Wednesday, February 10, 2010

Remember Perot?

In 1992 Perot wrote:

Today we have a $4-trillion debt. By 2000 we could well have an $8-trillion debt. Today all the income taxes collected from the states west of the Mississippi go to pay the interest on that debt. By 2000 we will have to add to that all the income tax revenues from Ohio, Pennsylvania, Virginia, North Carolina, New York, and six other states just to pay the interest on the $8-trillion.

If you live in one of those states, take a look at the IRS payroll deduction that reduces your next week's take-home pay. Your money is going just to pay interest on this debt, which in 1993 will amount to $214 billion. During the first 152 years of our nation's existence, we spent less than $214 billion to operate the entire government of the United States!

Remember how Perot said government interest costs were gonna go thru the roof? Perot was right. But take a look at this graph:

The graph shows government interest payments as a portion of total interest payments in the U.S.A. It shows interest paid by government (federal, state, and local together) as a portion of total interest paid. It shows government interest going down!

I'm not saying the cost of government interest is small. I'm pointing out that the total interest cost in our economy is so big it makes the government portion look small.

ADDITIONAL NOTES

Interest costs of the federal government as a portion of total (federal, state, and local) government interest costs have been fairly constant at around 80% of total.

Another view of federal interest costs as a portion of federal plus state plus local:


The table at left verifies Perot's observation of the $4 trillion federal debt in 1992. But the debt didn't reach $8 trillion in 2000. Didn't even reach $8 trillion by 2005. But we are beyond it now.

Federal Debt and the GDP
 Year  U.S. GDP Federal Debt
19905803.13233.31
19915995.93665.30
19926337.74064.62
19936667.44411.49
19947085.24692.75
19957397.74973.98
19967816.95224.81
19978304.35413.15
19988679.665526.19
19999353.55656.27
20009951.55674.18
200110286.25807.46
200210642.36228.24
200310886.26783.23
200411867.87379.05
2005123397932.71
200613398.98506.97
200714077.69007.65
200814441.49986.08
200914237.211875.90
201014623.913786.60
20111529915144.00
201216203.316335.70
201317182.217453.50
201418192.618532.30

This graph shows the federal debt in red, and for comparison the GDP (in blue). It's not really a long-term graph, but since 1990 the two lines run parallel -- until the Paulson crisis of 2008, and the Obama response.

It is worth noting that the last few years of this chart are projections. Predictions. Not realities. Not yet.

It also may be of interest to some, that the federal debt is expected to reach the level of GDP and climb above it in the year 2012. (Maybe that's what the Mayans were worried about.)

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