congressional Budget Office about how much it would raise.

Senator Sheldon Waterhouse (D-Rhode Island) said in an interview on the bill that:

"These middle class families are really struggling to get by and then they find out that some people with really extremely high incomes are actually paying lower all-in federal tax rate than they are. That's, to them, just not common sense, americans deserve a straight deal and right now they are not getting one from our tax system."

Though Warren Buffet, one of the richest man in America, supports this bill many Republicans have stated that the Bill would prevent many of those high income earners from creating jobs as most of their capital goes to the government in taxes.  The reason that many of the high income earners pay lower taxes than most average Americans is that these Americans earn their income in a different way.  Most of the high income earners in America earn their money through investments and not thorough a standard income like most normal Americans.  And so if the bill is passed then the capital gains tax which most High income earning Americans pay would be raised from 15 to 30 percent which though it would be better for our government as we are in a current state of debt. 

But I believe that it is not as it would hinder the ability of the nation’s top investors from investing in vital parts of our economy as it has been injected into the federal government through taxes.

Ted Barnett a CNN Senior Congressional Producer writes that:

Most Republican strongly oppose raising the capital gains tax because they argue taxing investments at a higher rate will stifle job creation and hurt the economy.

I believe that with the government’s track record on spending our money and investing in projects and ideas that have not produced results.  I feel that if hard working rich Americans were to give more their income, which they could use for private investment and stimulate, instead to the federal government, who spend bills such as the stimulus package.  Then I do not support this bill because it would give the federal government the ability to spend more of our money into useless bills, like the stimulus package.

Senate Democrats Unveil Buffett Bill

Stop Coddling Billionaires! (says Warren Buffett)