Sparky
13th April 2011, 12:54 PM
http://finance.yahoo.com/news/Obama-debt-plan-would-cut-4-cnnm-3783839677.html?x=0&sec=topStories&pos=main&asset=&ccode=
Let's walk through this.
Toward the end of the Bush era, we had a record deficit of $0.6T/year, and the debt was $10.6T. During the transition to the Obama era in 2009, the deficit doubled to $1.2T. Obama pledged to cut the deficit in half by the end of his first term, i.e. back to the previous record $0.6T/year by 2013. Here we are in 2011, and the deficit is now running at least $1.5T, and the debt is $14.2T.
Now, the current pledge is to "reduce deficits by $4T over 12 years", which is $0.3T/year. So if I do the math, the pledge is to reduce the deficit from $1.5T to $1.2T by 2023.
Are you kidding me? This is essentially saying that we will be adding to the debt at a rate exceeding $1.2T per year over the next 12 years, not including interest accrued to the debt. If we average, say, $1.3T for 12 years, and add on $10T in interest, by 2023 the total debt will be $40T.
So if everything goes right, and we do all this painful cutting, and interest rates remain below 5% for the next decade, we'll be servicing a $40T debt to the tune of $1.5T per year. Current debt service is around $300B.
If interest rates average 5% over the next 12 years and end up at 7%, the debt will be close to $50T, with an annual debt service of $3.5T. Our entire budget is currently $3.5T, of which roughly half is borrowed.
Batten down the hatches!
Let's walk through this.
Toward the end of the Bush era, we had a record deficit of $0.6T/year, and the debt was $10.6T. During the transition to the Obama era in 2009, the deficit doubled to $1.2T. Obama pledged to cut the deficit in half by the end of his first term, i.e. back to the previous record $0.6T/year by 2013. Here we are in 2011, and the deficit is now running at least $1.5T, and the debt is $14.2T.
Now, the current pledge is to "reduce deficits by $4T over 12 years", which is $0.3T/year. So if I do the math, the pledge is to reduce the deficit from $1.5T to $1.2T by 2023.
Are you kidding me? This is essentially saying that we will be adding to the debt at a rate exceeding $1.2T per year over the next 12 years, not including interest accrued to the debt. If we average, say, $1.3T for 12 years, and add on $10T in interest, by 2023 the total debt will be $40T.
So if everything goes right, and we do all this painful cutting, and interest rates remain below 5% for the next decade, we'll be servicing a $40T debt to the tune of $1.5T per year. Current debt service is around $300B.
If interest rates average 5% over the next 12 years and end up at 7%, the debt will be close to $50T, with an annual debt service of $3.5T. Our entire budget is currently $3.5T, of which roughly half is borrowed.
Batten down the hatches!