A Balanced Budget is a BIG Deal
May 04, 2011While on vacation recently I had an opportunity to do something I don’t often find the time to do: think. I had the chance to read the morning paper and scan a few of the opted articles that had differing viewpoints on a topic that seems to be getting a lot of attention these days: our nation’s debt and the importance of balancing the budget. Now when I was in college, I had a roommate explain that the national debt really wasn’t that big of a deal because we essentially owed the money to ourselves, so who cares? Well, I’m not really sure that’s how it works, so I wanted to spell out why the national debt and having a balance budget ARE BIG DEALS when it comes to our economy as a whole.
I guess the easiest way to explain it is to start with a simple illustration of how things work in our own lives. Let’s say you earn $4,000 a month but you spend $5,000 a month. Where would you get the extra $1,000 a month to spend? Well, you might start with your savings account. Eventually that would dry up, so if you continue to spend you would need to borrow money. Maybe you could get a personal loan from a bank, or maybe a credit card. You don’t really care, as long as someone is willing to lend you money. So you borrow and spend, borrow and spend, borrow and spend, until eventually what happens? Of course, no one is willing to lend you money any more.
So how does this relate to our federal government? Well, unless you have been living in a hole these past few decades you must realize that the federal government spends money. It spends money on social programs. It spends money on infrastructure. It spends money on national defense. It spends money on tax refunds. But how does the government make money? To put it bluntly, you and I pay taxes. So here’s the conundrum: in March 2011 the government spent eight times more than it took in according to numbers released by the U.S. Department of Treasury. EIGHT TIMES. So where does the government go when it spends more than it takes in? It borrows. Who does it borrow from? Anyone who will lend it money. People like you, people like me, but mostly foreign governments. So right now the government borrows and spends, borrows and spends, borrows and spends. In fact the government is borrowing about 40 cents for every dollar it’s spending. If this keeps up, what do you think will eventually happen? You guessed it – no one will be willing to lend money to the U.S. Government. Could that possibly happen? I mean after all, isn’t the United States the most powerful, successful, stable economy on the globe?
Are you starting to understand why a balanced budget is so important? The government is required by law to have a balanced budget, but they currently don’t have one. This is why you hear all this talk about continuing resolutions and government shut downs. It’s all because there is no balanced budget that has been agreed upon by Congress. Understanding the importance of having a balanced budget, why is getting one so difficult? The problem is the two sides can’t agree on how to achieve this goal. On the one hand some politicians believe the way to balance the budget is to increase the amount the government takes in (i.e. raise taxes). Others believe the way to balance the budget is for the government to spend less. Hopefully you know which candidates for office support the side of the argument you fall on, but here’s the bottom line: if the federal government (and most of the state governments as well) doesn’t figure it out soon, we’re going to be in a heap of trouble.