After six years of non-stop deficit spending that has added $8.2 trillion to the national debt, the U.S. Treasury has announced that it expects to reduce the country's debt by $35 billion this quarter.
Given that national debt growth has rocketed past $16.7 trillion and is on track to exceed $17 trillion at some point in the fall, a $35 billion reduction is laughably tiny. It's just 0.02% of what we as a nation owe.
And in the very same statement, the Treasury admitted that in the following quarter it expects to be back to borrowing as usual – $223 billion worth, more than six times the amount it plans to pay down this quarter.
So why bother?
"I don't believe in coincidences," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "Our leaders in Washington on both sides of the aisle are terribly under pressure from the American public right now, and I think this is a very convenient announcement to say, "Hey, we're doing the right thing, keep us all in office for a little while longer.'"
And apart from any political motivations, Fitz-Gerald wonders whether the plan to pay down $35 billion of the national debt can even be considered legitimate, given the way the government borrows money from itself.
"It's like taking blood from the left arm and putting in in the right arm and calling it a transfusion," Fitz-Gerald said.
Where the Money to Pay Down the National Debt Came From
And there's another good reason not to read too much into Treasury's ability to pay back an infinitesimal amount of the national debt this quarter – it's as much of a quirk of the calendar as anything.
Because the government reaps higher-than-usual tax receipts in the April-June quarter, it usually needs to do less borrowing. In better times, in fact, the April-June quarter often posted a surplus that allowed some of the national debt to be paid down.
That such a surplus has been absent since 2007 (when the government reduced the national debt by $139 billion) is testament to the extent of the profligate spending that has consumed Washington since the Great Recession struck in 2008.
This year, several events coincided to push the Treasury into the black for one quarter. The restoration of the full payroll tax in January, along with some tax increases on the wealthy, meant that this quarter's tax take was higher than it had been in recent years.
Add in the forced sequester cuts, and the tens of billions saved from the drawdown of U.S. forces in Iraq and Afghanistan, and you get… a paltry $35 billion.
One would expect that number to be higher, but that just goes to show how bad the nation's fiscal situation has gotten.
"Let's see them do it three, four, five quarters in a row," Fitz-Gerald said. "That would be good. Then we can say, somebody finally gets it, somebody in Washington has their head on straight. But until that time, I'm very leery."
Why Washington Must Address the National Debt
While $35 billion is better than nothing, Fitz-Gerald thinks the national debt, as it rapidly approaches $17 trillion, has nearly grown beyond our ability to cope with it.
"We've spent so much money at this point that we cannot pay it back…ever," Fitz-Gerald said. "We're either going to default or we're going to pay our way out of it – and the former is much more likely than the latter."
That doesn't mean catastrophe is around the corner. But unless Washington starts to take the national debt more seriously – certainly more seriously than a one-time 0.02% installment – the crisis will continue to fester under the surface until it finally explodes.
"No one wants a default, so they'll do everything they can to prevent it for 25, maybe even 50 years," Fitz-Gerald said. "The thing is, our leaders don't want to make the tough decisions now, even though the consequences of not doing so grow more acute with each passing day. Personally, I'd rather they make the effort than have the system blow up and do it for us – which is the risk we're running today."
Further Reading: Let Keith Fitz-Gerald tell you about the "Most Dangerous Man in the World"
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The US Government Plans To Pay Down Debt For The First Time Since 2007 - The Wall Street Journal:
Treasury to Pay Down Debt For First Time in Six Years
William, while I agree with you that the national debt is a problem and that our Congresspeople are doing nothing to really solve the problem, I disagree with the solutions offered by Congress and many financial advisers, especially the GOP conservatives and religious "right". While I am a Christian, I see more similarity between the religious "right" and the ideals of the Nazi party of the late 1930s and the Islamic radicals of today. The idea of a "master race" is alive and well in the GOP elitists and the religious "right" who are quick to condemn those who are less fortunate than them and their "fat cat" members. If they are so sure that the "unwashed masses" (the 47%) are the problem, why are they so stingy with their efforts to help instead of trying to throw them into the streets. Yes, there are "welfare cheats", some "lazy" unemployed, some tax evaders, and others who drain the "federal coffers". But far more money is drained by the "too big to fail" banks, multinational corporations who pay little or no taxes, and corrupt Congresspeople who funnel taxpayer money for their own benefit and the benefit of their campaign contributors. And the idea that CEOs "earn" their enormous bonuses and stock options is ridiculous. Most CEOs leave the day-to-day decisions to subordinates while living the life of the "rich and idle". And most of the decisions they make are a detriment to the "working" people of America. Which only adds to the problem of "entitlements" and welfare. It is time for the "fat cat" CEOs of America AND the world to realize that without a viable and prosperous "working class" they will sooner or later lose their "exulted" position as America (and the world) continues to lose it's ability to sustain itself as a viable marketplace.
Wayne, I agree.
There is a saying that it takes money to make money. Kicking people to the curb is not only stupid, it shows ZERO investment in the workers of America.
I don't know of one business that has NEVER invested in itself. I don't think it is possible. So, American needs to realize that if it doens't invest in its own people and instead are intent on starving them, with their well known starve the beast strategy, the only thing possible is a slow asphixiation – which the republicans seem to enjoy forcing others to suffer through.
America needs blood, and injection of money and stability. There needs to be normalcy returned and a REFUSAL to bail out banks that gamble with our money, privatizing their gains and making their losses public. It is high time that these fat cats get reined in and quickly. The full faith and credit of the US is NOT something that private industry can use as a backstop in their greedy quest to take money out of our pockets and put it in theirs.
The Republicans are most definitely repeating history and have taken the Nazi playbook to heart. We already know they would like to ethnically and economically cleans the country they purport to love, but when they start gassing people, it is time to take them all out using our second amendment rights. Nazi Germany cannot happen in America, though that is the path we are already walking upon.
Where do you get 6 years of non-stop deficit spending, try 12. Bush II came in with the deficit at 5.9 and left it at 10.6. Obama added on till its approaching 17. So 11 Trillion.
Money lost to welfare cheats vs money lost to unearned subsidies would make for an interesting article.
The reason that you can give out your "information" for free might be because YOU'RE LYING YOUR HEADS OFF!
If the so-called "US Treasury" is BORROWING $ 223 Billion during this Quarter alone, how much $ are they supposedly saving, how much of a Surplus are they supposedly having, & how much of their Debts/Deficits are they supposedly paying down?
The answer, of course, is ZERO!
Their debts/deficits are CUMMULATIVE, & comparing them to GDPs, etc., insisting that their Debts & Deficits are really Surpluses, insisting that their Debts & Deficits are ours & therefore we have to pay them off, etc., don't make sense.
If you want to know how bad their Debt/Deficit Problem really is, check out the figures that Economics Professor Laurence Kotlikoff of Boston University has been putting out. If you include their UNFUNDED & OFF- BUDGET LIABILITIES & OBLIGATIONS, the so-called "federal debt" is about $223 TRILLION, & going up about $ 1 TRILLION A MONTH.
THAT SURE DOESN'T SOUND LIKE THEY'RE PAYING DOWN THE DEBT/DEFICIT TO ME!
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