Government debt, your savings and your money

WE ARE ALL PAYING FOR THE GOVERNMENT DEBT 

DEBT WILL NEVER BE PAID, WILL RESULT IN LOWER STANDARD OF LIVING FOR ALL AMERICANS

We again hear about the debt ceiling, this seems to be an annual event with all the drama that both parties can lay on the American people for political advantage. Talk of imminent destruction or long term consequences, it seems it easy to persuade people to go for the long term consequences over imminent destruction. 

Up until 1969 the Federal government mostly worked within a balanced budget. After the huge increase of entitlement programs in the 1960's they realized that they could not raise taxes high enough to balance the budget. While they could have, they knew that it would be so unpopular that they would be thrown out of office. This coupled by the disconnect of our money being backed by gold in 1971 has resulted in very little restraint in spending by the federal government. Most of this spending has been an effort to buy votes by promising free benefits that in the long run are unsustainable. So what has been the consequences of the government debt. Inflation for one thing, but also much more.

In 1972 you could buy a new ranch home in the $25,000 range, a new mid sized car for just over $2000. Gas prices were .39 cents a gallon. By 1975 gas prices were already up to .57 cent a gallon. Our unbalanced budget and the devaluing of the dollar brought about the creation of OPEC, because those countries were being paid $3 a barrel for oil and being paid in ever lowering of the buying power of the dollar. In fact the price of most items has not increased, the value of the buying power of the dollar has decreased. Gold was $35 an oz. today $1750.

That is not all that has happened, the unsustainability of entitlements was quickly becoming evident. Medicare for one has been continually expanded as to what it covers, this resulted in ever increasing costs. This was answered by the government setting the prices for services. After lowering reimbursements over and over, providers then engaged in cost shifting, by charging private insurance more and more to offset the low reimbursements from medicare. It is now to the point that many will no longer take medicaid patients and more are not taking any new medicare patients.

Social security has been around for a long time, originally it was a retirement supplement for the those over 65, but as time went on it has expanded and expanded to the point of including many other classes of people. In 1975 Social security was given an annual cost of living increase to offset deficit spending and inflation. It is linked to the consumer price index, this index is often recalculated to lower the true cost of inflation. Social Security cost of living increases have averaged 1.6% for the last 10 years, a total of  16% for 10 years. Medicare premiums, which rise much more than the CPI are deducted from these benefits, so in effect there has been little increase in the last 10 years.

Now the biggest drain on your financial health is what deficit spending has done to your savings and investments. There was a time, not that long ago, that  5% or 6 % interest on your savings was a normal return. It was 7.5% in 1960. and as high as 18% in the late 1970's.  This decline in interest rates is a direct result of the increasing federal debt and the need by the government to keep interest on their debt low. 

The Federal debt payment for 2021 is $562 billion, if they had to pay 6% it would be $1.5 trillion. Now keep in mind that Federal interest rates are .85 on 5 year, and 2.% on 30 year. Also realize that the Federal Reserve has bought $8.3 Trillion of assets and federal debt accounts for $4.5 Trillion. What are they paying for these assets with. Just book entry. This is an attempt to keep interest rates low, but how long can they do this? For seniors who saved for their retirement they have been in fact cheated out of any real return on their hard work and saving. According to the Congressional budget office, The federal government spent $6.6 trillion in 2020, and revenue was $3.86 trillion. It is unlikely that they could balance this spending even if they confiscated all the wealth of the 1%.

If you are receiving .3% on savings and inflation from deficit spending is 3%, you are losing 2.7% on your purchasing power every year. You are paying for the governments irresponsible fiscal policy.

Then consider the social security trust fund. There is no fund. The money has been spent by your politicians and government and bonds have been substituted. Which equal more government debt. Total Government debt is now $123 Trillion. With over $96 Trillion in social security and medicare liabilities. This amounts to $760 000 per household.

So, be prepared, you are about to be told that the debt is irrelevant and government can spend any amount and it does not matter. They will just tax the rich, don't worry, these deficits will cost YOU nothing. The federal government has locked up many people for telling much smaller lies than this one.