You Owe $40,000 - Part 2

Who do you owe it to?

In my last post, (scroll down to read post) we established that each of us owes $40,000 as a result of government spending. We established that the very rich can only pay a small percentage of the debt and that nearly one-third of income tax filers pay nothing, which leaves the bulk of the responsibility resting on your shoulders and mine.

One of the questions people ask when this topic comes up is, “Who do we owe it to?” One fellow even said we just owe it to ourselves so we can simply forgive the debt. No, no, no! This debt is real. The government gets the money by selling bonds, treasuries and notes to anybody who will buy them. It is possible that your mutual fund buys bonds because many of them do. Bright Hub has a nice article discussing how individuals can buy government bonds and treasuries. When the government sells these certificates, they have to pay back the debt, plus interest.

The biggest buyer of US instruments is the Chinese government, but they are growing nervous about our long-term debt situation. If we get to the point where nobody wants to finance our debt, our Treasury Department can print money anyway but that can lead to very high inflation rates.

What we can conclude from all of this is we have a lot of real debt and we are getting to the point that other investors do not want to finance our spending. If we run out of investors we can employ a smoke and mirrors game like the congress has been doing with the social security system (borrow from ourselves) but if we keep creating money with no assets to back it up, we invite inflation, high interest rates and even the possibility of a depression.

In my opinion, we will be lucky if we only have to pay $40,000 per person, because the congress continues to spend more money than they take in. Every time they take on a new trillion dollars in debt your share is $3,100…plus interest and do not assume that is insignificant. To get a good illustration of just how much a trillion is watch another Glen Beck video.

If interest rates are 4%, then each of us also owes (and pays) another $1,600 per year to service our share of our debt. You don’t notice that you pay it because you don’t actually write a check or take it out of your pocket. But it is a lot like the withholding of your income for tax purposes. The government has figured out that if you never actually get the money you won’t be so opposed to giving it to them.

But every dollar that you are forced to spend on interest is a lost opportunity to use that money for other more important causes like some of these.

Every one of us could get a free tank of gas every week

We could each lease a new entry-level car

You could cut years off of your mortgage or use that same money to upgrade your home BY $30,000-40,000

We could strengthen and improve the social security system

Insert your own pet project here ______________________.

The bottom line is you owe a lot of money and you cannot get rich people or poor people to pay it off for you. If we don’t put a stop to the government’s crazy spending habits our entire way of life is in jeopardy.

The solution is to lower taxes so businesses will invest and grow. Then they will hire new people who will in-turn pay more income taxes and thereby reduce the debt. Furthermore, those people can afford to buy goods and services and new demand creates even more jobs and more tax payers.

Your comments are welcomed

Don't forget to visit my other blog.