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Ask Auntie Pinko

September 29, 2005
By Auntie Pinko

Dear 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?

Alyse
Quincy, MA


Dear Alyse,

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 alternatives.

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.

But...

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. Everyone wins.

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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