Hey Big Spenders

big spenderBy Binyamin Rose. President Obama’s 2012 budget introduced last week in Congress may be most notable for the $1.6-trillion-dollar deficit it is expected to leave in its wake. But Obama’s in good company. This will be the fourth consecutive year in which the deficit will exceed $1 trillion — and for the foreseeable future, it is far from the last.

Binyamin Rose

The US debt clock keeps ticking inexorably from $14 trillion, going on $15 trillion. Only in one’s wildest dreams can one imagine turning the clock back to the blissful days of 1835, when Andrew Jackson was president and America’s national debt was a paltry $33,733.05. (Those extra five cents, in those days, would have been denominated as a “half dime” coin.)

The year 1835 was the closest America’s budget ever actually came to being in the black. Ever since the start of its first fiscal year in January 1789, when the young nation owed more than $70 million in Revolutionary War debts, the United States has been a nation that lived off its charge card. During its first 200 years, when America did plunge into debt, it was mainly to pay for wars — which they usually won, so it was considered money well spent.

To envision just how large a debt the nation has accrued at the onset of 2011, imagine a stack of one-dollar bills piled to a height of 110 miles. Like anyone who borrows money, America has to pay interest on that debt. For 2012, the interest alone will reach an estimated $233 billion. That’s the same amount that the White House has allocated for food and nutrition assistance, housing assistance, and child tax credits. The more America has to pay out in interest, the less money it has available to fund more vital programs.

President Obama has submitted a proposed $3.7 trillion federal budget with a $1.6 trillion deficit for 2012. The budget deficit measures the excess amount that the government spends above what it receives each year, while the national debt refers to the cumulative totals of all of these annual deficits. They are two separate figures, and each has risen to record — and worrisome — levels.

There is rare consensus in Washington that the budget bleeding has to stop now, but with Congress arguing over a meager $40 billion in budget cuts, it is unlikely that any serious action will be taken until after next year’s presidential election, if then. Republicans like to blame tax-and-spend Democrats, while Democrats like to lay the guilt on Republicans for cutting taxes on corporations and the wealthy at the expense of the little guy. A hard look at the facts demonstrates that each party deserves its fair share of the blame for the budget predicament. 

Borrowing Sometimes Pays Borrowing money and carrying some debt is not inherently negative. The average homeowner would never be able to write a check for $400,000 in cash to buy a house, but many can make an $80,000 down payment and then manage monthly payments on the other $320,000. And the process may actually help the homeowner build wealth if his property rises in value during the life of the mortgage. The same applies to a businessman who may not have $1 million in cash to invest in a new factory to facilitate expansion, but if he can borrow from the bank, and subsequently bring in enough profit to justify the cost of his loan, he has made a profitable transaction. Such borrowings are considered to be a wise use of “leverage,” provided that the loans are eventually paid off, or reduced.

The national debt, on the other hand, is not getting paid off. It is true that historically, when the federal government has borrowed money, it has often been a matter of the survival of the nation. Abraham Lincoln, the nation’s first Republican president, increased the federal debt by more than $2 billion — a staggering sum in those days — to finance the Civil War. During the era of the world wars, from 1915 to 1945, America’s national debt ballooned from $3 billion to $260 billion. It can be reasonably argued that without American intervention in the two European wars, the face of the world (not to mention its Jewish population) would look much different from the way it appears today. [Read full article in this week’s Mishpacha Magazine]

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  1. How does the average kollel man ( who is the one buying these $400-$500k homes) “easily” come up with the $80,000 down payment the author is referring to? does kollel pay that well????

  2. The “average” Kollel man is more likely living in a tiny apartment with his dedicated wife and young children and doesn’t give a hoot about a fancy house for $449,000. He hopes and prays he can rent something bigger to accomodate the needs of his family.

  3. My in-laws (who saved up over the years with CDs and lived in an apartment in Brooklyn where my wife grew up) were generous enough to put down the down payment. They got a good rate as a first time buyer and I actually pay them rent which covers the mortgage. A totally legit win win situation. Don’t look in someone else’s Chulent pot.

  4. That’s the same amount that the White House has allocated for food and nutrition assistance, housing assistance, and child tax credits.

    Ironic that the author of an article about federal debt and spending only make his example of where the saved money could be going to with welfare handout spending

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