Ask Auntie Pinko
September 29, 2005
By Auntie Pinko
I admit I've never taken much notice of the budget deficit.
It seems to me we've had big deficits before and life goes on. Wasn't
there a big deficit after the Viet Nam war that the Republicans
blamed on Johnson and said we had to repeal anti-poverty programs
to pay for? I wasn't alive then but maybe I'm the "children and
grandchildren" who were supposed to be paying for that deficit.
If so, I don't notice it much.
But even I'm starting to get worried about the rate Bush and
the Republican Congress are spending at now. A few billion here,
a few billion there, and pretty soon, what? A few hundred billion
in Iraq, a few hundred billion in transportation bill pork, and
now we have to clean up after Katrina, too? Where is all the money
going to come from?
Auntie wishes she knew. You may not "notice it much" but you're
paying for budget deficits all the same. I'm going to oversimplify
monstrously, here, but let me use an analogy. Suppose you're a kid,
and your parents make a combined total (after taxes!) of $100,000
a year, which works out to about $8,300 a month. Not bad, eh? You
should be able to live pretty good on that.
Except that your parents also have a $400,000 mortgage debt, are
paying off $100,000 in combined student loans, owe $100,000 in medical
bills from before your mom had insurance, and $50,000 on various
credit cards. (A total of $650,000 in debt.)
Now, they don't have to pay all that off right away (they couldn't!).
But let's say the monthly payments work out this way: $2,400 mortgage,
$900 student loans, $1,200 medical bills, and $800 on the credit
cards. That's a total of $5,300 in monthly payments, leaving you
$3,000 a month to live on.
Now, between the house's utility bills, you and your brother's
school tuition, insurance payments, food, the health insurance you're
carrying now, and the gas, maintenance, and insurance on the cars
your parents need to get to work, $3,000 doesn't really go that
far. It's not surprising you can't afford much in the way of new
clothes, nice dinners out, or trips to Disneyworld, is it? In fact,
your dad is looking pretty worried about that new furnace you'll
need this winter.
Do you think it's a good idea for your parents to buy a $350,000
condominium in Aspen for a vaction home?
So, even though your family is netting $8,300 a month, you're
living like people making a lot less money, because you're making
huge debt payments. And the really painful part is that almost
ALL of the $5,300 a month your parents are paying on that debt goes
to pay the interest, not the principal. If it went to pay the principal,
they'd have the whole thing paid off in a little over ten years.
There would still be time to help you and your brother out with
college and start saving for their retirement. But with the interest,
they'll be making those payments until long after you and your brother
have graduated from college and piled up tuition debts of your own!
America is like this family illustration. We collect a huge amount
of revenue in taxes and fees every year, and that revenue is what
we use to pay our bills and living expenses. But the more debt payments
we make, the less money we have to build roads, feed poor children,
buy body armor for soldiers in harm's way, care for our elderly,
keep national parks open, etc.
Our citizens serving in the military can't afford to feed their
families without food stamps - and we can't afford to give them
a raise, because we're making such huge debt payments. Our transportation
infrastructure is crumbling, and we can't afford to do more than
slap a band-aid on here and there. Fifty million Americans have
no choice but to go to the emergency room or get sicker when they
are ill or injured, and we can't provide them with cheaper, sensible
Get the picture? And the awful thing is that just like the family
analogy, our huge debt payments are almost all interest!
Even if we don't rack up another dime in debt, our grandchildren
will still be making these payments on the hundreds of billions
we owe now.
So, where are we going to get the money to rebuild the Gulf Coast
area after Katrina? We'll borrow it, of course. Scary? Sure is.
There might be a way to make it less scary. One thing that worries
me is how much of the American government's borrowed money comes
from other governments and big businesses. We might try to change
that with Katrina rebuilding.
Auntie's parents (and grandparents) bought War Bonds during World
War II. In fact, War Bonds financed a large contribution to America's
war effort. Celebrities led "Bond Drives," holding variety shows
and gala performances to publicize and urge the sale of bonds. Local
banks sold bonds, businesses sold "Stamps" (buy so many stamps and
you could trade them in on a bond.) Huge publicity drives reminded
people to buy bonds. All of those bonds represented debt, but they
were held by the American people. Everybody won. The government
got the money they needed, and Americans were repaid after the war.
I wonder why we aren't selling "Katrina Bonds" so that we, the
citizens, can finance the rebuilding effort directly? I bet there
are dozens of entertainers and celebrities who'd gladly donate their
efforts to help sell. I know dozens of businesses in my own little
town that would happily put up "Katrina Bond" displays and sell
bonds or stamps. I've already given to charity, but I'd happily
buy some bonds, too. Why not? I'd get the money back in five or
ten years, with a little interest, too! And my Gulf Coast neighbors
would get their homes, businesses, public services, etc., rebuilt.
The problem with such a financing mechanism is that it only works
on things large numbers of ordinary people really want. No matter
how many people donate their time, services, etc., there is a cost
to such bond sales programs - and it's more than simply selling
a few hundred millions in notes or bonds to some foreign government,
or international fund manager. So, while we could probably sell
enough "Katrina Bonds" to make it worthwhile, I doubt there's much
hope for "Transport Bill Pork Bonds."
Still, it's worth a try with Katrina rebuilding, don't you think?
I'm glad you're sitting up and taking notice on this issue, Alyse,
and thanks for asking Auntie Pinko!
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