National Debt

Originally published in the Pacific Grove Hometown Bulletin

June 1, 2011

 

Last issue, I concluded that tax rates are likely to rise if you look at the historical relationship between tax brackets and macro-economic events.  Despite an economic climate indicating that higher tax rates are needed, we are pretty much witnessing the lowest tax rates since before World War II or the Great Depression depending on which end of the bracket spectrum you lie.  These two forces have compounded to magnify our national debt to $14 trillion.

You hear a lot about the national debt, but so what?  Have you ever personally felt affected by it? Has the government ever asked you to ante up $165,000 for your share as a family of four (or $800,000 if you include enough to ensure the promises made for future obligations will be met as well)?  I think we as Americans are blasé on the subject because we do not connect the dots back to ourselves.  It often seems distant or a problem for someone else in another time.  This may not be the case.

We have set the stage for doubt.  The strength of our financial system is largely built on the belief that the U.S.will make good on its borrowed money.  If large debt holders begin to doubt this for economic or malign political reasons, the mental atmosphere about the stability of the U.S.could change quickly.  It would likely send us and the rest of the world into a global depression that would be painfully felt by all.  The U.S. would struggle with a collapsing currency, inflation, unemployment, and irate nations from around the world that watched their investments in the U.S. evaporate.

David Walker, the former U.S. Comptroller General feels our biggest threat to national security is not terrorism, but our own fiscal irresponsibility. Walker left the G.A.O. in 2008 to run the newly formed Peter G. Peterson Foundation (www.pgpf.org) because he felt his warnings had little impact in the political arena.  He has since left to start a similar organization – Comeback America Initiative.

Peter G. Peterson, founder of The Blackstone Group – a financial services company, created the Peter G. Peterson Foundation with $1 billion of his profits after the 2007 IPO of The Blackstone Group.  The purpose of the foundation is to educate Americaabout the urgency of the fiscal challenges threatening our future, and working towards solutions.  The foundation funded a critically acclaimed full-feature movie released in theaters across the nation in 2008, I.O.U.S.A., (available on Netflix), and a five-part follow up, I.O.U.S.A.: Solutions in 2010.  A shortened version of the movie and the follow-up can be viewed at www.iousathemovie.com.

I encourage you to watch.  It is fascinating and will leave you with an enlarged perspective.  We can overcome this challenge, but we have to act, and we need to act as soon as possible.

Travis H. Long, CPA is located at 706-B Forest Avenue, Pacific Grove, CA, 93950.  He can be reached at 831-333-1041.

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