We are Broke…..

Everyday more and more Americans are awakening to the fact that we are broke as a nation and as a state.  For those that refuse to to understand the seriousness of the issue, perhaps a simple example will illustrate the problem.

Let’s say your monthly bills total $1,000 a month and your income is $600 a month.  That means that you must borrow $400 (40%) a month in order to pay your bills.  Assuming you could find someone to loan you $400 every month they would expect to be paid back with interest and unless you could guarantee you could pay them back, eventually they would refuse to loan you more money. If they were foolish enough to keep on loaning you money (requiring only that you pay back the monthly interest), eventually the monthly interest could exceed the $600 income you earn.

Today, the US government borrows $.40 (40%) of every dollar it spends.  The interest we pay on that debt is now in the billions every year.  In the example of the family above, you begin to solve your problem by either earning more money or reducing your spending so eventually you eliminate the amount you borrow every month and eventually pay off the debt.

Washington does not operate by those rules.  It assumes that it can spend at ever increasing amounts and justborrow the money it needs to make up the shortfall this mentality has led us to our present crises.  Countries who have been loaning us money are becoming concerned about our ability to pay them back, and our debt has grown so large that the interest payments alone are a drag on our economy.

No realistic debt reduction can occur without addressing entitlements (social security and medicare) and public servant compensation.  If we stay on our present spending path and we fail to make structural changes in these programs we run the risk that both major entitlement programs will fail and that the Government will be unable to meet its pension obligations.   For 50 years, every new spending program has been has been accompanied by the words “we are a rich country, we can afford it”.

We are no longer a rich country, we are the worlds’ greatest debtor nation in terms of total indebtedness.  If you want to see our future, look at Greece, Portugal, Spain and Italy.  Every attempt to address this problem by is met with the same demagoguery and for 50 years it has worked.  Fortunately, the public has become aware of the financial problem, and, as we saw in 2010, they want the runaway spending stopped.  We have also seen serious efforts in several states to deal with budget problems and we have seen an unwillingness by politicians and public servants to deal with the issue.

We are reaching a point in this nation where there are more people dependent on government related jobs, pensions, and entitlements than the private sector.  If that trend continues, the downward spiral witnessed in so many poor countries dependent on government largesse will begin impacting the US as well.

Thankfully, here in Iowa, our Governor stood his ground to insure a a rational fiscal path for the state’s future.  Hopefully, those in Washington wake up to the need to address their runaway spending as well.