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America’s Gordian Knot

March 1, 2010

To say the United State’s yearly budget is complex qualifies as one of the greatest understatements of all time.  It is a Gordian Knot that ties our nation’s future much as the one Alexander faced tied the ox cart in place in the kingdom of Phrygia.  Unlike Alexander, we cannot simply slice a strand, or perform some other trick, to produce ends; we must unravel ours while maintaining a secure grip upon the cart.  We must unravel the complexity of our budget while meeting its obligations.

There are many ways to think about a budget, the two most familiar ways are like a checkbook or like a credit card.  With a checkbook, maintaining a balance of deposits and withdrawals reflects the available funds.  With a credit card, spending takes place until it reaches a preset limit with payments made periodically that include principal and interests.  In reality, the national budget uses both systems depending on the part of government concerned.  Individual agencies have checkbook budgets that limit spending, the federal government, as a whole, operates on a credit card style system.

Each bill-paying citizen understands the checkbook style of budget management.  While electronic checking replaced the monthly ritual of writing checks at the kitchen table for most of us, the process is still limited to funds available.  Spending has a natural limit.  Credit cards, on the other hand, allow spending to outpace earnings by allowing payments over time.  This only becomes a problem when the monthly payment required rises to a level that available income no longer covers.

The U.S. government brings in money, just like the citizens do paychecks.  The government deposits our taxes and the funds are available to the various government agencies.  If only it ended there, as our government’s spending outpaces the revenue it receives, it turns to the federal equivalent of a credit card – U.S. Treasury Bonds.  There are several forms of treasury securities but for the sake of clarity are described as simply bonds.  The government sells bonds with the promise of paying back the bond’s loan amount with interest over time.  Just as the credit card company sets a limit on a card, Congress sets a limit on amount of bonds the government can sell.  Another way to look at it, they set the limit on how much can be borrowed.  As many “max-out” their credit cards, so does our government.  Our national credit card currently has a limit of $14.3 trillion, or over $42,000 for every man, woman, and child in the U.S.  Congress seems perfectly willing to let the government borrow until we no longer can make the payments.

The question is what to do about it.  How do we pay our obligations and reduce our spending?  First, we must understand where our money goes, all of it.  Then we must set priorities on spending.  Finally, we need to cut out items not required and only provide the necessities.  Just as a married couple seeks financial planning to pull themselves out of debt, we must do the same at the federal level.  What the priorities are is debatable.  What is not is our ability to pay a debt.  Everyone looses if we default on our debt, it would throw the world into financial chaos, to say the least.  At worst, situations could spin out of control leading to war.

The time to address our spending and runaway budget is now.  Everything has to be on the table, their can be no sacred cows.  Several parts of the budget are huge; the 2009 Medicare budget was $420 billion and $219 for Medicaid.  That does not mean every social program needs to be scrapped, it only means we need to look at spending there and control it, rather than having it control us.  To the same end, our military spending totaled about $880 billion, perhaps we need to reduce our military’s footprint around the world.  Do we really need over eighty separate military installations overseas?  That only counts the major ones too.  Obviously, we need some but its time we look at the mission of each and make the hard choice to close the ones that no longer meet our national needs regardless of the effects it may have to established international friendships.  If our friendship is based on the money we spend within their country, it is not much of a friendship in the first place.  The point is we need to look at everything we spend on, no exceptions.

Rather than debate about how we dug this hole, it is better to work our way out.  Spending more money only deepens the hole.  Republican or Democrat, liberal or conservative – it does not matter, everyone should see spending as a knot we must untie.  While we can argue about how we spend money, we can no longer afford to argue about spending more.

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