PREFACE
$8 trillion annually. That’s the cash flow figure for concerned American citizens to focus on. That’s the approximate amount of new debt the US federal government must issue every year without interruption in order to avoid insolvency. A mere 15% reduction in needed security issuances at successive US Treasury auctions is all that it would take to force delays in the issuance of federal outlays, to cause a default on debt redemptions, or to immediately force a balanced budget upon the US. The $14 trillion overall federal debt and trillion dollar annual deficits as far as the eye can see are enough to frighten any fiscally prudent person. But the more frightening figure—the figure that poses our clear and present danger—is the $8 trillion of debt instruments that the Treasury must issue every year merely to cover current obligations.
We got into this dangerous cash flow situation by financing too much of our old debt and new deficit spending with short-term Treasury debt instruments. No prudent person would take out six month mortgages on his home, thus requiring continuous refinancing, refinancing threatened by ballooning interest rates. The US Treasury has basically done just that. Inappropriate structuring of federal debt might be considered the number one critical issue facing America. So much of our debt is in short-term debt instruments that we are continually threatened with insolvency should a Treasury auction fail to find enough buyers. Once the Treasury cannot find enough buyers, the federal government cannot pay its bills and retire maturing debts as they come due in the ordinary course of business. The sad reality is that there is not enough capital in the entire world—even if the world’s leaders were willing to buy US Treasuries—to feed the US Treasury’s needs. The US is the world’s largest debtor nation and economy. It is the economic engine of the world. Unfortunately those realities also mean that it is too big to bail out.
Congress should prioritize budget outlays between those to be paid for from current year tax receipts and those to be paid for with the proceeds from additional debt issuances (deficit spending). Such an approach would give the businesses, individuals, and governmental agencies that rely on federal outlays funded from proceeds from additional debt issuances (deficit spending) an opportunity to assess the risks associated by such reliance. It would allow them time to adjust business models, diversify, change employment, or modify financial behaviors in anticipation that a balanced budget could eliminate funding they rely on. Imagine you are an employee or contractor to a government program that has been appropriated $50 billion for the year. If the entire funding to that program is from current year tax receipts, you might feel secure.
However, if the vast majority of funding appropriated to that program is from the proceeds from additional debt issuances (deficit spending), you may want to modify your financial reliance on that program. Congress owes such full disclosure to the public. It would be a real benefit to the public if it knew what programs can be counted on versus which ones are risky. By implementing such a plan, 11:55pm negotiations at The White House on the eve of a government shutdown could be more focused should the US Treasury not sell enough debt to continue funding deficits. Anonymous budgets could be submitted by concerned politicians. The results could be averaged and used as a starting point for serious budgetary discussions. Concerned citizens become informed. Please take the balanced budget challenge at: www.balancedbudgetchallenge.com.
Too Big To Bail Out is a book that will educate the public and our government officials as to why a balanced budget is likely to be forced upon the US sooner rather than later. It includes hundreds of questions that should be asked of our public officials and candidates during town hall meetings, debates, interviews, or Congressional inquiries.
