Finance – In Debt? Cut Expenses!


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Money Matters

June 1, 2023 by Scott Crosby

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Finance – In Debt? Cut Expenses!

Anybody who has a job knows that to stay out of debt, they must spend no more than they bring home in their paychecks. That is called a “balanced budget”.

If your income were to be reduced, you would have to cut expenses as well. Everyone knows that. It is simple arithmetic.

Irresponsible

S580-1.jpgThe Federal government is not setting a good example. The U.S. has not had a balanced budget in more than a century, and the result is pretty nasty: the Federal government owes $31.4 trillion. That is about $9,500 for each man, woman, and child in the U.S. Imagine paying just the interest owed on that much debt!

Imagine how much more could be done if your taxes could actually be used for real programs, rather than simply having to pay that interest.

For 2023, Federal revenue is expected to be $4.6 billion, and Federal spending is expected to be $6.0 billion. The amount of Federal debt – just for 2023 – is expected to be $1.4 billion.

Who is to blame for all that debt? 

Both Democrats and Republicans have been at fault over the years, but the blame for the current problem lies squarely on President Biden and the Democrats in Congress.

Spendaholics

The U.S. is currently on a spending spree, and President Biden is leading the charge. He seems to have an insatiable urge to spend money as if there were an unlimited supply.

The Democrats are in control of the Senate, so his desires meet no opposition there.

The House, however, is another matter. There, the Republicans are in control, and they have a different view on the issues.

The Urgency

The authorized budgeted limit to Federal spending is likely to be reached sometime in June.

That limit must be raised; nobody argues that point.

If the limit is reached, the Federal government will “default” – which simply means that it will not have the money to pay its bills.

Raising the debt limit will allow the Federal government to continue paying its bills – for now.

House Republicans insist that, along with raising the debt limit, the budgets for several Federal programs are cut, to reign in Federal spending – enough to prevent approaching the budget limit for the foreseeable future.

Like any family or business, the Federal government must live within its means; it has to cut expenses.

But President Biden is unequivocally against cutting expenses. President Biden wants to spend money the government does not have.

Irresistible Force vs. Unmovable Object

If both President Biden and House Republicans stand firm, what happens?

Simple: for the first time in history, the U.S. Federal government will not be able to pay its bills.

As a result, the Federal government’s credit rating will drop. As a consequence, when the Federal government borrows money in the future, it will be charged a higher interest rate.

Too, President Biden, the Democrats, and the House Republicans will be painted with the stigma of causing the first Federal default in history – not the way most people want to be remembered.

Expect a Compromise 

A default would solve nothing. Agreement on a budget will still confront Congress and the President. The President and Congress will still sooner or later have to agree on a Federal budget.

House Republicans are probably convinced that the impact of a default will be more severe to the President (and Democrats generally), than to them. They can afford to hold firm, and call the President to task. After all, that kind of action is the responsibility of the House, and of Congress generally.

But public sentiment against the Republicans can be expected to increase over time. Most people will initially approve the efforts of the House to reign in the President’s spendthrift ways. Eventually, however, voters will increasingly question why the Republicans appear to be lacking in a constructive budgetary suggestion.

Will enough House Republicans cave to that pressure, so that, combined with the votes of House Democrats, a budget is passed that is acceptable to the President?

How determined are the House Republicans? How determined is the President?

Other issues, such as world events, may impact the level of determination on both sides. Certainly, the approaching 2024 elections will have a growing political impact. But what that impact will be will be determined by the mood and sentiment of the voters. The first primaries and party caucuses in February 2024 will set the political tone for the rest of the year.■

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