America's Budget, America's Debt

One of the biggest trending topics on the site over the past few months has been state debt levels. Obviously people (at least people who visit sites like this) are interested in what their government owes, a fact that isn't surprising with the poor shape many of our states happen to be in. This curiosity, of course, extends to the federal level as well, where the debts are discussed on an even more dramatic scale. For example, if The Washington Times is correct in its projections (which are based on President Obama's proposed budget and therefore probable), the national debt will exceed gross domestic product (GDP) this year.

For those without an economic background, GDP is a measure of the goods and services produced by an economy. Though it isn't a perfect figure for a lot of technical reasons, it is nonetheless the most widely utilized calculation to measure and compare the size of economies. Despite any faults in GDP as a measure, the fact that it is being surpassed by debt is an astounding fact, as this has not happened since World War II.

Of course this isn't the fault of the Obama Administration alone. The Bush years produced two wars with extraordinary financial costs, no accompanying tax increase to fund them (in what was very possibly an attempt to keep them from the public consciousness as much as possible...consider the lack of casket photos on the news if you doubt this), pork barrel spending, bank bailouts and the first few rounds of stimulus programs. Of course equally matched but philosophically opposed minds could debate the merits of each of the above almost endlessly, but there is no denying that they added to the debt our nation owes its foreign creditors. And under the Obama Administration, the numbers have only grown.

So, what drives this growth in debt? Quite simply it is the continued issuance of Treasury securities which enable deficit spending. Luckily, as it is issuing a rather unique global 'safehaven' investment, the Treasury can take advantage of rates below where a supply and demand curve might otherwise dictate they should be based on volume. However, low rates aside, the sheer size of the offerings makes the numbers almost too abstract to comprehend. One might think that it would be sensible to cut spending at some point so as to end the need for this ever-growing indebtedness, but it is not very likely that this will happen, for this is where the budget, and therefore politics, comes into play.

Every year Washington produces a budget, and that budget needs to be agreed upon by the nearly infinite permutations of warring factions of Capitol Hill. To get a budget through Congress takes an almost incomprehensible amount of horsetrading to the point where, despite the best intentions of many involved, spending, and therefore the debt feeding it, inevitably continue to grow. And thus the cycle continues. To access an excellent interactive map of President Obama's proposed version of what the 2012 budget should look like, visit The New York Times here. Let the games begin...