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Understanding Trillions of Dollars

Posted by Dan Draney on March 7, 2010

As Ryne mentions, new 10-yr federal budget deficit estimates from the Congressional Budget Office (CBO), and the news is not good. The nominally non-partisan CBO has its own reputation to protect, so it is considerably less inclined to fudge the numbers for political purposes than either party alone or the Obama Administration.

One big problem for enlightened debate about spending is the difficulty we all have in comprehending the magnitude of the numbers involved. We can all get outraged about millions of dollars for bonuses to Goldman Sachs employees without realizing how miniscule those are compared to the real problems we are facing.

So let’s put those deficit projections into a form we can wrap our brains around. The current US population estimate from the US Census “population clock” is just under 309 million. This gives us:

Total Per Person Family of 4
CBO Est 10 yr Deficit $9,800,000,000,000 $31,715 $126,861
Obama Est 10 yr Deficit $8,600,000,000,000 $27,832 $111,327

Splitting the difference and rounding, over the next 10 years the feds are looking to borrow another $30,000 per person or $120,000 per family of four. This is in addition to all the debt, public and private, we already owe. It doesn’t count anything for the massive new ObamaCare entitlement, which Dems are still trying to rahm down our throats.

My guess is that both these estimates will turn out to be quite low compared to our actual experience. They are both based on optimistic assumptions about economic growth, interest rates, and Congressional actions.

The Obama recovery plan seems to be to tell business: The floggings will continue until morale improves. Economic growth is likely to be sluggish to none as long as Obama’s policies and proposals increase uncertainty and decrease incentives to invest and hire. This will reduce tax receipts and increase spending on unemployment benefits. A second downturn is a distinct possibility.

The higher tax rates will certainly bring in less money than expected, as people adjust their behaviors to the new reality. Past experience has shown that it’s hard to overestimate the federal government’s appetite for new spending of money we don’t have on things we don’t need.

Interest rates are currently quite low, as the Federal Reserve has kept the money spigot open wide out of fear of deflation. There is nowhere to go but up for interest rates, and any number of things could cause a spike: inflation fears; currency panic; massive federal borrowing (Oh, wait…); concerns about the solvency of the federal government; etc. Interest payments are a large and growing fraction of the total federal budget.

I remember when, during the Reagan Administration, the official “National Debt” hit $1 trillion. It was a pretty big deal; it was in all the papers. Now it’s “trillion dollar deficits as far as the eye can see.”

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2 Responses to “Understanding Trillions of Dollars”

  1. […] Understanding Trillions of Dollars […]

  2. Ryne McClaren said

    It’s not as ugly as it sounds. The other day I was re-evaluating my financial plan, and I’m “on target” to land somewhere around the $3 million mark. When the government comes calling to requisition this amount, it should be sufficient for them to do something with.

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