Beware of little expenses; a small leak will sink a great ship

Philip Mudartha
Bellevision Media Network

Doha, 20 July 2011: So said, Benjamin Franklin, one of the founding fathers of United States of America.  He would turn in his grave if he read ‘The Economist’, a magazine published from London, which published this chart in its economics blog. For, the ship that he built, is about to sink!

 

The data source is Bureau of Economic Analysis of Treasury Department of US Federal Government. The chart shows the trend and actual Gross Public Debt of US Federal Government over 70 years, beginning from 1940. In that year, the government treasury books were balanced. There was no debt. The income and expenditure of the government matched. The government earned income by taxes and levies. It spent its income on federal salaries, defense and other public expenditures.  This is called fiscal prudence. It is also called small government.

 

The chart tells us that US federal government began to spend more than it earned. It started borrowing money. It borrowed from its people and from foreigners. This debt was called US Treasury Bonds. It promised to pay the bonds after its maturity period with interest. But since it continued to spend more than it earned every year, to redeem the treasury bonds with interest, it had to borrow more. 

 

By 1992, economists and political leadership began to realize that the debt should be capped. A law was passed during Bill Clinton’s presidency. However, as we can see from the chart, the habit formed over 70 years of its irresponsible spending spree continued under successive administrations. Regardless of which party was in power, both Democratic and Republican administrations continued to spend recklessly. President Obama, who came to power promising to change policies of President Bush, did what Bush did. Borrow more and spend more.

 

As on June 30 of this year, the outstanding public debt reached 14.3 trillion dollars. This amount is almost equal to its Annual Gross Domestic Product (GDP). The law prohibits the government from borrowing more than this limit. But without borrowing more, the federal government cannot fund its expenses and even pay its employees. During the past two months, the US federal lawmakers are haggling over changing the law and allowing the government to borrow by raising the debt limit. The debate has reached an impasse and government may be shutdown soon! The richest nation’s government is bankrupt.

 

What is our situation? How much is our public debt? Authentic reports put the amount at Rupees 30 lakh crore.  This is nearly 75% of our GDP. Our government is spending a lot more than it should, putting our children into a debt trap.

 

Our political leaders, belonging to any camp whether they are from Congress-led, BJP-led or third front-led, always talk about fiscal prudence. But, none practice what they preach. All of them expand the government and introduce schemes that increase the debt. They seem to believe that by spending beyond our earnings, we can become prosperous.  I have never come across anyone in the world who has become rich and prosperous by spending beyond his income.

 

Have you?