Tuesday, May 5, 2009

A Mortgage For The Government?

So, I am a very cerebral, numbers-oriented kind of person. I enjoy math. I miss calculus. I took multivariable calculus and ordinary differential equations in college because I wanted to, not because my degree required it. I wish everyone shared my love of math, because sometimes some simple math can really help you make some smart decisions.

For example, I did all my own calculations for my mortgage before even talking to a loan officer. I knew what I could afford, what interest rate I would need, and what I would have to pay for a 30-year and a 15-year mortgage. In fact, I set up a spreadsheet to do it all for me. You know what I learned? We can shave 15 years off our mortgage and save almost $100,000 in interest by contributing one of Ashley's two monthly paychecks as an extra monthly payment on our principle. Since we can live just fine without her working at all, this seems like a pretty good idea that we'll probably do while we can.

Today, however, I was thinking about the national debt, because I had a weird dream where I was surprisingly elected to the US Senate without really running for the office. (What, you've never had that dream? Seriously? I thought everyone did...) So, I went into my mortgage spreadsheet, and put in all the numbers for the national debt, as recent and accurate as I could get them. Here are the parameters:

  • A 30-year mortgage
  • A principle of $11,200,000,000,000 (Yeah, that's the right number of 0's - scary...)
  • An interest rate of 5.25% (I think it's currently around 5.35%, but I wanted to be generous...)
  • This gives a monthly payment of $61.8 billion dollars, which is about $744 billion annually.

So, what does that mean? Well, if the government manages to stop borrowing more money (which it won't), and contributes about 3 times the amount they already are towards the national debt (which it can't, without cutting something big), it will still take 30 years to pay the whole thing off.

Now, if you wanted to scale that time period back to 15 years, or roughly 4 presidential terms of office, you would have to up the monthly payment to $90 billion, which is $1.08 trillion annually. To put that in perspective, that's slightly more than the $1.06 trillion the government expects to bring in with all income taxes in the country combined! That's right. If the government managed to have $1 trillion extra dollars laying around (which it never, ever will), every year (yeah right!), it would still take 15 years to pay off the national debt!

And that doesn't even include all of the unfunded obligations in Social Security and Medicare and Medicaid and the trillions that the Fed is on the hook for with all the bailouts. When you throw that in, the principle is about $52 trillion. That means the monthly payments for the mortgage would be $287 billion, which is $3.4 trillion annually, for a 30 year mortgage. To put that in perspective, the entire revenue of the United States government has never been more than $2.7 trillion, and thanks to the economic downturn, it likely won't be for several years. What does that mean? It means, it is IMPOSSIBLE to pay off the national debt.

There's only three ways out of this, and this is the dirty secret no politician is going to tell you.

  1. The United States goes bankrupt and defaults on its loans. That would be extremely bad, and would throw the world into economic turmoil.
  2. Your taxes go way, way, WAY up, in order to try and close the gap. That will most likely lead to people, companies, and jobs leaving the country, so the gap won't be closed, leading us back to 1).
  3. The government prints a gigantic amount of money, which it loans to itself. This causes inflation, which is essentially a stealth tax, and a tax not only on what you make, but also on what you have. Cash, savings, whatever, it all indirectly gets taxed through inflation. By devaluing the dollar, suddenly $52 trillion in debt isn't really that much, and then they might be able to pay it off. Problem is, this has failed every time it has been tried. The Weimar Republic Germany tried it in the 1920's and 1930's. Zimbabwe tried it more recently, as in, like, now. In both situations, hyperinflation occurred, where money quickly becomes literally worth less than the paper its printed on, and you start to see trillion, quadrillion, and quintillion dollar bills - and all you can buy with them is a candy bar. When you get to that point, people simply stop using money and go back to bartering, the government's revenue drops, everyone stops financing their debt, the currency completely collapses, and we're right back at 1).

So, basically we're screwed, right? Yeah, pretty much.

Actually, no. There is a fourth way. But it's so dangerous, no politician would even think of attempting it. They would rather sacrifice the country than attempt this. But this is what needs to happen:

We need to nix Social Security, Medicare, Medicaid, Federal Unemployment, Welfare, etc. Kill them off, or phase them out, or whatever. They aren't sustainable. Slash the tax rate as well. Maybe not by as much as you just slashed the budget, but a big percentage. It has to stay high enough that you have an extra $700 billion to $1 trillion in revenue, but you want to be as close to that as you can. This does three things. One, it gets rid of your unfunded obligations, so the debt is back down to $11 trillion. Two, it spurs unprecedented economic growth, since everyone's paying less taxes. Three, it gives you the money to actually pay down the debt, so that the sword isn't hanging over our collective head anymore. As an added bonus, once it's all paid off, you'll have an extra $260 billion in revenue a year, for FREE, because you won't be paying interest anymore.

Maybe I should be in the Senate after all. ;)

You know what the real irony of it all is? Obama's budget, complete with its trillion dollar deficit, is titled, "A New Era of Responsibility." Seriously! Look! This is the cover!

Absolutely ridiculous.